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Battling the Cheeseburger Mentality: Customer Centric Revenue Management in the F&B Department By: David K. Hayes Ph.D., Allisha A. Miller, and Joshua D. Hayes, MA, Peggy A. Hayes Panda Professionals Hospitality Management and Training www.PandaPros.com

Hoteliers have spent the past decade improving their skills in revenue management. Subsequently the stature of the revenue manager has grown. This is simply because companies increasingly recognize the impact on profits achieved by talented revenue managers.

Today revenue managers are involved in all key sales and marketing decisions. But that's true in only two out of the three major revenue producing areas in most full-service hotels. There remains only one significant revenue generating department in which a widespread "revenue managers keep out: this means you" mindset clearly persists.

Front Office Managers (FOM) were among the first hoteliers to recognize the importance of pricing, reservation, inventory and channel management to RevPAR optimization. From the earliest days of "Yield Management" application to todays' sophisticated customer-centric revenue optimization strategies, the impact revenue managers make on room sales is unmistakable. As a result, skilled revenue managers are always welcome at an FOM's or rooms manager's departmental planning meetings. In fact, their absence at such meetings, rather than their presence, would be notable.

Directors of Sales and Marketing (DOSM) were the second group of department heads to welcome the contributions of well-trained revenue managers. Today few DOSMs would try to make the case to a hotel's GM that revenue management principles do not apply to the sale of group rooms and meeting space. In the current competitive environment a hotel lacking a talented revenue manager who is directly involved in the property's sales and marketing department would actually seem quaint (and quite unacceptable).

Only F&B Directors, Chefs, and most free standing restaurant managers persist in keeping their meeting doors closed to revenue managers. Price, inventory, and capacity management in the F&B department is the last major income producing area within a full-service hotel that operates without a customer-centric revenue management focus. But that's not actually their fault. It's due to the fact that nearly 100% of today's food service professionals possess a cheeseburger mentality.

The cheeseburger mentality is so widespread because it is elegant in its simplicity. It can be summarized by the following guiding principle:

Cheeseburgers sell for more than hamburgers because they include cheese.

The use of this principle can be seen on the menu prices of almost every full-service hotel food outlet as well as free standing restaurants ranging from fine dining to quick service.

Inherent in the cheeseburger mentality is this simple belief:

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The cost of producing a product dictates its worth.

It might be nice if that were true. It is not. Don't misunderstand. Cost control is essential to a manager's operational success. That, however, does not translate into cost control becoming the only factor, or even a very relevant factor in determining product price. In fact, consumers are famously indifferent to a producer's costs when assessing a product's value to them. Actually, many may even find increased satisfaction when acquiring products at a price they believe to be below the seller's investment. They are not looking out for a seller's interests; they are looking out for their own. Consumers are seeking value, and value is as much a perception as it is a reality. Perception is affected by many extenuating circumstances.

For instance, according to the "cheeseburger mentality" a retailer selling hot chocolate would calculate product costs, labor cost, etc. and determine the appropriate price per cup. Fair price equals good sales. Right? Not necessarily. If that purveyor attempted to sell the hot chocolate on a scorching summer day at the beach, price wouldn't matter. Hot chocolate would be of no value to the target market. It is safe to assume that demand would probably be nonexistent at any price. No sales equal no profits. But if the same hot chocolate was sold on a cold day by an outdoor park's ice-skating rink, demand would most likely be substantial. The perceived value in that instance might even justify a higher price point than that calculated by cost alone.

Sir Rocco Forte, Chairman Rocco Forte (hotel) Collection put it nicely; "A lot of hotel companies tend to be run by accountants these days, who spend their time looking at costs. You need to make a profit these days. If you don't have a top line, you can control costs all you want, but you won't make a profit." ¹

The truth is that only after selling prices accurately reflect consumer perceptions of value can a business determine the costs it can incur while still generating needed profits.

Experienced revenue managers know that fact well. They routinely match the products and services offered and the prices charged for them with their customers' desires. To do this they must first know their customers and more importantly be exceptional at providing satisfaction to them. It is not simple. Customer demands may vary greatly based on any number of variables. Time of day, day of the week, weather, celebrations, social events, holidays, networking, desire for fun, relaxation, indulgence, status, convenience, savings, and more. It takes expertise to consider all the influences in individual environments, determine the nuances in customer expectations, and then fulfill their demands.

This does not mean, however, that base prices charged by hospitality organizations should be allowed to fluctuate wildly. They should not. In fact, the confidence shown by steadfastly maintaining a company's base price is a sign of effective revenue management (think Apple computer products). Varying price in ways that are mysterious to customers leads to lowest-price purchasing decisions and commoditization of product and services (think most airlines "change-by-the-minute" airfares).

There is no question that price inconsistency decreases a customer's value perception. But there's a contradiction here, right? Revenue Management means utilizing knowledge of a multitude of variables to coordinate a multitude of responses, including marketing, packaging, discounts, product variety, presentation changes, imaging, and communication. It really is about establishing a value for the product and then finding the best way to convince customers of it's worth to them, while simultaneously making them understand they are getting a great deal. It's not easy. But it can be done.

