Mr. van Meerendonk

Revenue Management

The Next Generation of Revenue Management Strategies

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

There is one constant in the hospitality industry - change. What was once considered leading practice in terms of customer service, like express check-outs to avoid morning queues or offering free Wi-Fi to guests, is now expected by many travellers as base level service. Just as service offerings to guests have evolved through the years, so have the operational technologies hoteliers themselves use to ensure that their properties are running as efficiently and profitably as possible.

Revenue management has been used in the hospitality industry for well over a decade. The practice was first used to simply fill rooms, with no real view to the long term effects of these pricing decisions. Using revenue management in this way provided hoteliers in the short term with more customers and spikes of increased revenue, however, this approach also led to longer term negative effects and hoteliers who simply slashed their rates to fill rooms usually took time to recover financially from short term pricing decisions.

Over the years, revenue management has evolved to become more reliant on advanced technologies which promote a strategic, longer term approach to pricing and sales. However, even using revenue management to strategically price hotel rooms and ancillary services is no longer enough in today's dynamic operating environment where the way guests choose the hotel they want to stay in and what price they are willing to pay is constantly changing. It is time that hoteliers stop thinking about revenue management as it has been known, and start thinking about the next generation of revenue management strategies that are adapted for today's digital environment and take additional revenue streams into account.

Today's Hotel Guest is Empowered, in Charge and Online

All hoteliers need to realize that their guests have never had more power. While many hotel managers will argue that the guest has always been their core focus and offerings, services and the way rooms are packaged and sold has been tailored towards them, it is not the same guest from the past. Today's hotel guests have increased expectations and are in control of every part of their experience.

Both business and leisure travelers have changed the way in which they book hotels over recent years - in the past they may have been more reliant on travel agents or travel brochures to actually inform them of the best places to stay and relied more heavily on a traditional star rating process and descriptions of the hotel generated by the hotel themselves. These days, when a traveler goes to book a room in a location that they may not be familiar with; their selection process is much different. In many cases potential guests search for information on the hotels in the area online and specifically look to third party review sites for impartial past guest reviews to "aid" in the selection process.

When searching online for a hotel, travelers may look for a hotel that has both a good reputation rating as well as a good price. For a hotel in these situations looking to attract new guest in a digital environment, it is always a balancing act between price and reputation. Research has shown that guests will pay more if a hotel's reviews are better compared to the alternative - which is why it is critical that hoteliers understand what is being said about their property online and why social media reputation is critical in practicing total revenue management.

Most hotels have both a social media presence and have undertaken some form of monitoring as to what is being said about their property or brand online. On a basic level hotels primarily focus on the servicing aspects of their properties in relation to social media. For example, if the prevailing comment in social media about a hotel is that the check-in process was tedious, the operations team at the hotel will likely pursue how to rectify this and create a better experience for users. In the same way, if a hotel is highly rated with the majority of comments related to the tastefully decorated rooms and comfy beds, the marketing department will build on these positive reviews.

Through a hotel knowing what social media sentiment exists for their property they are better placed to understand the likelihood of demand - if a property is consistently being talked about online as offering a poor guest experience relative to the price being paid to stay there, it is advisable that the property look at their pricing structure or the customer service levels they are offering. Conversely, if a property is consistently being talked about in positive terms online it may be in a position to look at pricing itself more aggressively in the future.

While this new and constantly evolving operating landscape may be concerning to some hoteliers who feel they don't have the scale or the operational systems in place to adapt to a new world where revenue management needs to be applied across multiple revenue streams and the customer has more power than ever, it is important to understand that the actual basis of revenue management hasn't changed. Hoteliers can and should still base their decisions on data and supply and demand and it is still critical for hoteliers to understand who their most valuable guest is and do everything in their power to attract and retain them.

Conferences and Events - Driving Better Revenue

Hoteliers looking to bolster property revenues should be looking towards conferences and events as their next big revenue driving opportunity. Group business represents up to 40 to 60 percent of revenue potential for many hotels these days, which means that hoteliers need to take a more holistic look at their sales and catering revenues as decisions they make for their function spaces can have a major impact on the bottom line. To ensure that a hotel is optimizing revenues from their function space, hoteliers must establish and review KPIs for their conference spaces. They must ensure that they have the right data collection and analysis tools in place and are able to define market segmentation, forecast accurately and identify their most valuable groups. Importantly hoteliers must also align their forecasting and function space management with a dynamic pricing approach to ensure that revenues from conferences and events are being optimized.

To achieve optimal levels of revenue from conferences and events, hoteliers also need to incentivize their sales team on achieving quality of business, rather than quantity. Having the right forecasting, data and metrics in place may not result in optimal business without the sales team delivering the right piece of business with highest revenue impact to the hotel. Sales teams therefore need to be incentivized appropriately on the right measurements, to channel their focus on quality of business, rather than on single dimensional metrics such as sale volume or space occupancy.

By putting revenue management practices in place across all key revenue generating departments of a hotel, hoteliers will be able to build a holistic view of a customer, helping increase their ability to identify and target these valuable revenue generators.

Working Closer Together for Better Revenue Generating Outcomes

Today's revenue managers must be guest-aware. Decisions as to who their most valuable guests are should be formed by integrating a complete customer revenue profile along with data from guest promotions and the marketing department.

Just as marketers can gain benefit from the data generated by revenue managers, marketers can also help revenue managers better understand their most profitable guests and adjust packages to best suit their needs. Marketers are constantly putting packages together that increase opportunities to generate revenue. Because marketers understand where guests live and what their interests are (e.g. adventurous families like to hike, bike and kayak), they can help revenue managers price hotel packages that will appeal to guests' interests and motivate them to visit the hotel.

Marketers are experts at creating demand by inspiring people to commit to hotel products and services. By knowing when marketing places offers into the marketplace, revenue managers can create better, more accurate forecasts in relation to demand, which can in turn lead to better revenue optimization.

A Brave New World Needs Brave Hoteliers

Today's hospitality environment seems to be undergoing constant evolution. What was best practice two years ago, is expected as standard now and how guests assess and book their hotel rooms has changed in such a way that they have more choice and power than ever before. It is no longer enough for hoteliers to simply utilize revenue management for their hotel rooms and keep employing the same customer promotions as they were in the past. Hoteliers have to ensure that revenue management strategies apply across all revenue generating streams of their properties and adapt to the digital world. They must understand where they fit in this new online landscape and what is being said about them. Hoteliers also have to ensure that all of their departments are working together in a cohesive way. As job descriptions blur and standalone hotel departments become more closely aligned, it is the hotels that embrace, not fight against, the next generation strategies that will be in a better place to practically manage their revenue and ensure long term profitability.

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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