- Email: [email protected]
Hotel sales-and-marketing management
HotelValue Trends: Yesterday, Today, and Tomorrow by Stephen Rushmore and George Goldhof
pp.18-29
The FranchisorcFranchisee Relationship: A Key to Franchise Performance by James R. Brown and Chekitan S. Dev pp. 30-38
1 Brief
IN
Sub-Franchising: A Multi-unit Alternative Traditional Restaurant Franchising
to
by Yae Sock Roh and William l? Andrew
484
executive
pp. 39-45
of this issue’s feature articles
Hotel Sales-and-Marketing Management-A Snapshot of Current Practice and Technology Use by Robert Mandelbaum
pp. 46-51
Analystshave worked to model the relationship of supply and demand that creates hotel value. The Hotel Valuation Index, developed by HVS International, is a sophisticated model that now comprises 46 U.S. markets. In the absence of major economic disruptions, hotel demand grows at a relatively steady rate. Consequently, supply additions have a measurableeffect on lodging-property values. Supply additions occur principally when developers and investors perceivethat building new rooms is less expensivethan purchasing existing properties. In recent years investors have been able to purchase hotels at prices below replacement value. The HVI shows that that phenomenon is ending, as the value of existing rooms will exceed replacementcost for most market segments. After ten years of tracking major U.S. markets, HVScan project future valuation levels, based on expectedsupply trends and a relativelystable economy.
A study of 331 general managerswith two major US. hotel chains found that a strong relationship between a franchisee and a franchiser meant better hotel performance compared to competing hotels and to other hotels in the chain. The properties with a strong relationship to headquarters had higher quality-assuranceand guest-satisfaction ratings than did other hotels in the chain. Compared to competitors, hotels with a strong partnership with their franchiser enjoyed higher occupancy, room rates, and gross profit. The benefits to the franchiseeare self-evident, and the franchiser also benefits from having a string of high-performing hotels.
Sub-franchising is a variation of the classicrelationship between a franchisor and franchisees.A franchiser contracts with a sub-franchiser to expand the franchiser’s system in a given territory. The sub-franchiser pays a stated royalty to the franchiser for the right to use its trademarks, proprietary products, and business systems in selling franchises. The subfranchiser then performs all the functions of the franchiser in its territory. This allows the franchiser to expand more rapidlythan it could do singlehandedly. However, the franchiser may lose control of its system, because the sub-franchisers are responsiblefor monitoring and servicingfranchisees Chains using sub-franchising tend to be smaller than those that do not. Systemsusing sub-franchisers have lower initial royaltiesthan chains using only direct franchising, but subsequent royaltiesare often higher.
This study of 200 hotels looked at eight areas of hotel sales-and-marketing management: advertising, department finances, franchise-affiliation benefit, human resources, revenue management, sales-contractterms, technology use, and third-party reservations.Approximately 60 percent of the hotels used both total revenue and room-nights sold as sales-performancemeasures, and 78 percent used room revenueto calculate bonuses. It seems that franchise-affiliated hotels receivegreater benefit from the national reservation system than from the national sales offices. Closeto 80 percent of the hotels use a yield-management system, about 75 percent are linked to a global distribution system, and many are representedon worldwideweb sites. At the local level, print media appear to be perceivedby GMs and sales managers as offering the greatest reach for the fewest dollars.
4 CURNEll HOTEL ANDRESTAURANT ADMINISTRATION QUARTERLY VOLUME 38, NUMBER 6 l
Hotel Sales-and-Marketing Management Selling hotel rooms has become a science that involves
sophisticated statistical analysis, financial modeling, and technological wizardry.
