Intro to commercial strategy for hoteliers
Whether at work or in life, you’ve probably had a first-hand experience of the domino effect — watching how one event triggers another, and another, and another. Little things add up to a big impact.
You know another place you can go to see the domino effect? Your hotel’s bottom line. Right there on your P&L statement.
What do we mean, specifically?
Let’s start with your revenue capture rate — the amount of revenue you take home after paying expenses and commissions. According to Jennifer Hill of Kalibri Labs, even though ADR and guest-paid revenue are at a high, hoteliers are losing out. Guests are paying more to stay in our hotels. We’re keeping less,
she shared at NAVIGATE Miami. A few percentage points in your revenue capture rate impacts your Net Operating Income (NOI), which in turn has an outsized impact on your hotel asset value. One domino after another.
Here’s where commercial strategy comes into play. It can prevent a negative domino effect or kick off a positive one on your bottom line. It’s something that gets all departments — from sales, marketing, operations, revenue, and digital — working together to maximize profitable opportunities for your hotel.
What is commercial strategy?
Simply put, commercial strategy is the process of aligning your key departments to maximize profitability (aka increase your NOI). It satisfies the goals of investors and owners while giving each department a seat at the table and a voice in the process.
Commercial strategy is a newer term that has undergone a bit of an evolution in the past decade. It came about as a way to change the default of siloed workflows, where sales would work on hitting their own targets, marketing on their goals, revenue managers in their lane, operations in theirs, and so on. People weren’t talking to each other, and so they weren’t always pulling in the same direction. But with commercial strategy, every team becomes aligned towards the same goal, but with different ways of contributing to it.
Another factor that has influenced the rise of commercial strategy is a shift away from the adage of “RevPAR is king,” and now professionals are placing emphasis on Total RevPAR, including ancillary spend in the discussion of how to maximize profitability.
Digital transformation has changed compsets as well — an integral part of commercial strategy in deciding who is a competitor. For example, you and several other luxury hotels might be competing for the same high-spending leisure travelers, even if you are all located in different parts of the world. As Karen Stephens, Revinate’s Chief Marketing Officer and Hotel Moment podcast host says,
“Now, we’ve got this digital age, and if you’re competing for the leisure traveler, you’re not necessarily like, “Oh, they’re coming to Orlando.” They might be going anywhere. So your luxury property is competing against hotels that are [located anywhere] — because your true comp set is really how are you getting the eyeballs of that guest that wants to have a luxury vacation and making sure they understand that your properties are the best one.”
Not too long ago, “revenue management” was a relatively new position in the hotel org chart, but now it’s a critical part of every group. We expect commercial strategy will soon occupy a similar place in every hotelier’s toolkit.
Why commercial strategy is important for hoteliers
This year, hoteliers are predicted to place an even greater emphasis on profit than in years past. From inflation-induced headaches, to ongoing labor challenges, hoteliers are turning their attention towards opportunities with a high return — honing their commercial strategy.
But OTA commissions take a big bite out of your profit margins, eating into your revenue capture rate.
That’s why building a commercial strategy is critical to preventing the domino effect from setting in on your P&L statement and negatively impacting your NOI. And you can do that with a commercial strategy that prioritizes using guest data to reclaim OTA bookers and seize more profitable opportunities.
OTAs can be helpful for attracting new guests, but hoteliers should be able to get those repeat bookings direct. Using a hospitality-specific CDP with identity resolution, which employs advanced AI-powered clustering models to identify and merge individual guests in real-time as profiles sync across systems — can help you identify exactly which guests to target with direct booking incentives.
4 tips for a winning commercial strategy
Businesses with a strong commercial strategy achieve revenue growth 1.9 points higher and earnings growth about 4.7 points higher than their industry competitors. An effective commercial strategy achieves two goals: upping your competitive advantage and making your hotel stand out in terms of profitability.
Here are some tips on how to create a winning strategy.
