Revenue management – from the present to the future

The concept of revenue management is certainly not new to the hospitality industry, but the techniques and technologies used by hoteliers 5-10 years ago were far more elementary than today’s standards and certainly beyond the capabilities of next-generation platforms, which are increasingly leveraging the power of data and analytics to automate the pricing and distribution decision-making process.

Today, most hotel operators view the need to progressively improve their revenue management capabilities as a strategic imperative worthy of garnering ever-increasing amounts of attention and resources, given the opportunity to improve financial performance in highly predictable ways. For most hotel operators, the investment in upgrading their revenue management capabilities has paid off in spades. In fact, according to most research, larger hotels have enjoyed, on average, a 10 percent increase in RevPAR, often resulting in millions of dollars in additional profit. Midsize and limited service hotels have faired only slightly less favorably, with a 7 percent average increase in RevPAR.

Of course, not all revenue management initiatives are the same. Different approaches, technologies and resources produce totally different results. Revenue management opportunities and choosing the right solution are always in the context of the specific needs of the hotel complex.

Key concepts

Relevant data sources and performance metrics

Revenue managers today have an embarrass-mentof riches when it comes to data in that there is practically no end to the number of internal and third-party data sources at their disposal. On the one hand, the ever-increasing number of data sources may be useful, but adding more and more data at one time can lead to confusion and an inability to make the right decision.

In order to be able to gauge the adequacy of the decisions we make, we should always compare them with key performance indicators.
The most commonly used metric for measuring how well a hotel is managing its inventory and rates is revenue per available room (RevPAR), which is calculated by dividing the total guest room revenue by the total number of available rooms and then dividing that number by the number of days in a given time period.

However, it must be in mind that, while RevPAR provides a good picture of overall hotel performance, it fails to measure actual productivity because doesn’t take into account costs per occupied room.

Intelligent pricing

With next-generation revenue management, the idea is to automatically forecast demand, match it to the capacity of the hotel and to increase the price by higher demand and occupancy to achieve higher revenue from each room.

Here a key concept to keep in mind is price elasticity of demand.

Demand is sensitive to changes in price and price is sensitive to changes in demand. Hotels have a lot of elasticity because rooms are perishable and fixed in capacity.

The widespread adoption of data-driven revenue management strategies and advanced technologies no doubt deserve a lot of the credit for continued RevPAR growth. More than half (53 percent) of today’s hoteliers believe that revenue management will become even more automated with further advances in data analytics capabilities. The totality of the data set may include dozens of guest segments, a dozen or more room types, years of historical booking and reservations data, and upwards of a dozen length-of-stay types.

Must-Ask Questions

By asking the right questions, decision makers can determine which revenue management solution on the market best fits their needs and is most likely to deliver the benefits they seek, with minimal risk and expense.

Surely to choose the best technical solution, the revenue manager or the person who is most directly involved in the revenue strategy should has the primary consideration.

For the revenue manager it is especially important that the software be able to offer opportunities to test situations, what would be the results of changing the price for a certain period and how it would affect the total revenue before the actual situation occurred.
They do not want to wait for real bookings to come in to understand the impact of their strategies and determine whether they made the right decisions. In short, revenue managers need to be comfortable that the new solution will enable them to do their jobs with maximum effectiveness.