A Snapshot of CurrentPractice andTechnology Use by Robert Mandelbaum
T
o describe the current operating environment of property-level sales-and-marketing departments, PKF Consulting conducted a survey of 2,000 hotels nationwide in 1996. The study, which was designed with the assistance of several hotels’ directors of sales and marketing, concentrated on these eight areas: A graduate of Cornell’s School of Hotel Administration, Robert Mandelbaum is the director of researchfor PKF Consulting. Also assisting with the survey were Theshia Naidoo of PKF Consulting, Lilian Wagner of the Park Hyatt San Francisco,and Tom Moss of the Part 55 Hotel in San Francisco.A complete copy of the results of PKF’s 1997 Sales and Marketing Survey is availablefor purchase by calling 404842- 1150. This study also appeared in the 1997 edition of PKF Consulting’s Trends in the Hotel Industry. 0 1997, Cornell University
46
CORNELL HOTELANDRESTAURANTADMINISTRATIONQUARTERLY
Advertising, Department finances, Franchise-affiliation benefit, Human resources, Revenue management, Sales-contract terms, Technology use, and Third-party reservations. The study found that technology has become even more pervasive in the hotel sales office in recent years- highlighting the change away from the personality-oriented sales approach of the past. In tandem with the use of technology for sales, hotel distribution channels have become more numerous and complex. l l l
Exhibit1 Use of technologyby sales-and-marketingpersonnel
l l l
l l
AbouttheSample A total of 208 hotels, averaging 233 rooms apiece, answered the survey (which was mailed to 2,000 properties, for a 10.4-percent response rate). Of the surveys returned, more than half were from full-service hotels (110, or 53 percent), followed by 55 limited-service properties (26 percent), 22 all-suite hotels (11 percent), and 21 resorts (10 percent). About half of the hotels (53 percent) were described as mid-market properties; more than a third (37 percent) were rated as upscale or luxury hotels; and about one in ten (10 percent) was a budget or economy property. The hotels in this survey averaged just under 7 1-percent occupancy in 1996, with an average daily room rate of $109.88. More than a third of the properties were located in an urban market (36 percent), almost one-quarter were located in the suburbs (23 percent), and about one in five were in a resort setting (20 percent). The others were airport (10 percent) and highway properties (11 percent). Approximately two-thirds of the hotels were affiliated with a national chain (131, or 63 percent); however, management was fairly evenly split between franchise com-
Percentage
allocation
of time.
Source:
PKF
panies, management companies, and independent operators. The properties participating in the survey showed a balanced market mix. Of the total room nights sold by the properties, 31 percent were occupied by business travelers, 29 percent by tourists, and 34 percent by persons attending a meeting or convention. The overwhelming number of guests (almost 97 percent) originated from within the United States.
HumanResources Some 183 (88 percent) of the hotels in the sample had a separate and dedicated sales department. The typical hotel sales department employed an average of 3.8 full-time
Consulting
1996
survey.
sales people and 2.3 full-time administrative assistants. As shown in Exhibit 1, the percentage of time spent on direct sales functions (62 percent) versus support functions (38 percent) is virtually identical to the ratio between the number of sales and administrative personnel. Of the 25 properties without a separate sales department, 15 (58 percent) identified the general manager as the person with the primary responsibility for sales, followed by the front-desk manager at seven properties (29 percent). In those circumstances, the general manager or front-desk manager allocates, on average, 57 hours per month selling and marketing the property.
December1997
l
47
Exhibit2 Benefitsof hotel-chainaffiliation
Source:
PKF
Consulting
1996
survey.
Exhibit3 Use of technologyby hotel sales departments m -I u
80
; z
70
LL 6o 0 50 u 0 q 40 c z lu 30 0 z
20
Q 10
Raow
YIELD
BUDGETING
IN~E~T~~~
MANAGEMEN
FORECASTING
CONTROL
ANALYSIS
WEB
LAPTOPS ON
SITE
THE
ROAD
Source:
48
WORLDWIDE
PKF
Consulting
1996
survey.
