Demand Management:

Breaking down today’s commercial silos

I. Asset management
Asset management is managing a hotel investment, not the
operation, to meet the owner’s objective

The asset management triangle:

There are three parties involve in hotel management

Each party has different goals, Asset Manager needs to

make sure that each party understand each other

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Only when all parties function well and get a FAIR SHARE
of the cake, can we maximize on the overall ASSET VALUE
& reach an OPTIMUM in valuation

If each of parties gets a larger slice of the cake, there will

be:
 A negative team if budgets are set too high
 A negative operator, if fees are squeezed too
aggressively
 A negative owner, if recharge costs are pumped into
a hotel without material benefit for that property

From planning to opening:

Development & Planning

6 milestones of hotel project

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The first step is get detailed from the owner on what is
required, then a feasibility plan can be built up, follow by:

- A market & demand analysis: start broadly at

country level with political & economical outlook, then
narrow down to the region or the city, the town where the
project is it detailed with history & forecast, nearest
airports, arrivals, leisure & corporate activity, balance
between business & leisure travelers, expected weekend &
weekday occupancies

- A supply analysis: analysis of current supply in hotels

& related establishment like guest houses, short rental
market including ADR, current OCC, RevPAR
Some source that we can use from meta search such as
Kayak, via review like TripAdvisor. SWOT analysis each
property you consider as competitor

- The site, project & space appraisal (or concept):

analysis of exact location, climate details, transport
connections & details on the land in relation to taxes or
ground rent. This followed by concepts, architecture &
design work, that lead to a master plan

- A commercial plan (financial pro forma): take the form

of a ten-year pro forma of the profit and loss account of the
hotel. This underpinned by realistic revenue & cost

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assumption derived by the other 3 sections & general
market knowledge

After done with estimated project cost & year-on-year cash

flow, you can work out a high-level return on investment &
payback period.

This calculation is basic of all activities in the project &

should be updated quarterly throughout the project

Types of management

The next step of milestone is to determine type of

management.

First step in this process is to decide who is actually going

to run the hotel

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Influence & Risk are ranked in these options above :

- Independent hotel: high influence, high risk

The owner does everything himself

- Franchised hotel: high to medium risk, medium influence

The owner can still make decisions within framework at
significant costs

- Management agreement: medium risk, medium to low

influence

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The operator runs the show but have limit responsibility
when it comes to the actual NOI of the operation. The cost
here is high (11% of revenue flowing to the operator in
form of fees such as IT, training, marketing, regional
support, clustering etc)

- Hybrids contracts: many responsibilities for both parties

Many operators realize they can reach high audiences, have
good distribution, and have positive loyalty at much lower
cost through innovative ideas & designs
Examples : CitizenM, 25hours, Hoxton

- Lease: low risk & virtual guaranteed income

Idea of how various structures can impact a hotel

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If the owner is confident & has the right people around, a
franchise & a marketing alliance will often give a more
balanced opportunity than be locked into management
agreement

Construction & (pre) opening

There is technical service agreement TSA where the

operator supports the owner during construction, while at
the same time making sure that brand standards are
adhered to at all time

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In between 12 and 9 months prior to opening, there will be
pre-opening process started, this means parts of the
building & facilities are being handed to the operator. GM
will start forming a team, with temporary support from the
brand. This is a costly operation, require control

The most important task of asset manager during the pre-

opening process is to represent the owner & to make sure
that all building blocks are in place for advanced operation.
This means:

 Managing all communications

 Handover of the property as parts complete with
snagging lists & follow ups
 Managing the Owners accounts & pre-opening costs
 Assisting in creation of operational budget & cash-flow
 Working capital control
 Approval of Senior Management appointments
 Organizing all insurances & licenses
 Constant review of feasibility to ensure ROI

There is a constant testing of operation in its marketing &

demand management efforts

From Operation & Asset Management to Exit

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Operation & Asset Management

When we get into operation, the overriding factor for all

parties has to be NOI
This will underpin the plan which should be updated
monthly in line with operational results

From asset management perspective, there are two main

areas to focus on:

- Performance Management
- Property Management

Performance Management: consider the interactions within

the hotel

- On weekly basis, forecast review based on Pace

reports, make sure the target are realistic &
achievable, plus exceed the competition

