Mr. van Meerendonk

Revenue Management

The Changing Face of Revenue Management

By Paul van Meerendonk, Director of Advisory Services, IDeaS Revenue Solutions

Revenue management was once one of the most under-loved and often misunderstood departments within a hotel, but today it is central to a hotel's ability to manage demand and drive profitability. Having access to quality data and knowing how to use it effectively is at the core of successful revenue management and one of the most powerful tools you can use to accurately manage demand and maximize revenue.

Revenue management's original inspiration came from the airline industry, which in light of increasing competition in the 1980s saw the need for more effective sales and pricing support solutions. Operating in a similar environment, with customers booking in advance, having perishable inventory, as well as the need to balance supply and demand, the hospitality industry was quick to adopt the concept. Since then, hotel revenue management has evolved significantly and its systems can now handle enormous amounts of data. Revenue managers around the world are now using these advanced systems to promote a longer-term approach to pricing and sales.

The internet has significantly changed the way the industry has approached the issue of optimizing revenue. While it has opened doors to a much larger number of customers around the world; it has also presented numerous problems for hotel owners and managers; due to the increased volumes of data that a hotel collects and the greater number of booking channels to manage.

While in the past it was common place to gather data manually, we are now in the era of what is known as big data. The volume and complexity of data hoteliers collect is growing exponentially, especially as advances in technology increase the variety of booking sources, for example mobile platforms are increasingly used to make bookings. This reality has made it close to impossible to manually crunch the numbers and keep track of numerous spread sheets. Slowly, the old systems are being replaced by automation and advanced software, which allows these large volumes of data to be gathered.

While revenue management has come a long way - there are still areas where many hoteliers are missing the mark in its successful execution. While data collection is easy with the right systems in place, it is not just the volume of data collected that is important. The quality of the data is crucial, as you won't be able to make quality revenue management decisions without quality data.

Get the Right Story

Many revenue managers work with the data they have at hand - however, it is common place for this to either represent an incomplete picture or be inaccurate. Data tell a story, which revenue managers base hundreds of their decisions on every day. Today, effective revenue management relies on quality data to make quality decisions; and this is only possible when you have accurate data, gathered from a variety of sources.

Quality data are at the heart of revenue management. For example, to produce accurate forecasts, collected data should represent all of your hotel's demand - booked from all sources - broken down into market segments by day. If this data is then collected on an ongoing basis, simple booking pace forecasts can be established, by segment and day of week and compared to historical data. It is important that you then work with a standardized set of rules, so patterns can be identified to provide insights and serve as indicators to predict future transactions. This will allow you to quickly adapt to any pick up or drop off in demand and see exactly which segments these changes in demand are coming from.

This data should not only reflect a guest's room spend, but also include their total spend over the course of their stay. Therefore, you should integrate data from all transaction systems so ancillary value, such as food service, day spa usage, gift shop purchases, and so on, are also included. This will also provide information on a guest's preferred activities. You can then use this data to identify your most valuable segments and guests, then adapt strategies accordingly to maximize revenue.

In order to do so you need to ensure that data in the property management system (PMS) are clean and geared towards revenue management. Check to make sure you understand all of the data fields that are being tracked, why they are being tracked, and clearly define their use. For example, the 'market segmentation' data field should be used for market segments, the 'agent or company' profiles should be used to track company or agent information, and 'sources and origins' data fields should be used to track sources and origins. In too many cases, hotels mix and match these available fields and have not looked at them from a revenue management perspective, i.e. to make data driven decisions.

The Importance of a Cultural Shift Towards Revenue Management

To effectively implement revenue management, it is also crucial that all departments are aligned and working towards a common goal. General Managers, Operations Managers, Revenue Managers and Catering Managers should be brought together for regular meetings where direction, strategy and expected outcomes can be discussed, and forecasts shared. This will ensure hotel operations are optimized, the right pricing decisions are made, and revenue management becomes part of the hotel's culture. Revenue management should be viewed as strategic - as opposed to tactical - and be integrated into employees' roles across the organization.

It is vital to train staff in the concepts of revenue management, to ensure it is effectively integrated into the hotel's culture. For example, staff should be taught how to extract guest data to make a customer's stay more enjoyable. Some hotels still do not qualify their guests properly when taking direct bookings, which makes it difficult for revenue managers to access the right data. Many hotels have "order takers" instead of "sales managers" answering the phone, who only take the data given and do not go the extra mile to extract valuable data from guests, which can be used to drive revenue. For example, I recently made a test call to a company with three hotels in the same city. The reservations agent named a room, gave me its price and asked me if I wanted to book. I asked for a cheaper rate and was given one, only to find the booking was for a different hotel at the other end of town. Although I admired the effort of cross selling, I was not sure if I should laugh or cry. I had no idea what room I had been given, what its features or benefits were and no effort had been made in selling it to me. While "selling" might not be part of revenue management, it is crucial we get staff training right so guests have the best possible experience, which in turn creates loyalty and future returns.

Revenue Management is Part of a Wider Picture

In the past, many hoteliers believed that simply adopting a revenue management system would solve all of their problems. It is true these systems are critical to a thorough revenue management approach; however, it is also vital for companies to have the appropriate culture, people and processes in place as well. 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 an organization isn't adequately prepared to optimally use revenue management technology, the system will quickly become underutilized, misunderstood and, finally, uninstalled.

Savvy hoteliers understand that a revenue management system is only a part, albeit a very important part, 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 tool, challenge decisions and make recommendations where necessary.

These organizations also understand that any revenue management system needs to be continuously adapted to the ever-changing business environment. A few years ago, simple yield management techniques were deemed as sufficient to maximize revenue. More recently, the industry has had to adapt to the advent of internet distribution and the increased availability of cheap data, which has led to concepts like dynamic pricing becoming popular to better drive revenue improvements. The most innovative approaches and 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.

Revenue management has significantly matured since its infancy in the 1980s, and while its systems have improved, the industry is still evolving. In its childhood years, revenue management's biggest challenge was collecting huge volumes of data. Today, complex systems make this easy. Our current challenge is in the quality of data we collect; not the quantity. We must cut through the nonsense and ensure we are collecting the right data, which we can use to make sound revenue management decisions.

Revenue management will continue to evolve, and with this new challenges will present themselves. But while the face of revenue management may be changing and showing signs of growing into adulthood; its early features and intended outcomes remain recognizable and still valid today; to make data-driven tactics and strategies that optimize product availability and price to achieve the highest possible revenue growth

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...

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