Q&A with Jennifer Kim, part 1: rate parity and management companies

This article continues our series of interviews with revenue management professionals exploring the challenges and opportunities of rate parity.

Our first two interviews were with Inderpreet Banga of Wyndham Hotels and Resorts. The focus of the next three is on hotel management companies.

Such organisations have their share of considerations, starting with which brands to manage in their portfolio and how to differentiate the guest experience. Equally essential is deciding which technologies to deploy to do both effectively.

For Cycas Hospitality, decisions around brand, guest experience, and technology extend across hotel categories. The company manages 13 properties in both the full-service and extended stay segments. Some of these properties are ‘double-decker,’ an emerging category of property that offers both full-service under one flag and limited service under another flag in the same building.

Setting the scene, we explored the unique revenue management dynamics and rate parity concerns of this cross-category blend by speaking to Jennifer Kim, Director of Revenue Management for Cycas.

For those who don’t know Cycas Hospitality, where are you located and what brands do you affiliate with?

“We manage full service and specialise in extended stay, especially the double-decker hotels, which have full service below and a limited service hotel on the top. It’s ideal for launching a new brand in a market.

“So we work with various brands for that reason. Among our brands are IHG, Holiday Inn, Staybridge Suites, Crowne Plaza and Residence Inn. We also have a Moxy hotel in Amsterdam, a Hyatt Place at Heathrow, and we have an independent hotel, Southpoint Suites. Given our breadth, we have system knowledge about what works best across locations and brands. That’s 13 properties altogether and, out of those, four are full-service hotels.”

In your view, what has been the biggest change in the past 12 months when it comes to rate integrity and parity when distributing inventory across channels?

“The biggest thing was when we saw many of the big brands actually changing their wholesale rate structure.

“Previously, we had a lot of negotiated rates that were fixed for wholesalers, but they actually moved away from a fixed-rate contract to a dynamic contract. That has been a really big thing in terms of IHG, Marriott, and Hilton, when they launched their member rates to make sure they have the lowest rate possible. Before this, these wholesalers were the ones who were selling your fixed rates into public sites, and that was one of the biggest things hotels have been trying to change.

“Now the branded hotels came around to that, yet there's still lots of independent hotels and smaller hotel chains that have fixed, contracted rates that are being shown up on public channels. That's one of the things that really hurts our efforts with book-direct campaigns when it comes to parity as it gives customers reasons to shop around.”

What areas overlap with the broader rate parity picture in the hotel industry, and which issues are unique to your segment?

“We specialise in extended stay - some call it long-stay or aparthotels - so there are overlaps, and also key differences. For one, we're still a little bit behind the hotel industry in terms of systems or distribution channels. So that's something that we really need to work on: improving our technology making bookings intuitive in our service apartments and the extended-stay industry.

“Many of the big serviced apartment brands are not well-known brands like Residence Inn or Staybridge Suites. When they get on to OTAs like Booking.com or Expedia, they want to boost their ranking or try and get as much business as they can, so many of them participate in the OTA membership program and offer lower rates compared to their own websites.

“So they become Genius members or Expedia VIP program members. On these programs you give the OTA members an additional discount, a minimum 10% of their public rates, and customers can log in as a member; if you actually go to their own website, because they are such a small brand compared to the international hotel brands, many of them don't have a member rate or a book-direct rate. Many extended-stay or even smaller hotel chains or independent brands are suffering in the same way.

“They do tend to sometimes get pressured to perform better. Once you do that, it becomes addiction from the property side. Once you remove the property off OTA member programs, you do see a difference in delivery because you see your ranking falling or you don't see the same amount of bookings.”

Tell me a little bit more about that. Is it because you can get the demand more easily and you don't have to do as many promotions, or that you get used to having that easy demand? Why does it become an addiction?

“When you participate in these programs, you do get a certain amount of boost to your ranking. If you think about London, where there's over a thousand hotels and serviced apartments, you do want to come up to the highest ranking possible.

“It's just like looking at Google: when you type in 'hotels in London', people probably scroll down to page two or three. If you're on page 10, no one will go there and you'll never be seen. Partners like Booking.com or Expedia have such big reach to potential customers when you have a rooms to sell. When you want to be able to convert and have a higher ranking they do help with visibility and conversion.

“Once you start participating in these OTA membership and visibility deals, you can see your property performing better revenue-wise. But it can also increase your cost at the hotel. When you remove your property from these deals, you can really feel the drop-off in terms of business. With our independent hotels, you don't have a huge amount of marketing budget. So to do a quick fix or to boost volume during a soft period, people do rely on these types of tactics. Once you're in it, it’s addictive and hard to come out.”

Let's explore the difference between independent hotels, branded hotels, and serviced apartments when it comes to rate parity and direct bookings. Would you say that some categories, like serviced apartments, don't need direct bookings as much as others?

“If we look at the extended stay business, which we consider seven nights or more, a large portion comes from business travellers. Whether they're on project work or they're on a relocation, they're on a job for it. In the "old days" and to some extent today, you have Extended Stay agents, which full-service hotels would not be familiar with at all.

“A lot of the time people are used to giving these agents a fixed rate, regardless of who the end customers are. So it's like a wholesaler where you get a fixed rate.

“Traditionally, these agents didn't have the technology to sell them online. It's never really been a problem. Today, even these extended-stay agents are getting their own online platforms and presenting these rates online.

“When a potential guest looks on your own website, you might have a higher rate because you've given the agent a fixed contracted rate. If you had a guest looking online on those websites and also your branded website or even OTAs, the lowest rate might have been the extended-stay website.

“Where a full-service hotel would only lose one or two nights in parity, for a long stay you might be losing out on 30 nights that were actually booked through an agency. So your revenue loss is much greater.”

So, rate parity-wise, it's a much bigger deal than just a one-night loss?

“Definitely. And customers are much savvier these days. I had a guest contact us on our website directly to ask, 'is this the best deal you can give me? We are trying Airbnb as well'. We had that same guest going through Airbnb to see if they could get a lower price, and then they also went to the extended-stay agent. And this customer was actually part of a very big international company; they had a contracted rate with the hotel as well. The guest had all these different ways to contact the hotel and get the best rate possible.

“If your hotel doesn't have parity on how they offer their rooms, you will come into a situation in which you might give the lowest price with the higher commission model, like your extended-stay agents. Your net profit would actually be less for that 30-night booking. It’s really important that we have parity online regardless of the length of stay. So you've got to make sure the price is right, and also you must understand your distribution channel mix.

“Nowadays, portions of your corporate traveller market don't just book through their mandatory channels for long stays as it's not as compliant with short-stay transient RFP business and because the industry is still very fragmented. They would actually look on Airbnb, HomeAway or similar to find your aparthotel or your own website, or through these extended-stay agents or relocation companies. It is really important as a revenue manager to control your own rates and have parity amongst the different channels.”

Part 2 and Part 3 of this interview are now published; these later instalments include Jennifer's tips on how to deal with parity problems.

We've compiled some of Jennifer's views from our conversation with her, alongside those of Wyndham's Inderpreet Banga, into a themed eBook, Conversations on rate parity: an exclusive eBook from OTA Insight. Including an extensive introduction and key takeaways for each chapter, the eBook explores the challenges - and opportunities - of parity.