- On monthly basic, review the operation from a

revenue, cost, cash & working capital perspective ;
Look at owners responsibilities for property tax &
insurance ; Have regular face-to-face review meetings
between the owner, operator and hotel team ; Look at
capital expense ; Manage the investment from an ROI
perspective ; Control the management agreement ;

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 Look at market benchmarking ; Non P&L items that
influence the hotel such as public relations, marketing
etc and guest satisfaction & staff satisfaction

- Annually: Need to do budget reviews, challenge, and

agreement on final targets; Look Revenue
Management, Sales & Marketing plans; Look at
operational space audits; Need to do critical
assessment of flow-through in line with current results;
Look at capital plans, investment costs & returns, post-
completion analysis

80% of performance management is communication &

creating mutual understanding whilst driving the bottom
line & maintaining service levels & quality of the hotel in the
market

* Asset Cycle

Asset cycle can be described as sequence of stages that an

asset goes through during its timespan of its ownership. In
practice, these stages are launch, growth, maturity
renovation or exit, and relaunch

- Launch : Focus Points : Forecast of future market trend

; Cost - Profit - Ratio or ROI ; Product quality in the

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 market ; Pre-Opening activities (training, marketing
etc) ; Asset launch ; Market feedback
- Growth : characterized in the first 3 years of hotel.
Focus Points : Alignment of repair and maintenance
with the growth projection ; Alignment of the FF&E
reserve with growth ; Capex budget
- Maturity : Focus points : Stabilized repair &
maintenance still sufficient ; Stablilizing FF&E reserve
; the planning of owner-funded capex; Considering an
exit as alternative
- Renovation : Focus Points : Consider Renovation &
design planning & project management ; Funding
requirements, reporting & control ; Call for bids /
Tenders, supervision of the work ; Public / press
announcement ; Coordination with Sales & Marketing
; Timeline
- Relaunch : Focus Points : Market feedback ; Press
announemant

* Valuation

Valuation of a hotel is based on its trading results in

particular NOI

- Market Value : what someone is willing to pay at a

given time for an asset

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 - Mathematical Value : based on some sort of valuation
model

Valuation Model:

Valuation in essence is cash flow. By forecasting the results

& cash flow of a hotel over a period of time, you get a good
idea of its value

Factors possibly boost valuation: Increased Revenue ;

Decreased Costs ; Better Market Conditions ; Reduced Risks
; Smarter Capex & Investments

Value = DISCOUNTED CASH FLOW + EXPECTED FUTURE GROWTH

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If Demand increases 5%

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If Price increases 5%

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If RevPar increases 5% (50% rate & 50% occupancy)

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If Cost reduces 1%

Summarize :

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Value creation is achieved through optimization of cash
flows from operations, combined with smart investments &
FF&E expenditure

When look at returns on Capex, must only look at the

incremental revenue, costs & NOI & compare to that to the
money you have invested

* Exit strategy :

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Exit Strategy : the method by which the owner intends to
get out of a hotel investment, a way of 'cashing out' an
investment in the best possible way
Evaluations depend on performance & picking the time after
a major event or cost initiative is vital. You should consider:

- The termination of a management or franchise

agreement means that a new owner has a freedom &
not locked into anything

- Certain management agreements stipulate that the

operator has first right to refusal

- Market conditions in certain geographic locations can

increase due to demand & other external factors

Once you have clear ideas about these points, you can start
thinking about:

- Risk & opportunity analysis

- Do an independent & realistic market study or
feasibility
- Study recent transactions & trends
- Get knowledgeable broker
- Set yourself clear deadlines & consider alternative
evaluations

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II. Demand Generation

Demand generation means focused sales, distribution &

marketing activities that drives interest & awareness in a
companies services & products

Demand generation can be broken down by below steps:

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How to define hotel product, value proposition &
customers

* Product Offering

Customer buy travel experience. There are two questions

we ask ourselves:

1. What types of experiences do we want to provide? (short

& long term)
2. How can we integrate the experience into the product
and our branding?

* Price Value Theory

Price is what you pay, value is what you get

Its important to characterize your demand into logical

buckets for 4 reasons:

1. We can focus on finding right customers for the hotel

2. We can offer different but appropriate price to different
profiles to maximize revenue
3. It improves the market mix of the business
4. It increases the accuracy of our long, mid & short-term
forecast

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* Value Proposition: to build value proposition, we need to
ask these questions

What are the customer's needs?

