Th ought Lea de rshipRevenue Managers versus Sales –The Price War in Your Own OfficeBy Bill Kotrba, Vice President of Indu...
Th ought Lea de rshipThis price war concerns the pricing a hotel offers in               With rewards like this, though, c...
Th ought Lea de rshipAt the same time, as an RM team we set out to make a set        a deal, while locking in upside poten...
Th ought Lea de rshipWhat Can Executives Do?                                            About JDA Software Group, Inc.Exec...
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Revenue Managers versus Sales

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It's an age-old story: Revenue managers are paid to improve unit-revenues and profit margins, but down the hall, the sales department is paid to hit sales targets. Question: What's wrong with this picture? Answer: Nothing. The yin and yang of RM departments disagreeing with Sales organizations, if managed properly, is healthy and moves a business closer to great results. However, if not managed carefully, it can deteriorate into power struggles and politics that will doom an organization to fail. Bill Kotrba, VP of Industry Strategy for JDA Software outlines keys to bridge the gap.

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Revenue Managers versus Sales

  1. 1. Th ought Lea de rshipRevenue Managers versus Sales –The Price War in Your Own OfficeBy Bill Kotrba, Vice President of Industry Strategy at JDA Software I $R t’s an age-old story: Revenue managers are paid to improve unit-revenues and profit margins, but down the hall, the sales department is paid to hit sales targets. Question: What’s wrong with this picture? Answer: Nothing. The yin and yang of RM departments disagreeing with Sales organizations, if managed properly, is healthy and moves a business closer to great results. However, if not managed carefully, it can deteriorate into power struggles and politics that will doom an organization to fail. The keys are communication, communication and communication— and an RM team that understands how to position revenue management techniques as a win-win-win for the company, the salespeople and the customers. Much has been written about price wars recently, considering the economic roller coaster, occupancy crash and recovery that has taken place since 2008. The downturn hit the hotel industry with terrible timing, A right at the intersection of Internet price transparency and the mobile shopping revolution. It was a perfectW storm — a wave of economic weakness hitting an industry poised at the tipping point of price volatility and vulnerability. When people think of price wars they think of the industry’s B2C retail or transient business segment. With varying intensity, most hotels are in a constant war with local competitors to capture market share and fill otherwise-empty rooms. The price wars we are most familiar with occur when one competitor panics and drops rates dramatically attempting to steal market share or stimulate new business. Images of highway signage advertising “as low as” pricing comes to mind, or online travel agency price comparisons with competitor rates matched dollar for dollar and ending in 99 cents. There is a different kind of “price war” though, which commonly occurs within the walls of a hotel, or central chain headquarters, between the Revenue Management (RM) department and sales team or sales director.
  2. 2. Th ought Lea de rshipThis price war concerns the pricing a hotel offers in With rewards like this, though, come some risks. TheB2B distribution channels, such as to groups, corporate most common complaint I hear from salespeople aboutcontracts, wholesalers, tour operators and the like— revenue managers is that “they automatically say no.” Orand refers to the conflict that occurs between revenue that RM takes a purely transactional view of the business—managers who are charged with increasing unit-revenue disregarding the value of long-term relationships with(RevPAR) or total profits, versus sales staff who may be large B2B customers, like corporate travel managers ormeasured on occupancy or sales volume for particular tour operators. RM, in turn, complains that salespeoplebusiness segments. are too quick to offer lower rates in every negotiation, without considering what alternative business segments orThe conflict between RM and Sales is common in transient business might be vying for the same capacity onhospitality and also exists in adjacent travel industry the same nights. If not managed carefully and impartially,verticals like airlines, cruise lines, car rental, etc. I believe the valuable RM/Sales push-and-pull can deteriorate intoit arises from the cultural DNA of revenue-generating a power struggle (or worse) and undermine results. Theorganizations. Salespeople are deemed to be effective biggest mistake executives make is to advocate eitherwhen bookings are being made, whereas RM people are a “sales view” or an “RM view” consistently, instead ofdeemed to be effective when bookings are being turned positioning the two as a constant check and balance.away. As such, revenue managers are prone to leavingmoney on the table by pushing too hard for higher rates, The Sharpest Knife in the Drawerand salespeople may be biased toward leaving money onthe table by pushing for higher occupancy. In a previous job as head of revenue management in a large organization, I worked with a sales director who asked for only one simple piece of information to provide to hisWhat’s Wrong With This Picture? account managers—a spreadsheet showing the walk-away,The problem with this conflict between RM and Sales is or “how low can we go?”, prices for each day and market.… nothing! In any hotel, from largest to smallest, there He wanted his staff to quickly be able to see the absoluteis a constant push-pull between rates and occupancy. As lowest price that revenue management would accept asoccupancy increases, the opportunity arises to generate they conducted negotiations with prospective customers.more total revenue or profits by increasing rates—morethan can be generated by further increases in occupancy He wasn’t wrong to ask for this—but this looked to me likealone. This back-and-forth between RM and Sales, a one-way ticket to lowering rates. The last thing I wantedconstantly pressure-testing the other’s assumptions on to tell every salesperson was the rock-bottom rate werates versus occupancy, distribution channel mix, groups would accept on a given day or week. Instead, with helpversus transient, etc., is a healthy and vital means of from an impartial executive, we created a system of rateensuring no stone is left unturned. The combination of a recommendations, which put a few more hoops in place forskilled sales team and RM team, armed with disciplined salespeople to jump through before they were free to dropanalysis, good forecasting and optimization technology, to the lowest rates. Yes, it slowed down our response timecan efficiently propel a business to grab every possible to prospective customers in some cases, but it also forceddollar of revenue and profit. Sales and RM to communicate in real-time, every day, to evaluate the most contentious opportunities.