CORNELL HOTELANDRESTAURANTADMINISTRATIONQUARTERLY
The methods used to determine the sales force’s work assignments differ for each hotel, depending on the market orientation of the property. In general, however, dissection by potential guests’ purpose of travel (e.g., association convention, corporate, leisure) was far and away the most common method used to allocate market responsibilities (cited by 84 percent of respondents). Other methods used to assign market responsibilities include geographic territories (mentioned by 56 percent) and industry-specific groupings such as technology, automotive, or non-profit (39 percent). Hiring and retention. The hotel industry as a whole is finding it difficult to attract and retain employees, in part because the national unemployment rate is relatively low, hovering around the five-percent mark. In hotel sales departments, more than half of the respondents rated their ability to find qualified sales people as “above average” in difficulty (57 percent). On a scale of 1 equals “very difficult” to 5 equals “no difficulty,” hotels in the survey rated their ability to find qualified sales people as, on average, 2.43. To overcome this difficulty, sales directors have sometimes looked outside the hospitality industry to recruit sales personnel. Although nearly two-thirds of the sample reported that the sales person they most recently hired was from within the hotel industry, one in ten of the respondents had hired their newest sales person from outside the industry, and one-quarter of the sample said their newest hire had a mix of experience from inside and outside the industry. Rewards. Monetary incentives are frequently used to reward and retain good sales people. Approximately three-quarters of the hotels in this survey offered some degree of monetary incentives for their sales staffs. The most common crite-
rion used as a measure to receive a bonus is rooms revenue (78 percent). This is in contrast to using room-nights booked as a benchmark, which seems to be a measure that’s falling out of favor among hoteliers. Approximately 60 percent of the hotels surveyed used both total revenue and room-nights sold as sales-performance measurements. For all the hotels in the survey with full-time sales personnel, the total annual payroll and benefits allotted to those employees averaged $1,275 per available room. Another $1,570 per available room was spent on other sales-related expenses (e.g., advertising, travel, brochures, supplies).
Franchise-Affiliation Benefit Approximately 63 percent of the hotels in this survey were affiliated with a national or international hotel-company chain, while another 10 percent were members of a referral system. Properties that were affiliated with a national chain paid an average of $1,360 per available room in 1996 on royalty payments, marketing fees, reservation fees, and other assessments (in addition to their direct costs of sales). In general, it appears that affiliated hotels receive greater benefit from the national reservation system than they do from the efforts of the national sales offices. Not only do the reservation systems provide more room nights than the national sales offices, but the rooms are sold at a rate higher than the hotel’s overall annual average room rate (Exhibit 2).
RevenueManagement andTechnology According to the sales people, technology has had the greatest impact on revenue management. In fact, the functions of analysis, budgeting, and forecasting were cited as those that most frequently required sales personnel to use up-to-date technology (Exhibit 3).
Technology implementation remains uneven among hotel sales departments. While more than half of the properties represented by our survey have developed their own web site (53 percent), for example, only about one in four of those hotels reported that their sales people take advantage of a laptop computer when they are on the road (26 percent). GDS. Technology allows hotels to broaden their marketing reach by providing direct reservations access to third-party booking sources. Not surprisingly, then, three-quarters of the survey participants are linked to some form of a global distribution system (GDS). Global distribution systems allow travel agents and airline-reservations personnel to observe the same room inventory and rate schedules that are available to a hotel’s reservation agent, thus making the booking process more informative and direct for guests virtually anywhere in the world. While the use of GDS systems is prevalent, however, only half of the respondents linked to a GDS reported an increase in the number of rooms booked through the system since 1994. The average increase in the number of GDS-booked rooms for those who have reported increases stands at 23 percent. The majority of the remaining properties with GDSs have, however, seen no change in reservation activity. Another area where technology has certainly enhanced hotels’ ability to manage their revenue is in the application of yield-management systems. Close to 80 percent of the hotels in this survey have an automated yield-management system in place. The average occupancy at which the yield-management system will only quote the highest rates a hotel has to offer was 78.5 percent, while the average occupancy threshold for rooms to be sold at the lowest available rate was 61.8 percent.
To keep up with both the competition and savvy customers, hotel sales departments need to be progressive and adaptable to the latest in sales-and-marketing techniques.
December1997
l
49
Exhibit4 Roomnights sold throughthird-party sources
L
IA. 0
Travel agents
Source:
PKF
Consulting
Internal corporate travel agency 1996
Tour packagers
CVB
housing bureau
independent meeting planners
Airlines
Independent housing bureau
Internal association housing bureau
survey.
I
Travelagentsareplaying
Exhibit5 Property-leveladvertising
anincreasingly important role inthird-partybookings; so, too, arefirms’in-house trawl agancias andindependent meetingpfanners, daspfte beingreMMy newpiaya~ inthearenaof hotelsales.
