19.07.2008 Hotel, Sales

The Fairy Tale Of The Best Available Rate

“Our Heads Are Round so our Thoughts Can Change Direction” [Francis Picabia]

This represents the core of a quite lengthy and detailed discussion.

A hotel manager regretted the change from the RAC-Rate to the BAR (Best Available Rate) and compared it to Yield Management in Aviation.
Three misinterpretations in one sentence…

The rack-rate (off the Rack) has always been – and is – the rate, anyone “selling” a room was allowed to book at. Unconditional. That rate – in that definition – exists until today and must exist.
Many hotels fixed a rate and called it “rack rate”, published on the indoor or in the locker… But the rack rate is as variable through the year(s) as is any other “rate”. So there seems to be a misinterpretation of a definition by some…

What is the Best Available Rate? It”s one of these meaningless phrases, these politicians manqué in Marketing love. See next.

Third misunderstanding: Yield Management.
I experienced the development of yield management in American Airlines, who made this an art first (late 1980s). And it is an art! The definition for yield management was explained to us at an employee conference with Bob Crandall himself (to date a model “airline manager” to me). In short: They are there to optimize the own pricing structure to achieve the “best available selling rate”. To do that, they got tools to monitor the prices of competition, they took into account long term developments, including public holidays, regional vacation periods, congresses, events, … And they talked to the local sales teams to assure to be aware of trends – something you cannot do to date with technology only! Within two years after launching the department, it employed more than 3.000 of the best people American could find or hire and had achieved a revenue increase making that effort very valuable. I do recommend to have a look at the Wikipedia article on Yield Management.
Today, most managers believe, Yield Management is purely technical. But it is a predictive art. Many managers only look at a single puzzle piece: A good yield manager can be worth an entire sales team. But that does not say you can replace it. In most airlines, the yield management rarely speaks to sales, they stick to the “electronic reports and figures”. Stupid, they miss an essential “early warning system”…

Best Available Rate… The boss of my business training (whole sale) emphasized two rules I found invaluable:

Don”t bleed out your supplier. He has to live. If he lives safely, it”s also to your own benefit.
Price dumping is a Pandora”s Box. They undermine the trust in your products.

And there was a joke that at the time was historic already: “You purchase a box of these screws for 1 Dollar, you sell them for 99 cent, how could you?!” Answer: “You stupid don”t understand that. It”s the quantity that counts!”

Our industry (aviation and hotels alike) have paniked themselfes into price dumping. To date, I question the competencies of any manager, blindly following that path. In 1997, a senior airline manager (unquestioned by his peers) alleged that brand has no value any more. Customers would only purchase by price. I did argue strongly against it. And today argue no less for brand. Everyone can sell cheap. But you get no cheap loyalty with customers, you need brand loyalty!

So what is the Best Available Rate? Can that be the dumped price? Is it the best selling rate? How does it link to the Rack Rate? I don”t blame the pricing managers, they only do what their senior managements ask them and express as expectations. But maybe you should reconsider your pricing “policy”? Create one…?

Food For Thought…
Your comments sure welcome!

06.07.2008 IT, Sales

CRM… Say what???

What is “CRM” all about? Mostly, it”s a hype word, used by IT-companies to sell you (their) “off the shelf”-software, forcing you to their ways to qualify a customer. Back in 2000 at ITB congress, I was asked to address ad hoc CRM taking over a slot from a noshow-speaker. My question was – and is: What is CRM? It”s Customer Relationship Management. It”s about how to manage your relation to your customers. So what”s new?

But with all such hypes and other fairy tales, there”s a true core in them. A good CRM-software must support your existing processes. If it does that, it usually is a valuable tool! Off the shelf does usually not meet that criteria. The smaller your company, the more individual your (personal) relationship management with your customer. The only solutions I saw succeed where custom build or implemented in large, multinational corporations where individuality is not that much the issue any more.

So CRM-software is not the panacea for bad customer relations, it is a tool to enable access to your information. As such, it”s a good way to integrate information from the different departments communicating with the customer: Everbody knows at all times what is going on.
But that can be achieved very often by simply changing your existing address book and calender software to a centralized storage, i.e. with Linux, Exchange, …

Two side notes:
1. Don”t underestimate the work to “normalize” your data. Each and every data source that you must convert from it”s “native” or “export” file format to an “import format” usable for the CRM adds to the complexity of this vital job. And automatic matching is faulty (details on request). That”s a one time job, but a mission critical issue.
2. Don”t forget your customer. With travel increasingly becoming a luxury again, personal sales and support becomes a necessity again. Software may support the sales process, but (to date) that”s it!

22.06.2008 Aviation, Sales, Values, WIG

Alternatives in Aviation – Cheating the Passenger?

The Cassandra-effect: When I addressed the situation on the crude oil market to airline managers earlier this year, looking back I feel like 1994, addressing the Internet: I was “the freak”.

The kerosine price explosion sped up the szenarios I did address. Just a brief recap of my theses: Flying will become a luxury again. How much longer until the low-cost-airlines need to update their models? The cost of operations exploding, airline managers become “creative” (the current FVW special addresses their dilemma). In order not to increase the visible price, airlines charge extra for each and every “standard” service. Kerosine charge, taxes, airport, credit card and even invented fees, a (increasing) fee for each and every bag, for the meal, the inflight entertainment, excessive passenger weight. This “procedure” is extremely short-sighted with a negative repercussion: The travelers feel cheated, the “public opinion” strikes back.
Airlines (not only the low cost) reduce frequencies, park aircraft. No longer records in aircraft orders, options are being returned to Airbus, Boeing, etc.. Am I the only one to see these facts? Kerosine-powered travel is doomed, new solutions will now be developed, tried – and succeed!

Some years ago, Jürgen Weber, at the time the boss of Lufthansa, questioned that the use of light crude oil may need to be confined to the aviation industry as all other industries would have possible replacements. So it is not the question that airline travel will become expensive again. Who in his right mind believes the crude oil will become cheaper again? Evolving into a luxury product, I question the “cost reduction” on staff and services. A friend lately compared it: They try to sell a Rolls Royce with wooden benches.

What now these weeks to me came nevertheless as a big surprise. In some of my presentations, I used this idea of a WIG powered with a hydrogen-engine as an example alternative to the fuel-consuming aircraft.
Meanwhile, I received a serious inquiry, asking if this is realistically possible. Research confirmed the feasability of the idea, so now the idea is being addressed with investors. Can it be true that I may become an “aircraft maker”???

While discussing this szenario ideas suddenly are being considered that have been Science Fiction from the 60s until today. Surprisingly even for me, who these people are, asking me for my ideas and opinions. Obviously, the prices finally exceeded the point, where such “Science Fiction” leaves the fiction and becomes a viable concept and a commercial possibility.