Group Revenue Management

Overview: A good way to visualize the group market is through the concept of a funnel. At the top, you have total group room demand pouring in (leads). The first constraint is Group allocation, then, as groups inquire about staying, you have Group Prospects, then, as you send out a contract to the group you change the status to group tentative, then when the client returns the signed contract it becomes group Definite with a contracted number of rooms and a group stay pattern (an estimate of the number of rooms used each night during the group stay. The Revenue Manager then washes the contracted number down to the Group Block, a number of rooms that they take out of inventory for the group. In essence, the revenue manager goes into the inventory (either in PMS or CRS) and makes a special "Group master booking" where the customer name is not an attendee but the name of the group.  Nonetheless, this master booking "reserves" the rooms and takes them out of inventory for any other potential guests to book. Then, the actual group attendees need to be booked onto the master booking. This is done through a rooming list from the organizer, a call-in process, or an online group booking using a special code for access to the group's inventory and rates. These individual attendee bookings contain the customer information and stay dates and must be entered before the group cut-off date. As the individual bookings come in, the revenue manager continues to wash the group by adjusting the stay pattern and trimming the block. Most groups will have a no show factor and an early departure phenomenon, which is called by an RM slang term, Group bailout if it is extraordinarily large number. After all this is done, then you have actual group attendance and group reconciliation process.

Group Allocation is the total number of rooms that you will allow the group sales department to sell each day. This number must be set for years into the future so your sales team has some idea of how much group business is the right amount for every night. For example, if you have 100 rooms in your hotel and you have a loyal corporate account that uses a minimum of 20 rooms a night Monday through Thursday, or you have recurrent transient demand at rack rates for 20 rooms per night midweek, then you cannot ever afford to take any group over 80 rooms. To do so, would risk cutting off year round business whose loss would cost way more than the value of any one time group. The group allocation is at the segment level, which means that any combination of groups cannot exceed this number. So, if you already have two groups of 30 rooms each, you only can sell 20 more group rooms in the above example. Allocations are needed because of the booking patterns of various market segments. For example, Group organizers book far in advance, but the corporate business books closer to arrival, so you have to have a group allocation to keep the total group rooms from eating into the potential transient segment before they have even begun to make reservations. IMPORTANT, do not confuse "Group Allocation" from "Group Block" see below.

Group Block is the number of group rooms you have decided to take out of your inventory for groups that have signed contracts to stay at your property.  You will have a total group block for each day and a separate group block for each group each day. Note that the total group block is the total number of rooms you have taken out of inventory for all groups so far booked that day. You need to keep constant track of the ratio of group block and group allocation so you can adapt to changes in demand. Also, note that group block is not the same as "contracted Group rooms." Contracted Group rooms are the number of rooms that you have promised to your group client, but that number is usually more than the number that the group will eventually use. Group organizers do not want to turn anyone away, so typically they inflate the number of rooms they contract to provide a cushion in case their group grows in number. Most hotels allow this type of contracting because the actual group pick-up will be known well before other segments begin to book. The important point is that a Revenue Manager does not want to use this inflated number to take rooms off the market for future sales, so they typically "wash" the group contract number down to a real number they think the group will use which is the group block number.

Contracted Group Rooms are the number of rooms that you have promised to your group client, but that number is usually more than the number that the group will eventually use. Group organizers do not want to turn anyone away, so typically they inflate the number of rooms they contract to provide a cushion in case their group grows in number. Most hotels allow this type of contracting because the actual group pick-up will be know well before other segments begin to book.