80 v) 4 70 u c o 60 az IL 50 0
lu 40 0 q 30 c z UJ 20 0 z 10 P 0 INDUSTRY *ND TRADE DIRECTORIES
Source:
50
PKF
Consulting
MAGAZINES
1996
survey.
CORNAl HOTELANDRESTAURANTADMINISTRATIONQUARTERLY
INTERNET
RADIO
TELEWON
Planning ahead. Given the strong performance of today’s hotel market and the steady increases in average daily rate, hotel managers are naturally reluctant to lock themselves into definite room rates too far in advance. Nevertheless, given guests’ varied needs, some longrange planning must be allowed. For example, at the time of this study, the following lead-time terms were generally available for the groups specified: groups and conventions, 17 months; business travelers, 12.4 months; and leisure travelers, 12 months.
ContractTerms Favorable market conditions have increased the leverage that hotel sales people have when negotiating group-business contracts with preferred corporate accounts. This survey therefore asked about such contractual terms as concessions (i.e., “freebies”) and cancellation
Nearly 60 percent of the hotels have changed their policies with regard to allowing complimentary rooms or discounted food and beverage service to their groupbusiness clients. Of those properties that have changed their concession policies, it is not surprising that 82 percent reported that the policies have become more restrictive. Hotels have also flexed their muscles in enacting and enforcing group-business cancellation and pick-up clauses. Among the hotels responding to this survey, approximately 84 percent require of their clients some form of penalty for the cancellation of a contract or failure to pick up rooms in a reserved block. In turn, the cancellation and pick-up terms of such contracts were violated only 15 percent of the time. In those circumstances when the contract terms were violated, however, hotels were success-
ful in collecting penalties due them in only 44 percent of the cases.
ThirdParties More than ever before, the mechanisms through which hotel rooms may be booked today are multiple and varied. Moreover, the frequency of third-party involvement in the booking process has grown in recent years. Three factors contribute to this phenomenon: (1) technology has created expanded distribution systems (e.g., GDSs and worldwideweb sites); (2) some hotels have chosen to outsource their reservation services; and (3) increasing numbers of corporations, institutions, and associations have in-house travel departments (in part as a way to capture any commissions paid). Since 1991 the largest increase in third-party involvement has been among travel agents (Exhibit 4). More than half (54 percent) of the hotels completing this survey reported an increase in the frequency
of rooms booked through travel agents while just under half (47 percent) reported increased activity from in-house corporate travel departments. Independent meeting planners reportedly generated more business for 40 percent of the surveyed hotels. (Note that both internal corporate travel agencies and independent meeting planners are relatively new entities.) Commissions. Since I expected to find that increasing numbers of intermediaries are involved in hotels’ sales-distribution systems, this study also examined both the amount of commissions paid and the methods of compensation. A percentage of revenue is most frequently used by hotels to compensate third parties, in an effort to tie the level of compensation to performance. A system of flat-fee-perreservation, however, is often used to compensate associations’ in-
house travel departments as well as convention-and-visitor centers that are set up to generate reservations.
Advertising Most advertising for hotels is controlled either at a corporate or franchisor level, as a way to distribute the benefits over as many properties as possible (and to spread the costs). This survey, however, asked hotel managers about just those advertising dollars that are controlled at the property level. GMs and sales managers appear to perceive print media as offering the greatest reach for the fewest dollars (Exhibit 5). Ad space in industry directories and trade magazines were cited as the two most frequent forms of advertising purchased at the property level. Few individual properties advertise on television, probably due to the relatively large expense of production and air time relative to other media.
