Commercial Strategy Can Position Hotels for a Strong Recovery
Combining revenue disciplines (sales, revenue, distribution, marketing) under a unified structure can help hotels pivot to be more efficient, stronger and more resilient in recovery
By Caryl Helsel, Founder & CEO of Dragonfly Strategists and Kathleen Cullen, Senior Vice President PHG Consulting
The structures of traditional hotel teams are well established and familiar. The sales team is responsible for group and business travel, the marketing team oversees advertising and messaging, and the revenue management team focuses on pricing strategy, forecast achievement and distribution. But if 2020 has taught us anything, we know that change is essential for future survival.
Commercial strategy unifies all of the hotel’s revenue-generating teams (sales, marketing, revenue management and distribution) under one holistic leadership and goal structure. A commercial strategy leader is focused on topline revenue and all the activities and initiatives that drive revenue. This helps unify the team and provide one strong voice as it relates to all topline revenue, including all ancillary revenues.
COVID Forces Changes
COVID has dramatically impacted every hotel globally with mandated closures, updated safety protocols, and dramatic loss of group and revenue. With so many hotels forced to make the tough decisions to furlough and layoff, now might be the perfect time to restructure your team around commercial strategy. Hotels that reorganize to be centered on commercial strategy will be better positioned to take advantage of opportunities as demand returns.
The landscape for hotels before COVID was already shifting. There have never been more players competing for the same customers. Hotels have had to continually add costs to stay competitive. Hotel leaders can get caught up in tunnel vision looking only at the next six weeks or six months without anyone focusing on the future. Commercial Strategy is a relatively new way of looking at things. It is in every hotel’s best interest to take a hard look at how leadership can think and act differently with an eye on cost savings and efficiency. Don’t continue adding to your traditional hotel organizational structure because it only adds cost and overhead.
Commercial Strategy Leadership Talent
Anyone from the revenue-generating disciplines can evolve into a commercial leadership role. The key trait that defines strong commercial strategy leaders is thinking and acting multi-dimensionally across different sectors. Leaders must be able to pivot quickly. They must be adaptable and have a change mindset to be successful. We know what we have done in the past won’t work in the future, so the commercial leader brings all the silos together and has a strategic mindset of how all the pieces impact revenue and the bottom line.
Start Restructuring to Commercial Strategy
With record-low occupancy rates, the silver lining is that now is the perfect time to begin restructuring your team. We encourage you to start with a blank canvas. Pretend you have nothing and no one in place. Ask yourself what your ideal business is, the segments you’d like to target, what tools and activities you need to accomplish your goals. Then ask yourself what types of people and roles you need to achieve your goals.
Breaking down the silos of sales, marketing, and revenue begins with ensuring everyone’s goals are aligned. Instead of having different goals for different disciplines, get your entire team focused in the same direction and on the same goal. Measure your progress towards your goals. In a commercial strategy team, every decision aligns towards common revenue goals. Commercial strategy leaders can help motivate individual team members by assisting them in understanding exactly how their efforts contribute to the Gross Operating Profit (GOP) and Rev Par Index (RPI). Commercial strategy teams are better positioned to leverage creativity and quickly adjust to take advantage of new opportunities.
Metrics for Success – Net RevPAR
The siloed hotel teams can often get focused on the wrong measurements or inaccurate measurements of success. A commercial strategy team looks at all of the typical metrics used for sales, marketing, revenue management and distribution, but a few distinct KPIs help indicate progress.
Rev Par Index (RPI)– this tells you if you are gaining or losing share from your competitors
Net RevPAR - this metric deducts a more accurate way of showing actual revenue because it includes calculating all of your acquisition costs, including OTA commissions, distribution costs, digital marketing and advertising expenses, as well as your overhead.
There isn’t an industry standard for Net RevPAR yet, but Kalibri Labs has invested significant resources in establishing a standard. It is not adopted globally yet, but we project it will be standardized in the future and will eventually become the industry’s measurement for success.
Recovery Positioning
The hospitality industry is nothing if not resilient. We know we will come through these unprecedented times and emerge stronger and even more resilient than before. Restructuring your team around commercial strategy is a way to help ensure future success.
Practical questions to begin transitioning to commercial strategy are:
What skills and talent do you need moving forward? What will allow you to achieve success? (Not what you have but what do you need)
Who do you have on your team or through vendor partners and consultants to help you achieve your goals? (Evaluate structure and costs)
How can you align your goals and objectives to get everyone on the same page?
This article was written from our Dragonfly Insights Video Interview Series #15: The Power of Commercial Strategy with Kathleen Cullen, Senior Vice President of PHG Consulting – see more at https://dragonflystr.com/dragonfly-videos
This article is also published on Hotel Recovery 2020: https://hotelrecovery2020.com/2020/11/commercial-strategy-can-position-hotels-for-a-strong-recovery/