Group Wash is the process whereby the Revenue Manager looks at the number of rooms in contracted groups and raises, or usually lowers, that amount based on his understanding of how the group bookings will eventually materialize. This is an area where Revenue Managers take a risk to try to increase revenues by keeping inventory available for more segments and channels to use. Many local markets have similar group characteristics year round so Revenue managers will often apply a "typical" group wash to all groups (for example, 15% across the board reduction) as they are booked and adjust the wash later based on information from the sales force.  This is helpful because it is quick, and, if you almost always use 15%, you can keep track of your overall risks by exception rather than keep track of various wash percentages for each group. When this change in the inventory blocked is made without the customer's or meeting planners knowledge it is called a "blind cut."
Group leads are sources of potential group business. Typically, they may come from direct phone inquiries into the sales office (passive leads) or are generated from sales efforts, like previous meetings held at competitive or sister hotels. Group leads are placed into the group sales data base so that all sales people and the revenue manager know who is assigned to work with the group.

Blind Cut:  Most group contracts have an attrition clause that allows the group to not utilize up to 15% of their room nights without incurring any penalty. So, usually, the revenue manager does not want to put the entire number of contracted rooms into the group master booking. So he reduces the block in the PMS without telling the customer or changing the contract (hence the word "Blind" Cut). The hotel is still on the hook for providing the rooms in the contract, but the revenue manager is hedging his bet so he can plan for other revenue streams in the PMS.

Group Prospects. Once a sales manager has determined that a group lead fits within the group allocation and other property specific requirements, he upgrades the inquiry into a prospect status. This means that actual verbal negotiations are taking place on the number of rooms needed, the pattern of attendee stays, the function space, and the food and beverage requirements as well as the prices for items such as rooms, space, banquets, breakouts, audio visual, etc.  At this point, the sales information system shows the group to the rest of the sales force so everyone knows that the space for these days is "in play." However, best practices usually allow other sales managers to sell this space until the group is tentative and call for the second sales manager to advise the original sales manager that his space is under alternate demand so the first sales manager can use this as leverage with his client.

Group Tentative Status. Once verbal negotiations are concluded, a contract is drawn up covering the details specified and it is sent out to the group organizer. While the organizer has the contract, he has, in essence, received an offer from the hotel to have the space for his group. This offer should always have   a short deadline (few days or week at most), so that the space is not tied up and off the market for a long time and so other groups can still book the rooms. Also, it is not a contract until after it is signed and returned. The importance of having this information in the sales database is so that other sales people and the revenue manager are aware that there is a probability that this space will be soon taken out of inventory.

Group Definite Status. Once the signed contract has been received by the property, it is considered a definite group.  At this time, the Revenue Manager ensures that the contract provisions are noted and that the proper level of inventory is booked in the PMS. (See comments on wash and blind cuts.)
Group Sales data base. This is a data base of all group accounts (with contacts and profiles), leads, tentative bookings, and definite (contracted) groups. The major automated systems are Delphi  and Daylight (Newmarket Software).

Group stay pattern Each group has three stay patterns, the one planned by the group organizer, the one actually booked by each participant guest, and the one actually utilized. The contract will outline the planned pattern, the individual bookings will delineate the guest pattern, but the rooms actually utilized will only be determined after the meeting has checked out. The primary role of the revenue manager is to forecast the actual utilized pattern so the proper room nights can be taken out of inventory for the group. This process is called Ã??�?washingÃ??? or cutting the group block. A typical group pattern may look like this for a meeting starting on Tuesday the 10th.
Group Wash (or simply "wash") Whenever a group planner books a pattern in the group block there are differences between what the planner thinks will happen and the number and dates of the rooms that the attendees will actually book and eventually utilize. This differential is called group wash and as the bookings come in and the patterns emerge, the revenue manager "scrubs" or "washes" the block to make it more closely conform to what is likely to really happen with the group. This may include adding rooms to some dates and taking them away on others.
Group Block This is the number of rooms each day that the Revenue Manager has set aside for the group's attendees to book individual reservations into. See also, Group Master booking.

Group master booking Typically, when a group is contracted the actual guests who are going to occupy the rooms are not yet known. However, there needs to be a "placeholder" kept in the Property Management System to accommodate the guest names as they come in. The place holder is a Group Master Booking that has the name of the group and the number of rooms blocked by date. This Group Master Booking decrements (subtracts) the rooms from the inventory for those days. Later, as the actual guest names are known, the individual reservations (GNR's) are made for those guests within the "Group Master Booking." This practice is necessary because:
 individual guests need a personal reservation with their own confirmation number so they can make changes and have their own folio on arrival, and
This practice keeps the inventory accurate since you do not want the individual bookings to double count the rooms deducted from the available inventory.