As hotel sales and marketing becomes more cerebral and less personality-driven, the need to train hotel sales personnel in modern technologies and methodologies is crucial. Moreover, new hireswhether from within the industry, fresh out of school, or from another field-should be knowledgeable about the ins and outs of today’s hotel-marketing trends, especially the technological aspects. Not only is the pressure to do so driven by hotel-industry advancements (e.g., yield-management systems), but by a need to meet the expectations of an increasingly technologically competent and financially savvy consumer. To keep up with the competition and, indeed, the customers themselves, hotel sales departments need to be progressive and adaptable to the latest in sales and marketing techniques. CQ
pp.18-29
The FranchisorcFranchisee Relationship: A Key to Franchise Performance by James R. Brown and Chekitan S. Dev pp. 30-38
1 Brief
IN
Sub-Franchising: A Multi-unit Alternative Traditional Restaurant Franchising
to
by Yae Sock Roh and William l? Andrew
484
executive
pp. 39-45
of this issue’s feature articles
Hotel Sales-and-Marketing Management-A Snapshot of Current Practice and Technology Use by Robert Mandelbaum
pp. 46-51
Analystshave worked to model the relationship of supply and demand that creates hotel value. The Hotel Valuation Index, developed by HVS International, is a sophisticated model that now comprises 46 U.S. markets. In the absence of major economic disruptions, hotel demand grows at a relatively steady rate. Consequently, supply additions have a measurableeffect on lodging-property values. Supply additions occur principally when developers and investors perceivethat building new rooms is less expensivethan purchasing existing properties. In recent years investors have been able to purchase hotels at prices below replacement value. The HVI shows that that phenomenon is ending, as the value of existing rooms will exceed replacementcost for most market segments. After ten years of tracking major U.S. markets, HVScan project future valuation levels, based on expectedsupply trends and a relativelystable economy.
A study of 331 general managerswith two major US. hotel chains found that a strong relationship between a franchisee and a franchiser meant better hotel performance compared to competing hotels and to other hotels in the chain. The properties with a strong relationship to headquarters had higher quality-assuranceand guest-satisfaction ratings than did other hotels in the chain. Compared to competitors, hotels with a strong partnership with their franchiser enjoyed higher occupancy, room rates, and gross profit. The benefits to the franchiseeare self-evident, and the franchiser also benefits from having a string of high-performing hotels.
Sub-franchising is a variation of the classicrelationship between a franchisor and franchisees.A franchiser contracts with a sub-franchiser to expand the franchiser’s system in a given territory. The sub-franchiser pays a stated royalty to the franchiser for the right to use its trademarks, proprietary products, and business systems in selling franchises. The subfranchiser then performs all the functions of the franchiser in its territory. This allows the franchiser to expand more rapidlythan it could do singlehandedly. However, the franchiser may lose control of its system, because the sub-franchisers are responsiblefor monitoring and servicingfranchisees Chains using sub-franchising tend to be smaller than those that do not. Systemsusing sub-franchisers have lower initial royaltiesthan chains using only direct franchising, but subsequent royaltiesare often higher.
This study of 200 hotels looked at eight areas of hotel sales-and-marketing management: advertising, department finances, franchise-affiliation benefit, human resources, revenue management, sales-contractterms, technology use, and third-party reservations.Approximately 60 percent of the hotels used both total revenue and room-nights sold as sales-performancemeasures, and 78 percent used room revenueto calculate bonuses. It seems that franchise-affiliated hotels receivegreater benefit from the national reservation system than from the national sales offices. Closeto 80 percent of the hotels use a yield-management system, about 75 percent are linked to a global distribution system, and many are representedon worldwideweb sites. At the local level, print media appear to be perceivedby GMs and sales managers as offering the greatest reach for the fewest dollars.
4 CURNEll HOTEL ANDRESTAURANT ADMINISTRATION QUARTERLY VOLUME 38, NUMBER 6 l
Hotel Sales-and-Marketing Management Selling hotel rooms has become a science that involves
sophisticated statistical analysis, financial modeling, and technological wizardry.
