In Play and On Deck: The Commercial Strategy Playbook

Imagine a baseball team. In the past, winning revenue generation teams had a full view of the “field” – the market and hotel trends for rate category and channel, day of week, length of stay and booking lead time (this is the catcher position). Imagine that the rest of the team filled out the other infield positions: sales, marketing and brand support. The revenue team tracked stats and scouted upcoming hitters – knowing their stats, history, profiles and likelihood to provide a return (or hit a homerun). 

In the past, revenue leaders called the plays and sales leaders delivered the pitch. Marketing led the communications effort and brand support helped all the other players improve. 

While this was an effective way to think about hotel revenue generation for a long time, there’s a new set of rules in play. They call for an evolution in the commercial framework, an emerging discipline called commercial strategy. 

What Is Commercial Strategy?
Commercial strategy describes a set of business plans that will drive tactical actions intended to optimize a hotel’s (or hotel group’s) performance. Legacy roles at every level in revenue management, sales (group and business transient) and digital marketing/ecommerce are now part of a team that must act in concert to address all aspects of commercial strategy. The commercial strategy team will integrate revenue generation and spending decisions across all revenue disciplines. 

Commercial Strategy at Bat
The pandemic required the industry to acknowledge a new world order. This different approach means surgically targeting opportunities so a hotel can be more efficient about generating revenue. It has to shift its focus from solely on top-line revenue to include profit contribution. It’s about choosing the best targets to pursue rather than pursuing everything in the market or going after the same business it has targeted for the last 5 years. It means reviewing all funds and personnel deployed to ensure costs are closely managed and align with the best opportunities. 

While many sales and revenue teams are high-functioning, the post-COVID environment has changed consumer behavior and reduced staffing levels in all commercial disciplines. Assessing the continual (and inevitable) shifts in market opportunities throughout the recovery and adding a laser focus on cost control (similar to the way labor costs are managed), will give the team a fresh perspective that always points to the all-important objective: profit contribution. 
 

The Commercial Strategy Playbook
There are three critical components of digital disruption driving the imperative for commercial strategy.  They’re known as the 3 Cs: cost, control and comps. 

This relates to the cost of customer acquisition, control of the customers and what a hotel uses as a benchmark to most accurately judge performance within a market, submarket and comp set. A playbook that includes these components will drive three major changes to the way hotels execute:

1. Organizational Structure. It’s critical to update the view of a hotel’s revenue generation team to one unit addressing all commercial strategy areas: revenue/commercial analysis, sales deployment and digital marketing spend. Adopting this new team structure will yield higher returns for a hotel or hotel group, leveraging critical skill sets that have been traditionally siloed. 

2. Budget. The commercial strategy team has one playbook and one pool of funds. Acquisition costs vary widely, rising from 15% to 25% in 2019. During past downturns, OTA commissions and other third party marketing costs ballooned. The new commercial team will need to focus on examining all realistically available opportunities, assessing the opportunity’s impact and deploying the appropriate resources/tools (funds) against it. 

Hotels can manage acquisition costs more effectively when they: 

• Align budgets and teams toward one goal
• Think about their expense budget line items as one pool of funds 

Experts should still be the key positions players, but everyone should be working toward the same end.
 

3. Performance Assessment. Another important consideration is that goals and objectives must apply to all team members, including capturing the opportunity and managing costs. Get those stats up by focusing on integrating revenue, sales and digital marketing leaders with brand, regional and local market support and initiatives. 

Performance assessment also includes updates to the way hotels compare their performance to their competitors’. Hotels can no longer focus “in league.” They have to consider all potential competitors to identify opportunities. They should target hotels by the type of business they compete with them for instead of solely basing competitive decisions on size, location, brand, full- or select-service, etc. Many hotels are competing up- and down-market as the recovery plays out differently in every destination.

Ownership Goals
Like a baseball team, hotels and hotel groups have key stakeholders interested in their overall performance and success. Commercial strategy is the right fit for addressing owners’ concerns about investing funds and aligning spending on the right targets and opportunities. 

This is most commonly achieved by aligning funds with a planned optimal business mix target. That means a hotel has a target for each channel, like OTA, Brand.com and GDS, as well as each rate category: Rack/BAR, promotion/loyalty member rate, corporate, government, etc. The resource pool is based on segment and channel targets. It’s capped for cost control based on strategies set and agreed upon by the whole team. 

In an increasingly digital marketplace, the team has to focus on sourcing the right demand and being as efficient as possible in capturing demand based on market availability. This shifts the team’s focus from a top line goal to a strategy focused on flow-through and profitability. In a post-COVID world where profit contribution is mission critical for owners covering debt service, not only does the commercial team have to capture available business, they also have to consider how much it costs to acquire it.

The Players
The commercial analysis leader synthesizes data and develops key insights in cooperation with other discipline leaders. They participate in all decisions by making recommendations on overall pricing, inventory and distribution strategies. This may prove to be a shift in the revenue manager role from the traditional focus on rates and inventory to providing additional input for sales and digital tactical plans.

The sales leader proposes staff deployment and initiatives for group, business transient and leisure sales targets. They help make decisions around digital and other marketing initiatives. As an active member of an integrated commercial strategy team, they may also provide feedback and agreement or suggestions for pricing and inventory decisions. 

The digital marketing leader establishes primary communication and content for brand, direct, third party and other marketing targets and deploys media funds. They also take part in team decisions around general deployment and overall pricing and inventory. 

Every member plays a critical role in understanding the competitive landscape and broadening team focus past the immediate geographic area or hotel size to include all competitors in each segment and channel based on their own strengths and weaknesses.

Executing the Play!
Who is responsible for executing/tracking action plans?

Successful Team Leadership
A successful commercial strategy team requires team members to work together to identify, quantify and rank realistic opportunities, define the pool of funds, align funds and resources with opportunities, take action and monitor progress and success. 

Team members must effectively research and understand the competition, collaborate on creative solutions and support all players on the field as they execute against existing opportunities. Role assignments and team leadership may vary based on available skill sets. Winning commercial strategy teams will operate with one target in mind: profitability. And they’ll achieve it by aligning strategic and tactical actions with an agreed pool of resources/funds and allowing each expert to execute in their area by following the team’s own commercial strategy playbook.