Marios Prokopiou co-wrote this blog post with Mike Francis.
For more ZS insights on the impact of COVID-19, visit zs.com/COVID19.
While everyone’s attention is rightly focused on managing immediate responses to the COVID-19 outbreak at this time, in the coming weeks at least some of that attention will begin to shift to developing and executing a recovery plan. And although it’s uncertain what the recovery curve will look like – for both the economy in general and the travel and transportation industry in particular – what is certain is that organizations that have close collaboration between revenue management and sales functions will be better positioned for profitable growth through the COVID-19 recovery and beyond.
As we’ve pointed out previously, even under normal working conditions revenue management and sales functions often don’t work closely enough together and, in the worst circumstances, can even work at cross purposes. The root of these conflicts comes from each function having different objectives, data sources, KPIs and even different languages to describe the business. For example, in airlines, a revenue manager’s frame of reference is flights for which she is managing yield by growing RASM across the travel seasons, while a seller’s frame of reference is accounts for which he is managing wins by growing market share across the life of the contract. With such different approaches to the business, it’s no surprise that revenue management and sales can be out of sync, often talking past each other. Internal silos are not unique to revenue management and sales (see graph below), nor are they insurmountable. For example, many companies have stand up biweekly calls to bridge these silos and align on short-term strategies across revenue management and sales. While these band-aid solutions help, the underlying silos still exist.
The COVID-19 outbreak has put an increased focus on the collaboration between revenue management and sales. Right now, sales is focused on moving to teleworking, trying to get the attention of distracted customers and looking to identify accounts that will see demand rebound sooner. Meanwhile, revenue management is managing pricing and inventory across markets and routes that have seen uneven impact from COVID-19. While addressing this landscape of depressed demand, there are a few immediate actions that should be prioritized. Tomorrow will not look like yesterday, which means that markets and segments need to be reassessed to make sure that resources are being deployed appropriately. Sales and revenue management will need to be aligned on channel strategy as corporate, leisure and MICE demand will not recover uniformly, even within a single market. This will require clear decision rights for pricing (in applicable markets) and seamless execution being co-led by sales and revenue management.
However, soon organizations will have to shift their focus from day-to-day firefighting to positioning themselves for the recovery. A good first resource should be dusting off learnings from prior demand shocks such as 9/11, the financial crisis, MERS and SARS. Findings about how long it took demand to recover, which markets/segments came back first and how leading firms adjusted their strategy should be leveraged and adapted to predict what the COVID recovery will look like. Simultaneously, structural actions should be considered to better align RM and sales moving into a recovery. Some successful approaches we’ve seen from clients include: establishing a shared governance structure, creating rotational programs to broaden the perspectives of the business units, developing a single source of truth for data and creating shared KPIs, or even going as far as to create a reporting structure with a single leader across both RM and sales.
The initial rebound will be a critical period of performance to capture stifled demand (sales), optimize pricing (RM), and improve system yield (both). Sales will naturally push for load factor to capture suppressed demand, while RM will be striving for revenue optimization. A successful and collaborative airline will use both of these approaches tactically market by market to grow both volume and yield during the recovery. Some specific trade-offs that will have to be managed include: inventory distribution of home country vs. international points of sale for long-haul flights, balancing short booking window corporate capacity with bottled-up leisure demand, and impact to demand patterns (for example, peak seasons, holidays and special events).
Once the recovery is underway, being able to quickly respond to market changes will be critical. So, if you find yourself growing at fair share or better out of recovery, then just keep executing. If you’re lagging competitors in recovery, revisit your strategy and tactical execution – you may not be surprised to find that sales and revenue management are working to achieve different objectives.