A Snapshot of CurrentPractice andTechnology Use by Robert Mandelbaum
T
o describe the current operating environment of property-level sales-and-marketing departments, PKF Consulting conducted a survey of 2,000 hotels nationwide in 1996. The study, which was designed with the assistance of several hotels’ directors of sales and marketing, concentrated on these eight areas: A graduate of Cornell’s School of Hotel Administration, Robert Mandelbaum is the director of researchfor PKF Consulting. Also assisting with the survey were Theshia Naidoo of PKF Consulting, Lilian Wagner of the Park Hyatt San Francisco,and Tom Moss of the Part 55 Hotel in San Francisco.A complete copy of the results of PKF’s 1997 Sales and Marketing Survey is availablefor purchase by calling 404842- 1150. This study also appeared in the 1997 edition of PKF Consulting’s Trends in the Hotel Industry. 0 1997, Cornell University
46
CORNELL HOTELANDRESTAURANTADMINISTRATIONQUARTERLY
Advertising, Department finances, Franchise-affiliation benefit, Human resources, Revenue management, Sales-contract terms, Technology use, and Third-party reservations. The study found that technology has become even more pervasive in the hotel sales office in recent years- highlighting the change away from the personality-oriented sales approach of the past. In tandem with the use of technology for sales, hotel distribution channels have become more numerous and complex. l l l
Exhibit1 Use of technologyby sales-and-marketingpersonnel
l l l
l l
AbouttheSample A total of 208 hotels, averaging 233 rooms apiece, answered the survey (which was mailed to 2,000 properties, for a 10.4-percent response rate). Of the surveys returned, more than half were from full-service hotels (110, or 53 percent), followed by 55 limited-service properties (26 percent), 22 all-suite hotels (11 percent), and 21 resorts (10 percent). About half of the hotels (53 percent) were described as mid-market properties; more than a third (37 percent) were rated as upscale or luxury hotels; and about one in ten (10 percent) was a budget or economy property. The hotels in this survey averaged just under 7 1-percent occupancy in 1996, with an average daily room rate of $109.88. More than a third of the properties were located in an urban market (36 percent), almost one-quarter were located in the suburbs (23 percent), and about one in five were in a resort setting (20 percent). The others were airport (10 percent) and highway properties (11 percent). Approximately two-thirds of the hotels were affiliated with a national chain (131, or 63 percent); however, management was fairly evenly split between franchise com-
Percentage
allocation
of time.
Source:
PKF
panies, management companies, and independent operators. The properties participating in the survey showed a balanced market mix. Of the total room nights sold by the properties, 31 percent were occupied by business travelers, 29 percent by tourists, and 34 percent by persons attending a meeting or convention. The overwhelming number of guests (almost 97 percent) originated from within the United States.
HumanResources Some 183 (88 percent) of the hotels in the sample had a separate and dedicated sales department. The typical hotel sales department employed an average of 3.8 full-time
Consulting
1996
survey.
sales people and 2.3 full-time administrative assistants. As shown in Exhibit 1, the percentage of time spent on direct sales functions (62 percent) versus support functions (38 percent) is virtually identical to the ratio between the number of sales and administrative personnel. Of the 25 properties without a separate sales department, 15 (58 percent) identified the general manager as the person with the primary responsibility for sales, followed by the front-desk manager at seven properties (29 percent). In those circumstances, the general manager or front-desk manager allocates, on average, 57 hours per month selling and marketing the property.
December1997
l
47
Exhibit2 Benefitsof hotel-chainaffiliation
Source:
PKF
Consulting
1996
survey.
Exhibit3 Use of technologyby hotel sales departments m -I u
80
; z
70
LL 6o 0 50 u 0 q 40 c z lu 30 0 z
20
Q 10
Raow
YIELD
BUDGETING
IN~E~T~~~
MANAGEMEN
FORECASTING
CONTROL
ANALYSIS
WEB
LAPTOPS ON
SITE
THE
ROAD
Source:
48
WORLDWIDE
PKF
Consulting
1996
survey.