Group rooming list Sometimes the bookings for a group do not come directly from the attendees. In these cases, perhaps for a corporate sales meeting, the group organizer collects all the attendee information and forwards it to the hotel. Usually, this list used to be due 30 days before arrival but in recent years meeting planners have been holding out for even later cut-off dates like 21 or even 14 days. Revenue Managers need to weigh in on this contract provision because they need to ensure that there is enough time left after the rooming list comes in, to adjust for sales in other segments, like transient. See Group Cut-off date.

Group call-in process. Some groups have their Attendees call the hotel directly to book their actual stay dates. Although this involves extra work for the hotel, it allows the revenue manager to see how the group is booking so he can adjust the group block up or down or even adjust the pattern of the group to reflect actual bookings. Special hint: After 30% of the group has booked, use their stay pattern because it will better reflect the final stay pattern.

Online group booking (and Passkey). To cut down on the costs of taking all these calls, most hotels now allow groups on their internet booking engine on their website. The group attendees are given a special booking code that allows them to book their room within the group block. For hotels who do not have their own group internet booking capability and for all groups that must contract with more than one property to house all their guests (city wide conventions), Passkey provides an economical booking engine  for more than one property.

Group cut-off date. Group contracts usually call for an allotment of rooms for certain dates at defined prices that are usually, but not always, below the transient rate. In return for guaranteeing this availability to the group the hotel needs to define when the group has to be booked. Usually the bookings can start as soon as the contract is signed but need to be in before a deadline, called the cut-off date. The cut-off date is needed to protect the other income streams at the hotel which may come in at higher prices. This does not mean that the hotel would necessarily not allow any bookings for the group after the cut-off, but the acceptance of these bookings would be solely at the discretion of the property. Issues such as higher rates from other bookings and good will for future business from the group determine the hotel's willingness to allow these "after cutoff" bookings.

Group reconciliation process. After the group checks out, there is a review of what revenue and booking activity actually was developed by the group. This is primarily need to see if the group met its contractual obligations for occupied rooms and catering minimums. The contract usually provides that if the group comes to within 15% of the contracted amount, then no penalty is assessed for the shortfall. But this is by no means a figure set in stone. It can be negotiated for each group (up or down). The most important thing to impress on the group sales force is that all group concessions that are given require some concessions on the other side. If a short fall is determined, then a bill is sent to the group organizer for the difference. For recurring groups some of the shortfall payment may be forgiven if a future meeting is planned in the next year.

Group Attrition. An attrition clause in a group contract calls for a group to pay for all rooms contracted and not used but allows a limited attrition (say, 10-15%) to make group organizing more feasible in the first place and to keep the negotiating and reconciliation processes manageable.

Group pricing issues. Groups tend to think that they should always be afforded a volume discount since so many other industries offer them. This is usually, but not always, true in hospitality. For example, if a property has a consistent transient demand for almost all of its rooms, a group may have to pay a premium to obtain all their desired rooms in one hotel. Also, groups ask for discounts on food and beverage and discounts on function room rental. Revenue managers should confer with the group sales department to agree on guidelines for booking groups and making pricing concessions and discounts. This is best done with a pricing matrix for all dates in the 3 year group booking window. For groups beyond 3 years, group prices are rarely guaranteed until one year in advance.

Group "lose it" rate. Usually a piece of group business is an attractive alternative for a property as it provides a base of customers that can help fill the property and utilize the food and beverage and catering outlets. And most group customers know this and keep trying to negotiate a lower group rate for their business. However, based on the opportunity costs of having their inventory off the market for other customers and the higher rated transient business that the group may displace, there is a figure where the group simply becomes unprofitable. This is the group lose it rate and the sales force needs to know to walk away when the number is hit.