Today, while I was doing online research, I happened upon a very interesting blog dealing with various topics related to Revenue Management.
As I scrolled through the content, I came across a rather challenging conversation, a mixture of ideas and statements at odds with each other. Precisely for this reason, I decided to write this short article that I would like to share with you, hoping to clarify the substantial differences between:
Spillage and Spoilage, Overbooking and Oversale
Spillage and Spoilage: how to manage them?
Spillage basically means that we have sold the rooms available in our facility much too quickly, and are therefore forced to stop sales well in advance of the date of interest. This case occurs frequently, especially during high season, in facilities that most likely do not implement revenue management strategies and are eager to be fully booked months in advance, for fear of finding themselves close to stay date with many rooms left to sell and therefore with a large number of unsold units to record at the end of the day.
The most common issues related to Spillage are:
- Lack of control over online quotas, through TO’s and various allotments
- Incorrect or absent rate dynamization
- Lack of sales monitoring and control on booking window
- Failure to account for probable events on a specific date
Conversely, the phenomenon of Spoilage might arise; namely, ending up with a large number of unsold rooms close to stay date. This, too, should be viewed as a mistake, as one finds oneself in the position of having to do everything possible to sell the remaining rooms: such as, setting up a last-minute rate which, as we know, if not covered by a cancellation policy could lead to a consistent number of cancelled reservations (which would probably turn into new bookings at a new rate lower than the previous one).
Also in this case, for the sake of example, I could mention several hotels that start off with a high rate and miss out on sales in the meantime because the rate was not aligned with the market, thus running the risk of losing potential clients.
What are the common issues associated to Spoilage?
- Incorrect or absent rate dynamization
- Lack of booking monitoring
- Possible stay restrictions (Minimum Stay – High Bottom Rates)
- Lack of statistical analysis
In both scenarios, therefore, we are faced with a loss of revenue: in the first case, sales are completed too hastily, failing to maximize the potential earnings of the facility as we have not had the opportunity to drive the rate upwards; whereas, in the second case, we are forced to decrease the rate at the very last minute, losing out on possible revenue also in this situation.
Overbooking and Oversale
Hence, the need to provide an accurate definition of two other terms relevant to the subject matter and somehow also connected to Spillage; as previously explained, this term is used to describe an uncontrolled, hasty sale, which in some cases can lead to Overbooking, which should not, however, be confused with Oversale.
Overbooking: it basically means that we have more rooms booked than the ones actually available in the facility. Please note, overbooking is not always a mistake, as sometimes the person in charge of bookings – or the Revenue Manager itself – pays particular attention to distortive variables which should never be underestimated (no show, early check out, last-minute cancellation, weather).
Precisely because these distortive variables must be accounted for, there can be tendency to sell more rooms than are actually available in the facility, as they could compensate for bookings that might potentially be canceled. Overbooking is, therefore, a moment of transition between going over or under current inventory. In this case, it is particularly important to check the guarantees submitted by customers, such as deposits received, credit cards (often invalid) in order to keep the reservations under “control”.
On the contrary, if we find ourselves in the situation of having to “reprotect” guests – that is, rebooking customers with confirmed reservations at another hotel – then Overbooking turns into Oversale, as we have sold more rooms than are actually available in the facility. This is just like Overbooking, however, in this case we haven’t screened the reservations or, more particularly – as previously explained – we haven’t performed an advance check on credit cards (which have all turned out to be valid) and we now find ourselves having guaranteed all incoming room reservations, due to an improper management of overbooking.
To be honest, in the beginning, I used to hate overbooking, too. I still remember my first experiences in the booking department, where each instance of overbooking was followed by moments of anxiety. Little by little, I started to understand how to overbooking is managed and how it differs from oversale; therefore, even today I can relate to receptionists (or whichever staff contact me from the facility) and I do my best to help them deal with those few times when overbooking does happen, because I understand their disorientation, but I then try to explain to them the reasons why overbooking occurred and how to best manage the situation to return to normality.
A case that went down in history…
I remember a particular case concerning a seasonal summertime facility which, 15 days before check-in date, I overbooked by three rooms for a 3-day stay at an exorbitant price, more than four times the average daily rate of that period.
I still remember the phone call I had with the facility manager, who was worried and slightly upset about the situation (such calls are not soon forgotten!). She was so on edge that she failed to comprehend that she had just received 3 reservations at a rate of 999.00 euros per night for a 3-night stay, for a grand total of 8,991.00 euros, and the client had even called the facility to confirm the booking, just to add to the moment of heightened tension.
Why did I overbook the hotel? And why did I set such a high rate?
It was mid-August and I had noticed many reservations coming in on those end-of-month dates and, mind you, I was dynamizing the rate rather heavy-handedly. Suddenly, the hotel requested that I stop sales because they had sold the last rooms directly over the phone at the same rate.
In that moment, I swallowed a bitter pill, knowing that we could have secured higher earnings as we had heard that there was to be a wedding nearby: the bride, the groom and the guests were coming from England and, up until that moment, we were the only hotel with available rooms!
I had rapidly checked the bookings, noticing that three 15-day reservations had been made well in advance by Russian customers. As we all know, reservations of this sort are often received and promptly cancelled as soon as these customers are granted a visa to leave the country. I had taken the risk, even though I should have asked the facility to proceed with pre-authorizations before putting the three rooms up for sale. However, I could not and did not want to wait, because I was sure that those three reservations would fall within the distortive variables, therefore, I had to implement my revenue management strategy to maximize sales.
After overbooking and the call with the manager, I asked the hotel staff in charge of booking to proceed with pre-authorizations, making myself available to deal with any potential “to reprotect” situation resulting from oversale. It was essential at that time to reassure them of my continued support and not leave them to their own devices.
Following the credit card check, more than three cards turned out to be invalid: some were later modified and therefore guaranteed; others were cancelled for failure to provide a valid number but were later replaced by new bookings generating higher revenue. I was satisfied, despite the initial moment of imbalance with the facility manager: I had implemented the best Revenue Management strategy applicable to the situation, gaining the complete trust of the facility from that day forward, and achieving excellent results the following year, over the entire opening period, with substantial increases in room revenue.
Therefore, one should not be alarmed in the event of overbooking, let alone steer clear of it altogether; rather, one must know how to manage it in order to avoid Oversale!
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