Venus and Mars

There is no always. There is only now. 

Maximize each now on the way to then. 

For as long as hotels have solicited group business, hotel salespeople and conference service professionals have been advised that  

"it's not what you book, it's how you move it."

Translation: the available physical space of the hotel is finite, and each passing moment without usage of the ballroom, guestrooms, or F&B outlets is a revenue opportunity squandered. Sell it, service it, turn it and sell it again.

In contrast, a critical tenet of Revenue Management is that  

"time is an attribute of the sale." 

Translation: the timing of the sale itself is a major contributing factor to the price agreed upon between the Buyer and Seller.

These two maxims are often mutually supportive in a healthy, predictable meetings marketplace. But in the meetings marketplace in which we actually find ourselves trading on a daily basis, reality frequently intrudes on these pristine theories. 

Whether it's a Seller's Market, Buyer's Market, growing or collapsing market, the fact is that we often find these directives in opposition. This conflict is a regular source of frustration in hotel sales offices and RevManagement pods worldwide.

Salespeople are social animals by nature and closing machines by way of nurture. Revenue managers, by and large, are more analytical by nature and are trained to apply mathematical models - regression analysis, actually - to the innumerable multivariate calculus of human behavior.

Now for those of you still with me after reading the word "Calculus" above, let me assure you that we will be discussing neither regression modeling nor stochastic demand on this blog. At least, not today, although your comments are welcome.

Instead, let's focus on the competing pressures at the hotel level and the effect of this competition on the unknown soldier in all of this, the Customer.

Every quota-challenged hotel salesperson has had that moment when, after weeks of protracted and diligent negotiations with a real live customer, they have had to retreat back to their cubicle and tell their customer that "revenue management did not approve the rate", even though the price requested would have still resulted in a profit for the hotel.

If you are a smart salesperson, you framed this bad news to the customer in language such as "we have a conflict" or "we cannot do your requested rate at this time" or some other euphemism to dull the emasculating pain of admitting that you did not really have control over the pricing, terms, or negotiation of the most important aspects of the hotel's agreement with the customer.

Suddenly and far too quickly all of your hours of cold-calling phone-tagging email-threaded text-supported room-comping contract-revising space-juggling date-finding endless site-inspecting efforts have come to:

Nada.

Why is this? Why are you now not gonna make your quarterly goal?

You may think that you were undermined by a revenue manager who didn't understand the fierce urgency of your Here and Now Customer. You may not buy into revenue management theories of a Continuum of Customers .

But these are not the reasons why your customer was denied their price, and you were denied a Definite booking.

You did not get this booking approved because Sales and Revenue Management speak two different languages.

Revenue managers understand math and their world is one in which Price Discovery is determined by stochastic demand modeling, market saturation, trends analysis, and applied heuristics. The entire vocabulary of revenue management makes many of you reach for the Grey Goose.

Meanwhile, back in actual living breathing customer world, salespeople understand brand promises, open-ended probing questions, upselling, body language, handshakes, my-word-is-my-bond, long lunches and looking each other in the eye. Revenue managers are now rolling their eyes in recognition of this and will want to grab another Mountain Dew.

Basically, Sales is from Venus and Revenue Management is from Mars. *

Properly applied, revenue management relies on a Continuum of Buyers to purchase diminishing room inventory at various time intervals in a testable, if not predictable manner. If the stochastic model for these purchases is either too ambitious or too conservative at any point in time, then pricing or Length of Stay adjustments can be made to maximize each potential selling opportunity. (There are other pricing adjustments or modifications to the bucket of offers that can be made, but pricing and LOS are some of the most prevalent and easiest to understand.) Direct customer feedback on individual pricing tolerance is infrequent and when available is often provided via intermediaries or competing distribution channels. When this Continuum of Buyers changes its macro-behavior or simply vanishes, heuristic and stochastic demand models will malfunction.

Thus, Revenue Management practices Price Discovery in an environment in which math is the chosen and precise language of the business.  Macro-pricing assumptions are established, tested and revised on a daily or even hourly basis. The range of services purchased per transaction is typically one room for 2 or 3 nights.

Properly applied, salespeople rely on their personal give and take with actual customers who are buying a range of services or bundled/volume commitments (in the case of multi-property or long term corporate rate agreements) from a hotel, and these customers are often also considering properties in different destinations with different market conditions and pricing models. If the scope of services for the purchase (rooms vs. space ratio, F&B commitment) is variable, then hotel pricing can be adjusted to compensate so that the agreement remains profitable for the hotel. Meeting space, guest count, group F&B services, and other ancillary spending can be postulated or even guaranteed within an agreement. Significant deposits can be specified and paid to ensure customer performance.

Thus, Salespeople practice Price Discovery in an environment in which personal communication and non-verbal cues are important, and elasticity of the services and prices can be determined and bargained in real time, often using rough approximations of customer spending and relying on imprecise promises of performance. Micro-pricing assumptions are tested and revised on a customer-by-customer basis, in real time. Each group customer is an opportunity for a pricing Focus Group of One. The range of services purchased can be significant. Each buyer has different needs and different buying triggers, because no two groups are alike.

