There are many myths about revenue management, but there are five we hear most often.
Myth #1: Revenue management is only essential when business is booming.
Whether business is busy or slow, it is critical to define your inventory correctly, update your systems accordingly and ensure their descriptions are clearly presented to customers on all channels. Revenue management is a fundamental part of business, especially in such a dynamic industry as hospitality. At its core, revenue management is about defining your inventory and rates.
For an effective pricing strategy, you should look to determine your offerings, including:
- Variety of rates
- Your loyalty program offerings
- Upsell opportunities
Slow periods are an excellent time to understand price fences such as advanced purchase, deposit or cancellation policies, as these can be flexed over time. There will likely be a special event or sudden period of high demand, so always look for those opportunities. Using external data about your market can assist here. This helps you understand if there is market compression or depression that your on-books have not yet reflected, giving you the heads up to course-correct.
Don’t make the big mistake many make of dropping their rates during slow times. You may have demand that is very willing to pay. Lower prices can help generate demand but also dilute revenue for those already willing to pay. Understanding your segmentation will help drastically in this area.
Revenue management is at play every day, so be prepared to act as often as needed. Have you developed a strategy for the next weather event, political uprising or pandemic? Write down and apply what you’ve learned.
Myth #2: The pandemic completely messed up our historical demand patterns. So, forecasting is unreliable in the future.
The pandemic did make us question our knowledge and assumptions about forecasting. Historically, we have relied on past data and time series forecasting to help predict future demand, and in most cases, this was reasonably accurate.
One of the most important exercises is deep diving into your data to understand better what might be relevant in forecasting. Usually, understanding seasonal patterns requires several years of data to see how things might be trending year over year. We must understand what data is usable. For example, you could exclude one year but use the year before.
Future bookings are often the first indicators of whether business is growing or declining. When historical data is challenging, putting more weight on incoming data is essential to recognize trends. One way to account for these anomalies is by using revenue management technology that runs multiple models and then selects the ones that provide the most accurate forecasts. These models may differ by market segments as they change over time.
Myth #3: We need to pause rolling out an RMS to focus our budget on marketing.
Sadly, this is a common myth: Do we have the money for technology? We need to fill our hotels!
Many hotel companies continue to struggle because they find themselves with outdated technology, numerous systems with multiple interfaces, and the inability to beat the competition due to a lack of functionality.
We must maintain three- to five-year business roadmaps for all our systems and know the dependencies. In some years, we may need to slow down; in others, we can be more aggressive. But failing to plan for the future can be costly. Systems break, maintenance becomes more expensive and bolting on more applications to cover your tracks will catch up with you.
Creating ongoing business cases for future technology needs can help you generate the support you need, such as:
- assisting sales to understand better how revenue managing the corporate segment will result in business growth.
- showing marketing how to make the most of their dollars by targeting the right promotions in the right markets.
- giving operations the foresight to plan their resources, staffing and guest-experience activities properly.
- enabling brand teams to bring their brand positions to life in their inventory descriptions.
Most importantly, consider databases and data as critical pieces of technology that have an owner, a roadmap and a governance strategy.
Myth #4: We hear about attribute pricing and selling, profit optimization and function space management. Are these actually attainable?
More technologies and automation are evolving to bring these things to life. But none of these concepts happen overnight and will only be quick and successful if business and technology come together. Remember when Apple first rolled out iPhones, and we all tried to understand and learn the value of the different apps? It’s the same principle.
We can, however, start with some quick wins and demonstrate value in the interim. For example, attribute pricing and selling begins with a basic understanding of what features and functions add value for your guests and then setting your inventory up to account for it. The most basic requirement to gain these insights is to ensure your data is not only accurate but comprehensive enough for your teams and technology to draw concrete observations that drive future decisions. For example, do you have data on how many people bought—and paid for—your view rooms? Is this valuable at your property?
Planning is also required to understand how attributes will be made available to customers. What choices will customers make and how are they fulfilled at the property?
There are still too many organizations with siloed technologies. Have someone assist with creating a cohesive strategy and understanding how all the parts and stakeholders fit together. Otherwise, you may not deliver the value you thought you would.
Myth #5: We won’t need humans to perform revenue management anymore.
There are indeed amazing advances in AI (artificial intelligence) and machine learning. Human beings shouldn’t be doing tasks that can be automated, like spending hours gathering data, analyzing trends, compiling reports or looking for patterns. That is where technology can really help us.
But there is also much to be said about the art of revenue management, which is the human element. First comes the all-important strategy of where you want to go. Technology should be a means to help you develop this strategy.
The key is balancing the art and science together. How can you use systems, data and technology to do the critical work while focusing on things that bring your hotel a competitive advantage? Only the true revenue management artist can make this happen.
Finally, the art of revenue management lies in prioritizing and acting on opportunities that have the most significant impact on the business. With so many hotels, segments, customers, rates, inventory windows and special events, the key is to identify and capitalize quickly when an opportunity arises. Managers busy compiling reports will miss out, while managers who have insights immediately and act quickly will triumph.
To that end, revenue management is evolving rapidly. Don’t listen to those nay-sayers who continue to push outdated myths. Stay on the cutting edge and be a visionary in this space.
Craig V. Eister, is area VP, client success with IDeaS.
This is a contributed piece to Hotel Business, authored by an industry professional. The thoughts expressed are the perspective of the bylined individual.