It's an age-old story: Revenue managers are paid to improve unit-revenues and profit margins, but down the hall, the sales department is paid to hit sales targets. Question: What's wrong with this picture? Answer: Nothing. The yin and yang of RM departments disagreeing with Sales organizations, if managed properly, is healthy and moves a business closer to great results. However, if not managed carefully, it can deteriorate into power struggles and politics that will doom an organization to fail. Bill Kotrba, VP of Industry Strategy for JDA Software outlines keys to bridge the gap.

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Revenue Managers versus Sales –
The Price War in Your Own Office
By Bill Kotrba, Vice President of Industry Strategy at JDA Software
I
$R
t’s an age-old story: Revenue managers are paid
to improve unit-revenues and profit margins, but
down the hall, the sales department is paid to hit sales
targets. Question: What’s wrong with this picture?
Answer: Nothing. The yin and yang of RM departments
disagreeing with Sales organizations, if managed
properly, is healthy and moves a business closer to
great results. However, if not managed carefully, it
can deteriorate into power struggles and politics
that will doom an organization to fail. The keys are
communication, communication and communication—
and an RM team that understands how to position
revenue management techniques as a win-win-win for
the company, the salespeople and the customers.
Much has been written about price wars recently,
considering the economic roller coaster, occupancy
crash and recovery that has taken place since 2008. The
downturn hit the hotel industry with terrible timing,
A
right at the intersection of Internet price transparency
and the mobile shopping revolution. It was a perfect
W
storm — a wave of economic weakness hitting an
industry poised at the tipping point of price volatility and
vulnerability.
When people think of price wars they think of the
industry’s B2C retail or transient business segment.
With varying intensity, most hotels are in a constant war
with local competitors to capture market share and fill
otherwise-empty rooms. The price wars we are most
familiar with occur when one competitor panics and
drops rates dramatically attempting to steal market share
or stimulate new business. Images of highway signage
advertising “as low as” pricing comes to mind, or online
travel agency price comparisons with competitor rates
matched dollar for dollar and ending in 99 cents.
There is a different kind of “price war” though, which
commonly occurs within the walls of a hotel, or central
chain headquarters, between the Revenue Management
(RM) department and sales team or sales director.

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This price war concerns the pricing a hotel offers in With rewards like this, though, come some risks. The
B2B distribution channels, such as to groups, corporate most common complaint I hear from salespeople about
contracts, wholesalers, tour operators and the like— revenue managers is that “they automatically say no.” Or
and refers to the conflict that occurs between revenue that RM takes a purely transactional view of the business—
managers who are charged with increasing unit-revenue disregarding the value of long-term relationships with
(RevPAR) or total profits, versus sales staff who may be large B2B customers, like corporate travel managers or
measured on occupancy or sales volume for particular tour operators. RM, in turn, complains that salespeople
business segments. are too quick to offer lower rates in every negotiation,
without considering what alternative business segments or
The conflict between RM and Sales is common in transient business might be vying for the same capacity on
hospitality and also exists in adjacent travel industry the same nights. If not managed carefully and impartially,
verticals like airlines, cruise lines, car rental, etc. I believe the valuable RM/Sales push-and-pull can deteriorate into
it arises from the cultural DNA of revenue-generating a power struggle (or worse) and undermine results. The
organizations. Salespeople are deemed to be effective biggest mistake executives make is to advocate either
when bookings are being made, whereas RM people are a “sales view” or an “RM view” consistently, instead of
deemed to be effective when bookings are being turned positioning the two as a constant check and balance.
away. As such, revenue managers are prone to leaving
money on the table by pushing too hard for higher rates,
The Sharpest Knife in the Drawer
and salespeople may be biased toward leaving money on
the table by pushing for higher occupancy. In a previous job as head of revenue management in a
large organization, I worked with a sales director who asked
for only one simple piece of information to provide to his
What’s Wrong With This Picture? account managers—a spreadsheet showing the walk-away,
The problem with this conflict between RM and Sales is or “how low can we go?”, prices for each day and market.
… nothing! In any hotel, from largest to smallest, there He wanted his staff to quickly be able to see the absolute
is a constant push-pull between rates and occupancy. As lowest price that revenue management would accept as
occupancy increases, the opportunity arises to generate they conducted negotiations with prospective customers.
more total revenue or profits by increasing rates—more
than can be generated by further increases in occupancy He wasn’t wrong to ask for this—but this looked to me like
alone. This back-and-forth between RM and Sales, a one-way ticket to lowering rates. The last thing I wanted
constantly pressure-testing the other’s assumptions on to tell every salesperson was the rock-bottom rate we
rates versus occupancy, distribution channel mix, groups would accept on a given day or week. Instead, with help
versus transient, etc., is a healthy and vital means of from an impartial executive, we created a system of rate
ensuring no stone is left unturned. The combination of a recommendations, which put a few more hoops in place for
skilled sales team and RM team, armed with disciplined salespeople to jump through before they were free to drop
analysis, good forecasting and optimization technology, to the lowest rates. Yes, it slowed down our response time
can efficiently propel a business to grab every possible to prospective customers in some cases, but it also forced
dollar of revenue and profit. Sales and RM to communicate in real-time, every day, to
evaluate the most contentious opportunities.