What products will respond to their needs
And increase their satisfactions

--> Value proposition set: the benefits consumers will

receive when they buy the product

* Segmentation:

Why segmentation in the first place? Because different

people have different needs & they willing to pay differently
according to those needs

Segmentation will help to take different marketing, pricing

& demand generation approach to optimize each segment

Classic market segmentation theory :

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You need to develop segments based on the mass principle
of measurability , actionability, accessibility & substantiation

Measuable : can track & record the segments?

Actionable : your products & services are compelling to the
segments?
Accessible : is the test if you can reach that segment
Substantiation : Will it be profitable to reach the segment?

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Pricing
Pricing inputs

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Pricing decisions

Pricing by segments: illustrate by focusing on 3 rate types

- BAR: lowest non-restricted rate bookable by all guests

- Negotiated Rate: is restricted or qualified rate has been

set through an agreement between provider & a partner

- Tour operator Rate: follow the principles as Negotiated

Rate, but normally deeper in discount

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How do we start with rate definition?

BAR: multiple rates depending on demand for each room

type

NEG Cor: a certain percentage off from BAR, more volume,

lower rate

TO: higher percentage down from BAR with more volume,

lower rate

Business Mix & Distribution

* Business Mix

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* Technology & Distribution

Why technology & distribution channels are important to

demand generation process?

 Efficient Management
 Complex business environment
 International customer market segments
 Seamless Integration
 Automated marketing

Technology advancement occur with advantages:

 Cloud based systems

 Fully integrated hotel management systems
 Virtualized IT architecture & Remote services
 Multi-screen solutions to shift technology beyond the
reception desk via multiple device solutions
 Fully automated processes & campaigns

* Cost of distribution & acquisition

Distribution cost types

- Commission
- Transaction Fee
- Listing Fees

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Cost of acquisition: Include wider marketing & labor cost
per channel

Examples of these costs

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Conclusion
Important for demand management is to keep checking the
main factors at all time:

- Defining the product

- Determining the value
- Identifying the customer
- Pricing the product
- Distributing the product
- Protecting the margins

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III. Online Marketing

When you market a hotel, you’re marketing a trust. Hotel

marketing is at the interaction of product marketing &
service marketing. One is delivering a service, but has a
product to show.

Rules & Basics of hotel marketing:

There are two types of travelers: who want to (leisure

travelers) & who have to (business travelers)

* Leisure travelers journey

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Your job in marketing a hotel begins in the travel planning
stage and finishes after their sharing.

* Make the hotel stand-out

Find out the USP, a unique selling proposition. This USP will
determine the voice, image & positioning of a hotel for the
marketing in all platform

USP is about what guests think of a hotel. There are three

factors to determine this USP: price, location & comfort.
Means that we figure out hotel’s strong point:
- Best value
- Great location
- Awesome design/ comfort/ service

The hotel can go through most positive reviews to see what

best value guests think of the hotel offer to them. Once you
have USP, you need to qualify it. Ex: Great location – Near
where? Incredible service – At what cost?

Use the right channels

There are 4 main parts in hotel’s brand marketing:

Popularizing; Capturing; Converting; Sharing

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* Popularizing

The first step of marketing strategy is to make sure

potential guests aware of hotel’s existence

Who are potential guests: people who looking for a hotel;

in the area where the hotel is; for a price that the hotel
offers; on dates where the hotels have availability

To popularize the hotel, you need to be on every step of

potential guest’s journey. You search for every single
source of hotel lists in the destination & make sure your
hotel is represented on the lists.

* Capturing travelers on hotel’s website

After guests have their lists of hotels in such destinations,

they will go for booking a hotel. At this step, your job in
marketing is to make sure your hotel’s USP is clear with the
assets that the lists provide: pictures, location, amenities
etc.

Hotel’s website alone will not be enough to popularize the

hotel. So, if you listed your hotel on every possible list &
booking platform with stand-out USP, there is high chance
that travelers will be searching for your hotel to find out
more.

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At this process, you make sure the hotel’s website appeared
in search engine & meta search platforms then travelers will
land on hotel’s website.

* Converting searchers into buyers

How we convert these searchers into buyers?

There are 2 steps to do that: Emotion sells & Navigation.

