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Finance & DevelopmentFinanceFinding Business in 2020: Capturing Demand in Beach Markets and Beyond

Finding Business in 2020: Capturing Demand in Beach Markets and Beyond

Since the pandemic’s low point in mid-March when COVID-19 began prompting shutdowns and travel restrictions in the United States, STR recorded just three instances when U.S. weekly hotel occupancy surpassed 50 percent: for the first time in August and for two consecutive weeks in October. Nationwide occupancy levels tell one story, but individual markets paint a clearer picture of demand trends during the pandemic. For instance, the top 25 markets as defined by STR have mostly experienced lower occupancy levels than all other markets while drive-to markets with outdoor attractions have generally fared better. But for individual hotels in these higher-demand markets, having a prime location near a popular attraction like a beach is just a start. To not only survive but thrive (at least relative to the rest of the country) in these challenging times and in the year ahead, hotels in beach markets and beyond must make the most of their revenue management tools and team.

Roy Madhok, vice president of revenue management for Real Hospitality Group (RHG), shares with LODGING how his team is able to quickly identify trends, price strategically, and forecast more accurately than competitors to capture business.

“We have found business under rocks that nobody would have ever looked under,” Madhok says. His strategy starts with drilling down to understand consumer behavior and demand trends. Where are people searching to stay, and from where are they searching? For instance, are people driving to a beach market from a specific state or city? Using technology, Madhok says, “we’ve been able to really hone in on where people are coming from and we’ve been able to do it at such a granular level.”

In addition to understanding these travel patterns, Madhok’s team stays atop of local regulations and travel restrictions. “We’ve been able to balance our strategy based on what we saw in terms of restrictions at a particular time,” he explains.

Accurate forecasting is also key to RHG’s revenue management strategy. With a corporate revenue and sales staff of 16 people, Madhok says the team is “very focused” and leans on technology to automate, using market forecasting and intelligence tools. Madhok says RHG’s team forecasts on a daily basis. “You don’t forecast in a bubble. You’re not forecasting alone. My team does the forecast day-by-day for the next 60 days. On top of that, we have roughly two separate systems per hotel that also forecast the next 60, 90, and 120 days. Now, you’ve got three separate inputs and three separate understandings of what recent trends we’ve been able to see, and what’s the velocity of what we’re seeing.”

This forecasting strategy allows RHG to understand what demand curves look like, whether demand is increasing or decreasing in the short term, and at what rate. “Our forecasts are snapshots in time,” he explains. “What do these forecasts look like as of today? Why is that interesting? What does the forecast look like as of tomorrow? What does it look like as of the day after? And now I can see the progression of my forecast over the course of time. This has given us transparency in all the markets that we operate in because now we know whether things are getting weaker or stronger day by day.”

Using technology to understand consumer behavior, demand trends, and forecast accurately is just part of the picture. To capture business in areas where people are searching for lodging—such as beach markets—Madhok says that RHG’s team targets the right consumers through marketing and rates.

RHG’s approach to pricing is “100-percent math-based,” Madhok says. “We take a very strictly demand-based pricing approach, which means if it’s not priced appropriately, it’s not moving,” he continues. “If somebody’s booking, that means there’s demand. If people are looking, that means there’s demand. If people are calling my call centers or calling my reservations desk, we’re tracking to see how many calls we’re getting over a particular period. Are we converting on those calls? If not, what’s the reason?” Madhok adds that RHG uses an open-pricing model, adjusting rate rather than setting limits like minimums on how many nights a guest can stay. “Who am I to tell you you can’t stay for Friday and Saturday and check out on Sunday,” he says. “We believe in restricting with the rate. If you want to stay, you must pay.”

Madhok also shares a strategy to pricing that he calls a “waterfall approach.” His team tracks markets adjacent to their hotels where prices are escalating and supply is decreasing, proactively increasing their rates in anticipation of hotels in the high-demand areas selling out and guests looking for the next closest place to stay. “If the hotels that are on a section of the oceanfront start raising prices and selling out, some of my hotels that are in not-so-great areas have a deep understanding—based on our intelligence in how to use that data—that the supply is decreasing, the rates are increasing, and they can preemptively increase rates because, eventually, [the oceanfront hotels] are going to reduce their amount of supply,” Madhok explains.

When to sell rooms is also a critical piece of RHG’s pricing strategy. “This is something that we preach constantly: It is not about selling out; it’s about when to sell out. Sometimes the answer to that question is four days prior to the day of arrival. Sometimes the answer to that question is nine days. Sometimes the answer to that question is the day of. There’s a different answer depending on the day. We are very careful when understanding when is the peak price,” Madhok explains. “That’s especially important in a beach market where, this year, people weren’t planning vacations 90 days in advance. We knew that all the action would be happening within six or seven days.”

In 2021, Madhok says that he expects beach markets to fare slightly better than all other markets, but they will likely still fall short of pre-pandemic performance levels. “There’s this perception out there that beach markets are riding high and that they’re all fantastic and that it’s better than 2019. It’s not better than 2019,” Madhok notes. He is anticipating beach markets will outperform the country by 10-20 percent. However, he notes, that forecast hinges on several factors, including location, the timing of a market’s peak season as it relates to the vaccine rollout, and consumer behavior once travelers begin to feel safer venturing out again. “There are arguments that there’s so much pent-up demand that there’s going to be a rocketship next year. I don’t see that,” Madhok shares. And even if there is significant pent-up demand, he notes, will people choose to travel further or fly internationally, drawing business away from the drive-to beach markets that outperformed in 2020? “You can be optimistic, but there’s good reasoning to have some level of devil’s advocacy within your own mind as a hotel person,” he adds.

The silver lining of this pandemic, Madhok says, may be the increased adoption of technology and data in the industry. “The hotels that are going to be the ones that are best off in the future from a revenue and a sales perspective are the ones that are going to understand their clients the best, understand the consumer the best,” he says. “In terms of a strategic, data-centered focus, if you know consumer behavior, you’re going to fare well in 2021 and 2022.”

 


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Christine Killion
Christine Killion is the editor of LODGING.

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