The diamond industry has this concept perfected. People believe diamonds are valuable because they perceive them to be so. Many factors play into this, such as romance, status, setting, and image. Diamonds have no function. Diamonds are incredibly expensive. Unless one is highly skilled, they cannot even be easily distinguished from their cubic zirconium imitations. Yet, a diamond is the one product that people from across the economic spectrum will long for, strive for, scrimp and save for. From a revenue management perspective the value and price of diamonds make great sense. They provide everything the customer is looking for; and the price is worth paying.

Because the value and price of diamonds are not directly related to the cost of producing them, their pricing makes no sense to those with a cheeseburger mentality. Those with a cheeseburger mentality would maintain the misconception that diamonds are valuable because they are rare and difficult to mine. They are. But that is not why they can sell at their current price level. A diamond's price is entirely based on customer perceptions existing in the market place, not their cost.

The Five Guys Burgers and Fries restaurant chain is one that does not have the cheeseburger mentality. They apply customer-centric revenue management principles well. Their product is simple and of high quality. The burger is sold at a fixed price. The emphasis is not on being the lowest priced burger. It is on value delivered. The customer orders the burger and chooses whatever toppings they want added; …at no extra charge. The result in the customers' mind is, "Free cheese …and anything else I want! What a great deal". Five Guys gets it. The value delivered is primary; product cost is secondary.

It's time the third revenue producing area in full service hotels, as well as restaurants and those offering off-site catering services discover the importance and impact that customer-centric revenue management can have on food and beverage sales.

Customer-centric revenue management is here to stay. It's not a fantasy, it's not a phase,…it's reality. It's essential to success. And in all food service operations. When revenue managers are allowed in hotel F&B meetings perhaps they'll be given a chance explain why.

About the Authors: Dr. David Hayes and Allisha Miller speak, and write internationally, on using the power of customer-centric revenue management to radically increase hospitality profits. For more information, please contact amiller@pandapros.com.

About this Article: This article is based on information in Revenue Management for the Hospitality Industry by David K. Hayes and Allisha A. Miller. © 2011 John Wiley & Sons, Inc. All rights reserved. To purchase this book or obtain information about bulk sales, please contact specialsales@wiley.com.

¹ "Hotels" magazine, August 2008, page 22.

SOCIAL MEDIA

5 Tips to Freshen Up Your Hotel's Tweets by Renée Radia www.e-marketingassociates.com (626) 444-9111

It shouldn't be news to you by now that Twitter is an essential tool for your hotel's social media efforts. It's a great channel that allows you to connect with your guests and see what people are writing about your brand. Unfortunately, there are many hotels using Twitter ineffectively and missing the boat entirely. Getting the most out of Twitter is a strong way to impress your current and potential guests as well as get your name out there and put a voice behind your brand. Read on for a list of fresh Twitter tips, content ideas, and do's & don'ts that will help your hotel utilize Twitter to its fullest extent.

1. Make Twitter your digital concierge
These days, guests are constantly tweeting their thoughts and experiences for the whole world to read. Take advantage of these tweets by taking your actions a step further. Did one of your guests tweet that he isn't looking forward to waking up before dawn for an early morning meeting? Surprise him with fresh coffee at his door or tweet him directions to the nearest java house! Did someone tweet that his toddler spilled juice in the room? Let him know that new towels are on the way. You can learn a lot about your guests by reviewing their tweets and tailoring your responses specifically to them. You will stand out, be appreciated, and keep your guests more than satisfied.

2. Offer a social media discount
A recent study shows that 48% of brand followers follow brands on Twitter just to get discounts and deals, so give your followers what they want! You can offer a promotion for something as simple as a discount on a spa treatment or even a gift shop item. Only promote the special on Twitter or your other social media channels, so that it is exclusive to your fans and followers! You could also create a special promo code for 10% off a room that you send to people who are actively engaging you on Twitter and tweeting about your hotel. Be more frugal with this one though, as you don't want floods of people demanding you give them special room rates.

3. Share nearby events
Tweet about events going on in your city. Provide your guests with quick and easy information as well as links to these cool happenings. Do you have a shuttle taking people to the event? Spread the word on Twitter. Did you partner with the event to give guests at your hotel a discount? Include the event's Twitter handle in your tweet so they see you are promoting their event. You never know who is the face behind that Twitter account and might be willing to work with your hotel on a special promotion. It is easy to be mutually beneficial to each other, not to mention your guests will appreciate the heads up about the great events they should check out!

4. Get the word out about your new blog posts and specials
Your followers will appreciate being the first to know about any new promotions and specials you have, so every time a new one is added it's a nice idea to tweet them out. Hopefully your hotel manages its own blog, and tweeting every time you add a new blog article is a great way to drive more traffic to your blog and therefore your hotel website as well.

5. Retweet and respond
Everybody loves being retweeted, and it will make your guests feel more special that you noticed them. Whether they are tweeting about your hotel, an event in your city, or anything else relevant, retweeting is a good way to acknowledge your customers. Also, don't forget to respond to tweets! You don't have to respond to every single tweet, but thanking your guests for a positive tweet about your hotel goes a long way. However, it doesn't mean as much if every single tweet on your timeline is the exact same message thanking people and hoping they enjoyed their stay, so vary up the messages, tailor them specific to each person, and time your tweets throughout the day instead of tweeting all at once.

To Learn More
To learn more about how social media can help your hotel build awareness and expand its reach, contact E-Marketing Associates at (626) 444-9111.