  3. 3. Th ought Lea de rshipAt the same time, as an RM team we set out to make a set a deal, while locking in upside potential when BAR ratesof tools—knives in the drawer—that would provide more go up according to RM forecasts for peak periods such thatnegotiating leverage than simply lowering rates. more total revenue comes to the hotel. Other “toolbox” examples might be for RM to quantifyWhat Can RM Do for Sales? optimal discounts in exchange for room-nightFirst and foremost, communication and more commitments, or backend discounts for achieving tieredcommunication. RM and Sales cannot push and pull volume targets, or guaranteed access to constrainedeffectively without timely information flowing constantly. properties in exchange for slightly higher rates across theFor example, RM needs to ensure that account execs have board.access to the latest forecasts, pricing information andbookings on hand for the upcoming booking window.Sales needs to know from RM exactly what mix of business What Can Sales Do for RM?segments and rates will maximize revenue and profit for Of course, the need for communication is vital in bothan upcoming period? If that expected mix changes, Sales directions. Kathleen Mallery, Director of Revenueneeds an efficient means to receive that information to Optimization for Carlson Hotels, provided a great example:change course accordingly and in time. “One of our account execs received an RFP from a corporateAnother thing RM can do for sales, as mentioned travel manager requesting discounted rates for every daypreviously, is to provide a complete set of negotiating tools of the upcoming year—for hundreds of properties—withthat can be positioned as “win-win” for both the hotel and submission due in 48 hours. These types of RFPs were notthe customer. In the best case, these tools provide upside uncommon, but RM didn’t know about them, and Salesto the salesperson and the hotel, help close deals and help was paralyzed with no means to generate a meaningfulcounteract the natural downward pressure on rates. For response on short notice. There’s no way we can respondexample, while bulk room buyers often prefer net rates— to that effectively without working together. Now weabsolute rate amounts guaranteed for future period of are building RM tools to speed up the review processtime—it’s usually in the hotel’s interest to offer a percent and ensure there’s support from Sales and RM so we candiscount off BAR rates instead. RM can help quantify a respond to large urgent RFP’s like this.”deeper discount off of BAR to entice a customer and close
  4. 4. Th ought Lea de rshipWhat Can Executives Do? About JDA Software Group, Inc.Executives need to think carefully about how to align JDA® Software Group, Inc. (NASDAQ: JDAS), The Supplyincentives for effective Sales/RM push-pull to ensure every Chain Company®, is a leading provider of innovative supplypossible dollar of revenue and profit gets generated—while chain management, merchandising and pricing excellencealso making sure that both Sales and RM are rewarded solutions. JDA empowers more than 6,000 companies of allfor great results. An individual account manager selling sizes to make optimal decisions that improve profitabilitygroup space needs to be incentivized for driving business and achieve real results in the discrete and processin the group segment, and revenue managers need manufacturing, wholesale distribution, transportation,to be compensated for driving total RevPAR and profit retail and services industries. With an integrated solutionsimprovements. Those goals will occasionally be at odds— offering that spans the entire supply chain from materialsbut in a way that benefits the total result. to the consumer, JDA leverages the powerful heritage and knowledge capital of acquired market leadersExecutives also need to be prepared to step in and including i2 Technologies®, Manugistics®, E3®, Intactix®resolve Sales/RM conflicts impartially with an eye to and Arthur®. JDA’s multiple service options, delivered viaRevPAR and total profitability. Without strong leadership the JDA® Private Cloud, provide customers with flexibleand appreciation for how Sales/RM interaction and configurations, rapid time-to-value, lower total cost ofdisagreements can help generate great financial results, the ownership and 24/7 functional and technical support andoutcome will most certainly be an internal “price war” that expertise.can be just as destructive as those waged by a competitor.About JDA Pricing and RevenueManagement GroupJDA Pricing and Revenue Management Group, a globalbusiness unit within JDA Software, is a leading provider Bill Kotrba serves as vice presidentof Price Sensitive Revenue Management™ solutions that of industry strategy in JDAhelp companies improve profits by balancing supply Software’s Pricing and Revenueand demand through innovative forecasting, pricing and Management Group. He isrevenue management. For more than 25 years, companies responsible for overseeing strategicin the travel, transportation, hospitality and media business initiatives for the leisure travel and hospitality industries.industries have benefited from the ongoing innovationand deep domain expertise from JDA. To learn more aboutJDA Pricing and Revenue Management, please visitwww.jda.com/revenuemanagement. www.jda.com | info@jda.com | +1 800 479 7382

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