Emotion sells: when guests land on your hotel’s website,

they look for ‘evidence’ of hotel’s USP that you have been
marketing. At this step, you make sure every picture on
your website telling your USP

Navigation: you need to make your navigation intuitive &

simple. Approximately 95% of the people on a hotel’s
website have three questions: Where is the hotel; How are
the rooms; & What is the price? You have 3 to 7 seconds
to answer these 3 questions. Once that is done and you
have managed to grab that potential guest’s attention, they
are going to spend a total of 24 minutes between arriving
on the site, deciding to buy and going through the complete
booking process.

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* Sharing

People only share when they have very good experience &
very bad ones. In other words, they share the experiences
that are either better or worse than they expected.

To make guests deliver good reviews, giving excellent

service & positive surprises is not enough. You need to
ensure guests be aware of the value of the surprise.

Using intermediaries to optimize hotel’s invisibility

* OTA

Big hotels consider OTAs as a vertical search engine. To

optimize your site for the best possible search results on
generic search engines, you should be optimizing your OTA
listing.

To optimize your listing on OTAs, you need to ensure:

- Images: post your high resolution of your hotels’ picture

- Content: systemized content that tell your USP
- Amenities: are vital as many OTA’s offer a function to filter
by amenities
- Reviews: positive reviews will engage bookings
- Prices: ensure your prices are parity & best available rates

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- Inventory: large available rooms will improve hotels
invisibility as well
- Commission: if you pay higher commission, you will get
higher invisibility on OTAs listing

* Other channel of distribution

Besides OTAs, there are other distribution channels. One of

the most important channels is the GDS, global distribution
system.

GDS works different from OTAs where emphasize visuals.

To optimize your listing on GDS, one of the most important
job you need to do is to ensure your content be competent.
Focus on content, spend time checking it, rereading it is
your main job here.

Measure your Return On Investment

* The Net Contribution Approach

The net contribution approach compares the spent versus

the net revenue (the revenue after one takes off the total
cost of marketing)

To calculate a net contribution, you need to work out all of

the costs for marketing. The main costs are advertising

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costs, salary costs of personnel associated with advertising
and marketing, commission costs, maintenance costs and
transaction costs of marketing systems, and more.

After analyzing hotel’s fees, the next step is to categorize

the fees and assign them to the correct channels.

You will see which channels cost you much and less and
see where your hotel can increase its spent to yield more
reservations and where it should be reduced costs.

* Advertising Attribution Model

Advertising Attribution Model is how to assign values to

different online advertising channels based on how qualified
the visitors they bring

There are many models existing such as first click, last click,
and so forth.

Each click has value but the real question is how to assign
that value.

From experience, the first and last click are the most
important ones. The first brought branding of the hotel and
the last click brought the sale.

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The value of determining such an attribution model is that
you can then compare the actual cost of each click to the
assigned value and thus optimized your advertising spent
on each channel.

IV. Revenue Management

Why revenue management is important?

To avoid these problems:

1. The moment you sell the last room, someone else will try
to book a longer stay and be turned away
2. Your most valuable (profitable) guests are typically the
last one to book
3. No matter what price you charge, it is probably the wrong
one
4. Whenever your property will be full, someone will cancel
or no-show

Revenue Management Process: 6 Steps

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The first step is collecting the data. Revenue management
is a data driven decision making process. So first thing you
need to do is to make sure you have the data needed to
make the right decisions.

Data aggregation is a step you ensure the data that you

have is understandable & actionable. You have data from
various sources, systems and tools but you only understand
them when put these different perspectives together

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Data analysis is the step you focus primarily on how to
benchmark a hotel’s performance against other similar
hotels

Forecasting is where you separate out into 2 types of

forecast: performance forecast & unconstrained demand
forecast.

Decision. Once the analysis & forecast are done, you take
a look at revenue management levers that allow a revenue
manager to positively impact the business: price decisions,
availability controls to select the best guests when demand
exceeds supply, and generating demand through marketing

Distribution. The final step of RM process is to apply these

decisions to the distribution landscape

* Data collection & Aggregation

We collect data from various sources. Each source/ system

has its own silo. Your job as RM is to work with each of
these data silos to get valuable information into a system.

Most connected system is probably the property

management system. In general, all reservations flow into
PMS and this is the first building block.

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Below is data collection from the PMS:

After collecting data, we need to aggregate all data into one

single location (means aggregate all our data into one view)
to allow us to easily understand it.