1. Keep it simple
One of the best things you can do for your commercial strategy is to keep it simple. Jennifer Hill, VP of Commercial Strategy at Kalibri Labs, had this to say about it on the Hotel Moment podcast:
“It’s an evolution. It’s not a revolution. We’re not blowing things up. We’re not starting from scratch here. We’re bringing different talking points and conversations around what we have done in the past to generate revenue and to ensure that profitability.”
Every hotel team should be involved in working on your commercial strategy, and they need your profit goals to be clearly defined and easy to follow. Like a North Star. Because as we mentioned before, the intent of commercial strategy is to break down silos and get every team working towards the same goal.
Taking the time to align your teams around your commercial goals and supplying them with the right technology they need to achieve them goes a long way.
2. Make NOI a KPI
The only thing that matters in measuring the success of a hotel is the NOI.
An honest statement from another Hotel Moment podcast guest, Joe Pettigrew, Chief Commercial Officer at EOS Hospitality.
NOI is calculated by taking the property’s gross operating income and other income, then subtracting operating costs. So whenever your hotel captures more revenue, that amount, no matter how small, it increases your NOI, and in turn, your hotel asset value. And hotel owners care a lot about asset value.
To understand the relationship between NOI and hotel asset value, check out the Hospitality Net article, How CDPs encourage direct bookings to boost a hotel’s NOI.
So as your teams evaluate KPIs like direct booking percentage, loyalty percentages, email open rates and conversion rates, etc, pay attention to how all of those KPIs link back to NOI.
3. Have a “commercial-first” mindset
What is a “commercial-first” mindset? Lori Kiel, Chief Commercial Officer at Kessler Collection, defined it as such on the Hotel Moment podcast:
“The commercial first mindset is truly is about breaking down the silos. My analogy that I frequently use is if we could break the silos down, we can instead create highways, three-lane highways where each of the disciplines has a lane. However, those lanes allow for merging. It allows for collaboration.”
Again, we see how commercial strategy cannot be won without interdepartmental collaboration. Something that fosters that collaboration is a data-driven culture, where data collection, reporting, management, and most importantly your team, are united to act on insights from guest data. This idea directly relates to a “commercial-first mindset” because if your team is forced to deal with messy data silos, their collaboration efforts will be hindered.
4. Target your most profitable opportunities
The ultimate goal of commercial strategy is to target your most profitable opportunities.
Kathleen Cullen, Executive VP at PTG Consulting, reiterates this point on the Hotel Moment podcast: So collaboration is to really focus on full commercial strategy. And many hotels still go after volume versus optimal opportunity… But take a look at not just volume, where you can get your highest volume, but what’s your most profitable opportunity?
Consider direct bookings for instance. Instead of chasing volume and throwing marketing dollars at OTAs to get you more exposure, re-route that spend to direct booking campaigns. Your guest data will guide you to identify repeat bookers, and target them with greater accuracy — whether that’s in your next email campaign, or over the phone.
Remember, “it’s an evolution, not a revolution”
Commercial strategy finally seems to be getting the attention it deserves. So as you do your own research and plan to make it more of a priority for your hotel, remember that it’s a process that takes time. It’s a strategy that incorporates virtually every employee of your hotel and isn’t complete without the application of your guest data. Your journey toward long-term profitability is achievable as you focus on the right KPIs and lead with a unified goal.
About Revinate
Revinate empowers hoteliers to directly connect with their guests.
Our Guest Data Platform and communication solutions unlock revenue for hoteliers and put them in control of the full guest experience — initial research, booking, check-in, throughout the stay, and even after check out — all via the communication channels that guests prefer, whether it's voice, text, email, or web.
More than 12,000 hotels globally bank on Revinate to drive direct revenue and deliver delightful guest experiences.
Ask us how we do it. Visit our website to get a demo.
Sanjana Chappalli
VP of Brand Marketing and Communications
Revinate, Inc.
