Confronting Expectations: How to show the value of Revenue Management
By Paul van Meerendonk, Director of Advisory Services, IDeaS Revenue Solutions
Revenue management is not a new concept, yet some are still struggling with its uptake, while others are reveling in the ongoing success it has brought to their organizations. Two recent conversations with global clients have stood out in highlighting very contrasting approaches to adopting revenue management principles.
The first: a conversation with the CIO of one of the world's largest hotel organizations, on how revenue management could continue bringing innovation to the organization and drive value for its stakeholders. The most striking comment from this CIO was: "Revenue management is in our DNA. It is what we know needs to be done. We embrace it, understand the value it brings to the organization and want to do more of it."
The second: a meeting with the project group of another leading global hotel organization, a similar size to the first. While it was apparent the corporate revenue management team understood its benefits, many in the organization doubted the long-term value of revenue management. In an ongoing project our organization has been helping this client demonstrate the value of more sophisticated real-life revenue management capabilities, with so far, very positive results. This conversation centered on whether the project's success to-date was scalable, extensible and repeatable and if more sophisticated revenue management practices would really bring sustainable value to the business.
Two very similar organizations, two very different conversations.
Does it surprise me that after almost 20 years since the advent of revenue management, some companies are still struggling with the value proposition and the return on investment of revenue management processes? No. As with any complex business process, not only is revenue management often misunderstood, but there is always more to be done to educate, teach, create awareness and raise adoption. We work with companies around the world on a daily basis, helping them instill these capabilities.
What does surprise me is that two organizations with a very similar business model, operating in the same space, with similar stakeholders have taken two very different approaches to adopting revenue management principles. The first organization has clearly demonstrated the value of revenue management in a way that it is no longer questioned. It is now part of the intrinsic fabric of the company's operations. While the second is yet to articulate what value revenue management can bring. What has made the difference between the two? These three key strategic viewpoints can help companies successfully demonstrate the value of revenue management on a daily basis.
While it sometimes seems odd talking to the rational and numbers-driven revenue management community about culture, in my opinion it is one of the key ingredients in making revenue management a success. Culture is important in any organization and in any department. I believe it is especially so when it comes to revenue management, because although much progress has been made, its purpose is still poorly understood in many organizations. Defining the culture, the shared attitudes - values, goals, and practices - that characterize revenue management sets the tone for what the discipline "feels, tastes and smells like" in an organization, and essentially allows staff to understand its purpose.
Ask 20 people in your organization what they think the objective of revenue management should be and you will probably get 21 different answers. Surprisingly, we find very little time is spent in many organizations determining what revenue management should "be". There are often no clear objectives or common goals defining what revenue management is supposed to do, leading to conflicting priorities, misalignment of goals and frustration when sophisticated revenue managers spend their time producing reports instead of adding value to the business.
At the start of building revenue management capabilities for a new client we often find ourselves spending time developing a "revenue mission statement", if there are no guiding principles already in place within the organization. We spend time with our clients, setting clear expectations on what can and can't be achieved, and subsequently ensure the mission statement is embraced by all key stakeholders - including general management and/or the executive team. When everyone is aligned and moving in the same direction, it is much easier to reach the goal. We also ensure any subsequent development of standard operating processes and training, etc. supports the agreed upon mission.
Obviously, as the business changes, the goals and mission statement change and frequent revisions of the "game plan" are critical. Revenue management looked very different even five years ago and even organizations which are at the top of their revenue management game today risk falling behind if they are not focused on keeping up with the pace of change.
Dedication and focus
The most successful revenue management "believers" are those who have shown a clear dedication to making revenue management part of their organization's DNA. This is not achievable overnight - it requires commitment, resources and, ultimately, funding. Today's leaders in the field do not have to spend time "selling" the discipline to the rest of the organization. The organization understands the value and return associated with it. Why? Because as the organization has grown its capabilities, it has made sure any revenue uplift achieved has been measured objectively (and often independently) and the results and return on investment clearly communicated across all key stakeholders.
It is no longer a question of "if" revenue management can provide value, rather a question of "how much". Yes, it might seem costly to get started; however, it is a very small price when you consider the payback can often be measured in months, not years. It is not uncommon for organizations doing only a little to see very significant, double digit, percentage revenue increases in a very short time - even when only basic revenue management capabilities have been implemented, such as standard operating processes, training and simple tools.
In many cases the returns are such that any enhancement project becomes essentially self-funding. At the same time, the most innovative companies are continuing to push the envelope, working towards fully automated dynamic price optimization systems and total revenue (and profit) management, creating significant incremental value at every step.
The tool/system/software is only a small (but important) piece of the equation:
When talking about revenue management, many hoteliers believe adopting the right system or software will solve all of their problems. It is true these systems are critical to a thorough revenue management approach for companies who have the appropriate culture, people and processes in place. It is only when revenue managers work with the system every day that the maximum benefits and return on investment will be achieved. On the other hand, when the organization fails to be adequately prepared to optimally use the technology, the system will quickly become underutilized, misunderstood and finally uninstalled.
Great revenue management organizations understand that the system is only a small (but important) piece of the equation. They understand the system needs to be supported by the right people, who need to be equipped with the knowledge to properly utilize the tools, and challenge decisions and recommendations where necessary. These organizations also understand that any revenue management system needs to be continuously adapted to the ever-changing business environment. Where a few years ago, simple yield management techniques were sufficient, in more recent years the wide adoption of best available rate and dynamic pricing, the advent of internet distribution and the increased availability of cheap data have driven significant enhancements. The most innovative systems take into account price as a function of demand, are fully integrated with the key operating systems and consider market and/or competitor information when making decisions.
While there are many areas where an organization can cast its focus to improve revenue management, concentrating on these three key areas will help companies become a success story in the revenue management space. Creating an all-encompassing culture, having a dedicated and focused approach to ingraining revenue management within an organization's DNA and utilizing the right tools, supported by the right people, are all part of a formula that makes leading companies succeed.
As Director of Advisory Services for IDeaS Revenue Solutions, Paul van Meerendonk leads a global team of revenue management advisors focused on hotel revenue optimization projects. Mr. van Meerendonk is responsible for global development, management and operations of the Advisory Services team. He oversees the hiring, training and management of industry-leading consultants located in London, Beijing, Singapore and Atlanta. Mr. van Meerendonk also represents IDeaS on industry thought-leadership initiatives related to trends and best practices within revenue management, including authoring a number of white papers, conducting public speaking engagements, as well as leading key client webinars with an average audience of over 200 global representatives. Mr. van Meerendonk can be contacted at +44 (0) 118-82-8100 or Extended Bio...
HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.