Strategic Management

In this six part Q & A series, I will address the challenges of balancing revenue management and service management.

What is your opinion on revenue Management in hospitality today?

Revenue Management is a multi-faceted strategic approach to pricing that can be very effective at promoting the bottom line. It works best for the overall sustainability of a hotel when it takes into account existing hotel standards and systems and especially when it can be flexible to loyal customers.

Do you think that all this heavy discounting and yield management really works (more retention of revenue)?

Discounting is a sometimes effective short-term strategy, but it is unsustainable because it can have long term impacts. Look at the recent closure of the Fairmont Resort, Blue Mountains , a hotel with competitive rates, as one example of a good hotel that priced itself under its market. I prefer value-add strategies for luxury products like hotels (keep the price the same but add-on indirect costs like upgrades and valet parking and shoe-shining), because I think customers equate low prices with poor quality and that has a negative brand impact, which does not sustain them.

In support of my discount-wary philosophy, the Observatory Hotel on Kent St, Sydney, has a ‘no discount’ policy that has seen it consistently able to charge high rates and generate revenues which are, by my observation, then invested in its people, these people then produce better service, which in turn adds value and can then be reflected in even higher prices… and so the virtuous cycle continues. It is a phenomenon particular to hotels and airlines and other luxury items.

Do you think that hotel pricing policies are giving fairness and satisfaction to all customers?

No, but the nature of service and hotels is that all customers are different and have different needs so this does not concern me so much. What does concern me is the opposite point of view. A lot of RM strategies rely on shifting market trends and movements that classify all people arriving at a certain time as one particular group. Therefore, I am no longer Mr Smith, regular customer who always gets a suite with a beautiful view for a consistent rate, but now I am Mr Smith arriving on a busy Thursday night and so now I must pay more or less than before because that’s economics. That is economics, but not service. This is not honouring his loyalty nor rewarding it.

What is your opinion on all this cost cutting which is going on at the moment? Do you thing that employees are working in very “tough” environment, understaffed, stressed…?

Cost Cutting is vital but managers need to see themselves and their departments as ‘profit centres’ and emphasise revenue generation as well, as this will empower staff to see themselves as part of the success of the business= more motivation= better service. Furthermore, the old adage, you need to spend money to make money, is as apt as ever.

Do you think employees are able to provide high service standards working hard as they do today, if they do?

I believe the secret of service is that EVERYONE in a hotel has to be committed to it, not just those in the front line (Jay Kandampully’s internal customer service theory and practice) and training is constant. Hotels are boring when the work is not hard so as long as it is rewarding and enjoyable it will be reflected in the levels of service.

What is your opinion on the service quality provided in hospitality industry today?

I can only comment on Sydney and I think it’s fair to say it is variable, although there is much speculation that many experienced people are coming back to the industry in the downturn so maybe it will rise. Service is an investment and a state of mind and managers must lead by example in the service they show their staff. Service begets service and I think there is a ‘service is someone else’s job’ prevailing mentality.

Do you find “cutting corners and working overtime” as a threat which can bring erosion in the service industry in regards to quality?

Luxury involves no stone left unturned and no corners cut and a time commitment on behalf of staff. Overtime will sometimes be included, but it is the ‘casualisation’ here that is the most impactful to service. Hotels that have some success with casuals use them as a ‘top-up’ in busy times only. Christine Burnet, Exec Housekeeper at the Novotel Darling Harbour, speaking at ICMS said that their policy is to staff for 75-80% occupancy with full-timers to ensure consistency, and then topping up with casuals above this occupancy. She says the secret to keeping casuals at the same standards as full-timers is to offer them as many of the privileges as you offer full-timers (Christmas party, locker, uniform wash) as you are entitled to under the Award.

How would you connect revenue management and service quality? Revenue Management is a multi-faceted strategic approach to pricing that can be very effective at promoting the bottom line. It works best for the overall sustainability of a hotel when it takes into account existing hotel service standards and systems and especially when it can be flexible to loyal customers. The strategy should suit the market (e.g. corps will respond to up-sells to higher room categories if they are reasonable and allow them to have privacy and meetings in their room, and leisure will stay longer [ minimum nights restriction] if convinced etc.) and must recognise loyalty. Overall, according to the economic theory of C- Demand Curves, rates for luxury items like hotels should reflect the level of service the hotel ASPIRES to (best possible case) as this is where brand image will be strengthened, positioning will be assured, and demand will emerge from high-end markets.

What is your general opinion on the subject and as a teacher in hospitality what would you advise current students (future managers) on this matter?

Be very wary of putting rates at the centre of your management. Service is a proven generator of revenue and solidifies brand image long term, but accounting works in short periods (quarters, even months!) and does not pick up on this, so take into account long term accounting periods as well. For example, you might occasionally break your budget monthly for training, but over a year watch staff turnover decrease and service feedback results increase. The biggest problem with revenue management (in my opinion) is that it has created a market of price-sensitive guests whose focus is better deals, not the intangible wonders hotels can provide. We only have ourselves as hoteliers to blame. And the saddest part of it all was that the height of the revenue management phenomenon came at a time when disposable incomes of customers had never been higher. That is, when we could have put a premium on our rooms and food and spent money on staff training and development and on produce. That was short-sighted.