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At the same time, as an RM team we set out to make a set a deal, while locking in upside potential when BAR rates
of tools—knives in the drawer—that would provide more go up according to RM forecasts for peak periods such that
negotiating leverage than simply lowering rates. more total revenue comes to the hotel.
Other “toolbox” examples might be for RM to quantify
What Can RM Do for Sales?
optimal discounts in exchange for room-night
First and foremost, communication and more commitments, or backend discounts for achieving tiered
communication. RM and Sales cannot push and pull volume targets, or guaranteed access to constrained
effectively without timely information flowing constantly. properties in exchange for slightly higher rates across the
For example, RM needs to ensure that account execs have board.
access to the latest forecasts, pricing information and
bookings on hand for the upcoming booking window.
Sales needs to know from RM exactly what mix of business
What Can Sales Do for RM?
segments and rates will maximize revenue and profit for Of course, the need for communication is vital in both
an upcoming period? If that expected mix changes, Sales directions. Kathleen Mallery, Director of Revenue
needs an efficient means to receive that information to Optimization for Carlson Hotels, provided a great example:
change course accordingly and in time.
“One of our account execs received an RFP from a corporate
Another thing RM can do for sales, as mentioned travel manager requesting discounted rates for every day
previously, is to provide a complete set of negotiating tools of the upcoming year—for hundreds of properties—with
that can be positioned as “win-win” for both the hotel and submission due in 48 hours. These types of RFPs were not
the customer. In the best case, these tools provide upside uncommon, but RM didn’t know about them, and Sales
to the salesperson and the hotel, help close deals and help was paralyzed with no means to generate a meaningful
counteract the natural downward pressure on rates. For response on short notice. There’s no way we can respond
example, while bulk room buyers often prefer net rates— to that effectively without working together. Now we
absolute rate amounts guaranteed for future period of are building RM tools to speed up the review process
time—it’s usually in the hotel’s interest to offer a percent and ensure there’s support from Sales and RM so we can
discount off BAR rates instead. RM can help quantify a respond to large urgent RFP’s like this.”
deeper discount off of BAR to entice a customer and close

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What Can Executives Do? About JDA Software Group, Inc.
Executives need to think carefully about how to align JDA® Software Group, Inc. (NASDAQ: JDAS), The Supply
incentives for effective Sales/RM push-pull to ensure every Chain Company®, is a leading provider of innovative supply
possible dollar of revenue and profit gets generated—while chain management, merchandising and pricing excellence
also making sure that both Sales and RM are rewarded solutions. JDA empowers more than 6,000 companies of all
for great results. An individual account manager selling sizes to make optimal decisions that improve profitability
group space needs to be incentivized for driving business and achieve real results in the discrete and process
in the group segment, and revenue managers need manufacturing, wholesale distribution, transportation,
to be compensated for driving total RevPAR and profit retail and services industries. With an integrated solutions
improvements. Those goals will occasionally be at odds— offering that spans the entire supply chain from materials
but in a way that benefits the total result. to the consumer, JDA leverages the powerful heritage
and knowledge capital of acquired market leaders
Executives also need to be prepared to step in and including i2 Technologies®, Manugistics®, E3®, Intactix®
resolve Sales/RM conflicts impartially with an eye to and Arthur®. JDA’s multiple service options, delivered via
RevPAR and total profitability. Without strong leadership the JDA® Private Cloud, provide customers with flexible
and appreciation for how Sales/RM interaction and configurations, rapid time-to-value, lower total cost of
disagreements can help generate great financial results, the ownership and 24/7 functional and technical support and
outcome will most certainly be an internal “price war” that expertise.
can be just as destructive as those waged by a competitor.
About JDA Pricing and Revenue
Management Group
JDA Pricing and Revenue Management Group, a global
business unit within JDA Software, is a leading provider Bill Kotrba serves as vice president
of Price Sensitive Revenue Management™ solutions that of industry strategy in JDA
help companies improve profits by balancing supply Software’s Pricing and Revenue
and demand through innovative forecasting, pricing and Management Group. He is
revenue management. For more than 25 years, companies responsible for overseeing strategic
in the travel, transportation, hospitality and media business initiatives for the leisure
travel and hospitality industries.
industries have benefited from the ongoing innovation
and deep domain expertise from JDA. To learn more about
JDA Pricing and Revenue Management, please visit
www.jda.com/revenuemanagement.
www.jda.com | info@jda.com | +1 800 479 7382