CORNELL HOTELANDRESTAURANTADMINISTRATIONQUARTERLY
The methods used to determine the sales force’s work assignments differ for each hotel, depending on the market orientation of the property. In general, however, dissection by potential guests’ purpose of travel (e.g., association convention, corporate, leisure) was far and away the most common method used to allocate market responsibilities (cited by 84 percent of respondents). Other methods used to assign market responsibilities include geographic territories (mentioned by 56 percent) and industry-specific groupings such as technology, automotive, or non-profit (39 percent). Hiring and retention. The hotel industry as a whole is finding it difficult to attract and retain employees, in part because the national unemployment rate is relatively low, hovering around the five-percent mark. In hotel sales departments, more than half of the respondents rated their ability to find qualified sales people as “above average” in difficulty (57 percent). On a scale of 1 equals “very difficult” to 5 equals “no difficulty,” hotels in the survey rated their ability to find qualified sales people as, on average, 2.43. To overcome this difficulty, sales directors have sometimes looked outside the hospitality industry to recruit sales personnel. Although nearly two-thirds of the sample reported that the sales person they most recently hired was from within the hotel industry, one in ten of the respondents had hired their newest sales person from outside the industry, and one-quarter of the sample said their newest hire had a mix of experience from inside and outside the industry. Rewards. Monetary incentives are frequently used to reward and retain good sales people. Approximately three-quarters of the hotels in this survey offered some degree of monetary incentives for their sales staffs. The most common crite-
rion used as a measure to receive a bonus is rooms revenue (78 percent). This is in contrast to using room-nights booked as a benchmark, which seems to be a measure that’s falling out of favor among hoteliers. Approximately 60 percent of the hotels surveyed used both total revenue and room-nights sold as sales-performance measurements. For all the hotels in the survey with full-time sales personnel, the total annual payroll and benefits allotted to those employees averaged $1,275 per available room. Another $1,570 per available room was spent on other sales-related expenses (e.g., advertising, travel, brochures, supplies).
Franchise-Affiliation Benefit Approximately 63 percent of the hotels in this survey were affiliated with a national or international hotel-company chain, while another 10 percent were members of a referral system. Properties that were affiliated with a national chain paid an average of $1,360 per available room in 1996 on royalty payments, marketing fees, reservation fees, and other assessments (in addition to their direct costs of sales). In general, it appears that affiliated hotels receive greater benefit from the national reservation system than they do from the efforts of the national sales offices. Not only do the reservation systems provide more room nights than the national sales offices, but the rooms are sold at a rate higher than the hotel’s overall annual average room rate (Exhibit 2).
RevenueManagement andTechnology According to the sales people, technology has had the greatest impact on revenue management. In fact, the functions of analysis, budgeting, and forecasting were cited as those that most frequently required sales personnel to use up-to-date technology (Exhibit 3).
Technology implementation remains uneven among hotel sales departments. While more than half of the properties represented by our survey have developed their own web site (53 percent), for example, only about one in four of those hotels reported that their sales people take advantage of a laptop computer when they are on the road (26 percent). GDS. Technology allows hotels to broaden their marketing reach by providing direct reservations access to third-party booking sources. Not surprisingly, then, three-quarters of the survey participants are linked to some form of a global distribution system (GDS). Global distribution systems allow travel agents and airline-reservations personnel to observe the same room inventory and rate schedules that are available to a hotel’s reservation agent, thus making the booking process more informative and direct for guests virtually anywhere in the world. While the use of GDS systems is prevalent, however, only half of the respondents linked to a GDS reported an increase in the number of rooms booked through the system since 1994. The average increase in the number of GDS-booked rooms for those who have reported increases stands at 23 percent. The majority of the remaining properties with GDSs have, however, seen no change in reservation activity. Another area where technology has certainly enhanced hotels’ ability to manage their revenue is in the application of yield-management systems. Close to 80 percent of the hotels in this survey have an automated yield-management system in place. The average occupancy at which the yield-management system will only quote the highest rates a hotel has to offer was 78.5 percent, while the average occupancy threshold for rooms to be sold at the lowest available rate was 61.8 percent.
To keep up with both the competition and savvy customers, hotel sales departments need to be progressive and adaptable to the latest in sales-and-marketing techniques.
December1997
l
49
Exhibit4 Roomnights sold throughthird-party sources
L
IA. 0
Travel agents
Source:
PKF
Consulting
Internal corporate travel agency 1996
Tour packagers
CVB
housing bureau
independent meeting planners
Airlines
Independent housing bureau
Internal association housing bureau
survey.
I
Travelagentsareplaying
Exhibit5 Property-leveladvertising
anincreasingly important role inthird-partybookings; so, too, arefirms’in-house trawl agancias andindependent meetingpfanners, daspfte beingreMMy newpiaya~ inthearenaof hotelsales.