* Analysis

When analysis, we need to look into our historical

performance and future demand trends

1. Analysis I: Benchmarking (look into historical data)

Using 3 indexes to benchmark hotel’s performance against

its competitors: ARI, MPI and RGI

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ARI: Average Rate Index

Average Rate Index (ARI) = Hotel ADR

Market ADR
ARI > 100 : Hotel rate is higher than market
ARI =100 : Hotel rate is as same as competitors
ARI < 100 : Hotel rate is lower than market

MPI: Market Penetration Index

Market Penetration Index (MPI) = Actual Market Share

Fair Market Share
Actual Market Share = Your # of rooms sold ; Fair Market Share = Your # of rooms
Total # of rooms sold Total # of rooms
MPI > 100 : Fair Share exceeded
MPI = 100 : Fair Share achieved
MPI < 100 : Fair Share not achieved

RGI: Revenue Generation Index

Revenue Generation Index (RGI) = Hotel RevPar

Market RevPar
RGI > 100 : more revenue than competitors
RGI =100 : revenue as same as competitors
RGI < 100 : trailing competitors

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2. Analysis II: Booking Curves (look into future)

Booking curve is a tool to track the buildup of reservations

over time for a specific date. In essence, it answers the
question how many reservations did I have on the books
for a specific arrival day, one day prior to arrival, two days
prior to arrival, and up to 365 days prior to arrival.

This tool is useful to understand how each day is developing

and is a great indication to see if you are on track for a
particular day.

* Forecasting:

There are types of forecast: performance forecast &

unconstrained forecast

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When we use performance forecast? This is type of forecast
that owners, asset managers, investors, banks, as well as
management & operations mean. This is, quite simply, an
estimate of what future performance will be, either in terms
of revenue, room sold, average daily rate, or some other
metric. This is often monthly level to support operations in
terms of staff planning or stock ordering.

Revenue managers are not interested in performance

forecast, but unconstrained demand forecast. This forecast
will tell you how many people want to come to your hotel,
including those will be turned away because there is not
enough space left.

How to calculate unconstrained demand forecast? % pick

up method & # pick up method

# pick up based forecast method = Last Year Final -

Last Year OTB + This Year OTB

% pick up based forecast method = Last Year OTB/

Last Year Final

* Decision & Profits Optimization

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At this step, this is when we identify the days where we
have too much demand and need to turn people away, and
the day where we don’t have enough demand

There are three main levers that revenue managers use to

impact the business: Pricing, Yield (Availability Controls)
and Activating Sales & Marketing

Changing Price: price elasticity of demand. This tactic based

on the concept that there is some price that gives you the
optimal between occupancy and rate which leads to the
highest revenue

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In above diagram, we can see at $50, hotel can generate
highest revenue than other rates. But if there is too much
demand for the lower rate? That leads to

Availability Control: we use this tactic to set restrictions

when we don’t want too much demand who want to book
lower rate or when demand exceeds supply. Set length of
stay restriction to the lowest rate or segment, thus making
sure that only the best segments will be able to book, while
leaving the public rates available and perhaps increasing
them. Since distribution costs have increased dramatically,
it has become common to start yielding on the basic of
channels as difference in distribution cost per channel can
often be higher than the price difference between two
segments

Activating Sales & Marketing: when demand is low, this is

when revenue managers need to do is work with sales &
marketing, who can work on generating demand. A revenue
manager CANNOT drop the rates to steal some market
share as if you do that, either you target the same demand
who want to come to the destination anyway or your
revenue is getting lower.

* Distribution: Profit Decision Making

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Revenue management is normally focusing on revenue
maximization, not profit maximization. But as today various
costs have increased dramatically, that requires revenue
managers considering these costs as well in their decisions
such as distribution costs.

Revenue management also not only focus on room revenue

as there are other sides of business that needed to be took
care of like F&B. For example, there are segments who book
lower room rate, however will intend to spend money on
F&B and other services at hotel and vice versa

Other side job of revenue management is that revenue

managers rarely work well with sales & marketing as they
think about arrival dates and how each day is materializing,
while trying to maximize revenue in RevPAR, while Sales &
Marketing generally thinks about the date that the booking
is occurred and tend to focus on occupancy or volume.

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* Conclusion of revenue management



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