If you are going to be a successful salesperson in today's hotel environment, or if you are going to find success as a meeting planner (Buyer), then you must learn to express yourself and your business to revenue management in mathematical terms.

Salespeople: if you have negotiated subpar group rates that need approval from a platoon of geeked-up revenue managers or other gatekeepers, then you had better come armed with the entire spending pattern of your group, rooms vs. space ratio, pattern fit, daily group RevPOR equal to or greater than Year-Over-Year RevPOR...and not just some room rate, notional average check number spit out by Delphi, and a promise of "it's a verbal definite."  Check your math.

Come correct, or don't come at all.

You gotta know the math behind your group, and how it fits into the total hotel, before you can expect any special dispensations from mathematically fluent revenue managers.

Would be nice to see the deposit schedule agreed upon in advance, too, because for longer-term group bookings the hotel needs some security. Remember 4Q 2008? Ritz-Carlton Kapalua does, they lost 25% of all confirmed definite groups for all future dates to cancellations made between October 2008 and February 2009. You would think that all of their canceling customers believed in Mayan prophecies of 2012 and the end of the world.

And guess what? Not every group can afford your hotel, and not every group is a good fit for the property. Sometimes, the hotel really can do better by waiting.

Revenue Managers: before you stands a real customer willing to make a significant purchase,  NOW.  This is real. There is no assurance that today's demand projections will continue into the future. Could be better, could be worse, we don't know. And no, your guess is not necessarily better than mine. History does not repeat itself. If this group materializes as expected - even with 15% or 20% attrition - you still have a better opportunity to sell the remaining inventory at a premium. All other assumptions and promises are speculative. Yours, mine, the customer's promises: all speculative. We have already sunk thousands of Sales & Marketing dollars into cultivating, soliciting, and servicing this customer. Let's lock this group in now so we can build other business around it, before it, after it, on it, under it, let's surround it with business.

So long as pattern, rooms vs. space, total hotel spending, and deposits are OK and locked in, we are not at risk of displacing that "hypothetical group willing to pay a higher rate" which may or may not emerge from the Continuum of Buyers.

Simply because there may be a continuum of individual customers for our guestrooms, it does not follow that there might be a continuum of GROUP buyers in the future, as we do not really know which future group's space and pattern needs will match our availability for any given date in the near future. We can guess...but, dear Revenue Manager, do you really want to base our future financial performance for the group segment on your, gulp ... guess?

Remember, for any individual group or conference, there are no Seller's markets and there are no Buyer's markets. These are macro-economic terms. Group sales is the realm of micro-economics and behavioral economics. Every group is different, every hotel is different, and thus every negotiation is situational and specific to the needs of the parties: space, dates, pattern, price, risk, ROI, and opportunity cost. Game theory and information asymmetry are more appropriate to this arena rather than stochastic demand models. Attempting to ascribe general notions about macro-market trends to any individual buyer in that marketplace is to err via the Fallacy of Division.

But you are right about one thing: Time is indeed an attribute of the sale, and the best time is often right now.

Meeting Planners: information and credibility are the most formidable arrows in your quiver, use these wisely before you actually commit to spending money at the hotel. Make sure that the information about your group is as accurate as possible, and do your homework on the competitive landscape and pricing in the markets you are considering.

Sadly, most planners do not have complete mastery over their group, its budget, and all the resources they will need to make their event a success. Distinguish yourself by striving to be the exception to this rule.  You do not need to share your budget with the hotel - although a well-trained salesperson will generally ask you "what's your budget?" - but you should know your budget and know the total value of your business to the hotel before you sign any agreements.  Indeed, it is best that you know this information before you discuss your program during a site inspection.

Try to speak the hotel's language: RevPOR, Total Spending, pattern preferences, F&B spending per person, etc., and go ahead and ask the hotel what their budget expectations are for the dates and hotel resources you are considering. You never know, they may go ahead and tell you. In vino, veritas.

For larger events, planners and hotels should also anticipate 'resource creep,' wherein the facilities a group needs may grow as the meeting date draws nearer. Plan for attrition and other negative financial contingencies within your agreement. Discuss these possibilities openly with the hotel. A fully-informed and credible planner will command the respect of the hotel and will always obtain the best possible value for their organization.

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The good old days were not nearly as good as people would have you believe, and the future is neither as bright as some would predict nor as desperate as others may fear.

Information is a powerful thing, and most group contract negotiations are an exercise in price discovery for all parties. At the end of this process, whether quick or protracted, your negotiation is going to come down to numbers. Even a salesperson's valuable 'customer relationship' - so highly prized and frequently cited when discounted rates are requested - has an actual numeric value that can be expressed mathematically (see Lifetime Customer Value).

But regardless of whether you are a Customer, a Salesperson, or a Revenue Manager, the language of math is here to stay. Those who do their math and can use it to argue the case for their business will have the upper hand.

Eventually, it must all add up.

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* It has also been remarked by many hotel salespeople that "Men are from Mars, women are from Venus, and revenue managers are from hell."  For purposes of this blog, the author takes no position on matters of theology.