80 v) 4 70 u c o 60 az IL 50 0
lu 40 0 q 30 c z UJ 20 0 z 10 P 0 INDUSTRY *ND TRADE DIRECTORIES
Source:
50
PKF
Consulting
MAGAZINES
1996
survey.
CORNAl HOTELANDRESTAURANTADMINISTRATIONQUARTERLY
INTERNET
RADIO
TELEWON
Planning ahead. Given the strong performance of today’s hotel market and the steady increases in average daily rate, hotel managers are naturally reluctant to lock themselves into definite room rates too far in advance. Nevertheless, given guests’ varied needs, some longrange planning must be allowed. For example, at the time of this study, the following lead-time terms were generally available for the groups specified: groups and conventions, 17 months; business travelers, 12.4 months; and leisure travelers, 12 months.
ContractTerms Favorable market conditions have increased the leverage that hotel sales people have when negotiating group-business contracts with preferred corporate accounts. This survey therefore asked about such contractual terms as concessions (i.e., “freebies”) and cancellation
Nearly 60 percent of the hotels have changed their policies with regard to allowing complimentary rooms or discounted food and beverage service to their groupbusiness clients. Of those properties that have changed their concession policies, it is not surprising that 82 percent reported that the policies have become more restrictive. Hotels have also flexed their muscles in enacting and enforcing group-business cancellation and pick-up clauses. Among the hotels responding to this survey, approximately 84 percent require of their clients some form of penalty for the cancellation of a contract or failure to pick up rooms in a reserved block. In turn, the cancellation and pick-up terms of such contracts were violated only 15 percent of the time. In those circumstances when the contract terms were violated, however, hotels were success-
ful in collecting penalties due them in only 44 percent of the cases.
ThirdParties More than ever before, the mechanisms through which hotel rooms may be booked today are multiple and varied. Moreover, the frequency of third-party involvement in the booking process has grown in recent years. Three factors contribute to this phenomenon: (1) technology has created expanded distribution systems (e.g., GDSs and worldwideweb sites); (2) some hotels have chosen to outsource their reservation services; and (3) increasing numbers of corporations, institutions, and associations have in-house travel departments (in part as a way to capture any commissions paid). Since 1991 the largest increase in third-party involvement has been among travel agents (Exhibit 4). More than half (54 percent) of the hotels completing this survey reported an increase in the frequency
of rooms booked through travel agents while just under half (47 percent) reported increased activity from in-house corporate travel departments. Independent meeting planners reportedly generated more business for 40 percent of the surveyed hotels. (Note that both internal corporate travel agencies and independent meeting planners are relatively new entities.) Commissions. Since I expected to find that increasing numbers of intermediaries are involved in hotels’ sales-distribution systems, this study also examined both the amount of commissions paid and the methods of compensation. A percentage of revenue is most frequently used by hotels to compensate third parties, in an effort to tie the level of compensation to performance. A system of flat-fee-perreservation, however, is often used to compensate associations’ in-
house travel departments as well as convention-and-visitor centers that are set up to generate reservations.
Advertising Most advertising for hotels is controlled either at a corporate or franchisor level, as a way to distribute the benefits over as many properties as possible (and to spread the costs). This survey, however, asked hotel managers about just those advertising dollars that are controlled at the property level. GMs and sales managers appear to perceive print media as offering the greatest reach for the fewest dollars (Exhibit 5). Ad space in industry directories and trade magazines were cited as the two most frequent forms of advertising purchased at the property level. Few individual properties advertise on television, probably due to the relatively large expense of production and air time relative to other media.
As hotel sales and marketing becomes more cerebral and less personality-driven, the need to train hotel sales personnel in modern technologies and methodologies is crucial. Moreover, new hireswhether from within the industry, fresh out of school, or from another field-should be knowledgeable about the ins and outs of today’s hotel-marketing trends, especially the technological aspects. Not only is the pressure to do so driven by hotel-industry advancements (e.g., yield-management systems), but by a need to meet the expectations of an increasingly technologically competent and financially savvy consumer. To keep up with the competition and, indeed, the customers themselves, hotel sales departments need to be progressive and adaptable to the latest in sales and marketing techniques. CQ