We are delighted that Kevin Geraghty from the digital marketing agency 360i and the author of “Revenue Management & Digital Marketing: Integrating two independent business processes produces marketing magic” has agreed to speak at the Apartment Internet Marketing Conference (AIM).  His experience with deeply integrating marketing with revenue management should provide important strategic guidance for revenue managers who are looking for next steps to increas the value they bring to their companies.

We’ve asked him to present advanced-level case studies from other industries about the integration of trackable digital marketing with revenue management.  Kevin worked a decade ago with our friend Jeffrey Roper (from M|PF Yieldstar) in the auto rental sector, and is now a principal at 360i, a leading digital marketing firm that serves consumer giants.

In his December 2008 article in Operations Research Management Science Today, Geraghty states the problem of having separate revenue management and marketing functions:

“Revenue management is very effective in extracting revenues from strong markets. This often makes up for a key weakness: over-reaction and lack of precision when demand is soft. The response to soft market conditions can be to make price cuts across the board to stimulate demand. In some cases this is appropriate, but in many cases it is extremely expensive. Unlike marketing spend, the impact of price cuts do not show up as explicit expenses. However, price cuts can have a devastating impact on profitability.

When marketing and pricing are integrated, the cost of a price cut is weighed against the cost of driving extra business. In many areas of marketing practice, the level of granularity available to marketers is insufficient to create a clear understanding of the impact a specific investment on tactical pricing and conversion. Direct marketing strategies such as paid search do have the granularity to target specific timeframes and geographical locations to offset the need for price cuts. When this is combined with competitive monitoring, a clear picture emerges of where and when to deploy paid search spend and which products to discount.  By using paid search in tandem with yield management, substantial revenue gains and marketing efficiencies can be realized. “

Last year at AIM, we heard from Kathleen Reidenbach, Vice President of Revenue Management and Distribution from Kimpton Hotels.  Her presentation (video excerpts available) carefully laid out why hotels integrate revenue management with marketing – because they are part of the same process of attracting the right customer and giving the customer the right offer, which may be priced to yield the optimal return.

In lodging, the executive with price information also has demand information and can determine which offers to “distribute” (advertise) in order to get more of the desired traffic.  They drive leads through their low-cost sources first, and then layer on more expensive traffic – if they have statistical support that the investment will yield higher-value customers coming in the door.  In this scenario, advertising is an investment that is justified by higher yield.  Special offers and discounts are structured and distributed knowing the total cost and expected acceptance.  Advertising response rates help to determine pricing.

The ultimate goal is total yield (revenue per available room night) not a heuristic occupancy benchmark.  (I know many people who would rather be 100% occupied with a $1,000,000 rent roll, rather than 95% occupied with a $1,040,000 rent roll.  But that doesn’t make sense to investors who just want their money.)

We believe that operations, marketing and revenue management leaders all can boost their personal and corporate prospects by focusing on the integration of revenue management and marketing.  This will in turn create better-yielding organizations if they treat marketing and pricing as part of a larger whole, under
common leadership.

Please come to the Apartment Internet Marketing Conference in Denver, Colorado April 29-May 1, 2009, we’ll talk more about it there!

Below are selected videos taken from a presentation given by Kathleen Reidenbach of Kimpton Hotels. In the short videos, she shares revenue management practices and strategies used by the lodging industry and draws parallels to the multifamily industry.

Revenue and Market Share Lift from Using Revenue Management

Kathleen Reidenbach, Vice President of Revenue Management and Distribution for Kimpton Hotels was kind enough to speak at length to the 2008 AIM Conference.  Her presentation detailed Kimpton’s increased revenue and market share from revenue management, how they optimize pricing using demand information, and the deep integration of marketing with revenue management and the staffing required to reach the right customers with the right offers at the right time.

For those interested in managing advertising in social media, the last video will be especially useful as she details how they use public feedback from ratings sites as a management tool, and how Kimpton manages their brand reputation in an environment with customer-generated content.

Reidenbach’s complete presentation is available on this site to view.  Above and below are four video excerpts of some of the most directly applicable lessons she shared with the multifamily industry.

Revenue Management Staffing and Infrastructure

Automatic Distribution of Pricing
Across Marketing Channels

Reputation Management – Customer Ratings and Comments

The AMLI case study is important because the company takes a “people and process first” approach to performance.  They treat revenue management as simply one form of optimization, a technology among a number of quantifiable efforts they use to drive incremental results.  AMLI has about 22,000 apartment homes in 11 different markets.  They are headquartered in Chicago.  Hear from Steve Small directly below.

Part 1 – 2:20  “AMLI’s Use of Revenue Management”

Part 2 – 2:40  “Elasticity in Revenue Management”

Part 3 – 5:36  “Monitoring and Reporting Tools”

Part 4 – 2:18  “Pricing Console – User Interface”

Part 5 – 3:30  “Lead-to-Lease Success”

Rich Anderson, Senior Equity Analyst at BMO Capital Markets once sarcastically asked Camden Property Trust CEO Ric Campo if Camden execs kneeled and bowed to the revenue management terminal each morning.  (Don’t take our word for it, the exact exchange is quoted below.)

Since then, Anderson hasn’t lost his humorous edge, but he has come around and produced a very thoughtful and comprehensive report on revenue management in multifamily which is a very concise summary of the value proposition, as well as his insights into its impact on the business.  The report includes great data on the revenue lift that revenue-managed properties have experienced.  We think Anderson’s report deserves notice from the industry, and from investors as it contains important insights into operational value creation.  He summarizes his view with:

“The bottom line is that we think multifamily revenue management, in
connection with a hands-on approach, is proving itself a worthy tool for the
industry – with revenue lift averaging something north of 1% depending on
how it is measured. And the more it is used, the better and more efficient the
overall business of apartments will become. In some cases it is a push –
using revenue management to set rents results in no meaningful upside. This
happens about 30% of the time, and is mainly a function of strong in-place
property management personnel. But the problem is, good employees tend to
leave (assuming 60%+ employee turnover) whereas revenue management
does not. So even in those cases where revenue lift from the software is
marginal, it still makes sense to consider utilizing revenue management.”

We will excerpt Anderson’s report from time to time and discuss additional elements of it.  For now, it’s available for you to download and enjoy in its entirety at the link below.

BMO Revenue Management Summary

And here’s the original sarcastic exchange from Camden’s Q3 2007 analyst conference call:

Rich Anderson – BMO Capital Markets

Hi, good morning still for you guys. I guess, the first question is I listen to this and it is like Yield Star has been around for two years, has two years of history, and we’re really hanging our hat on something that doesn’t have the history that you guys have, as real estate professionals.
So, I mean is there a chance that it could be wrong?

Richard Campo

Rich, that is a very interesting question.

Rich Anderson – BMO Capital Markets

I’m picturing you guys going to work every morning and like kneeling in front of the Yield Star terminal and bowing to it or something.

Richard Campo

No, look, Yield Star is a tool, okay? It has to be managed by people. And people have to ask the question every day, on-site manager, your district managers and we have Yield Star pricing specialists that deal with issues that come up, and so it is in fact a tool, not a panacea.

It is not on autopilot. It is managed every single day by the people running their properties. The different in the past was you didn’t have an ability to forecast and you didn’t have an ability to run all of the numbers that Yield Star runs.

What it does simply is forecast and figure out all of the permutations that you need to understand as you’re marketing, as you’re running a property.