Mr. Kohlmayr

Revenue Management

The Evolution of Revenue Management: Where it came from, and where it is going

By Klaus Kohlmayr, Senior Director - IDeaS Consulting, IDeaS Revenue Solutions

While hospitality based revenue management was originally designed to deal with mainly single and independent hotels, the product has evolved significantly to handle the rapid growth of the internet and third party booking sites. While once seen as a niche offering only used by certain parts of the market, revenue management now plays a major role in the operation of a successful hotel or resort.

Understanding the ability of revenue management to constantly evolve to meet the changing nature of the hospitality industry provides an insight into the many benefits that the product can provide to a hotel or resort with.

There is no better time to understand the durability and evolvement of revenue management as whole than during this current period of prolonged economic uncertainty. While many services and solutions provide great benefits to hotels in specific economic situations, such as during a stand along boom period or during a recession, revenue management is designed to evolve and meet the challenges of the times whatever they may be.

Revenue management in the hospitality industry was originally designed with a view to filling as many hotel rooms as possible, with no view to the long term effects of the pricing decisions undertaken. Many say that its original inspiration came from the American airline industry, which saw the need for more effective sales and pricing support solutions during the original period of airline competition which took place in the mid 1980's.

The hospitality industry was quick to see the wide ranging benefits of having such pricing and sales strategies in place, albeit in a basic and simplistic form compared to the modern day version we now see.

Hospitality based revenue management solutions were designed according to the most 'simple supply and demand economics' according to Neil Salerno, Hotel Marketing Coach (i). The original use of the product offering was designed to meet demand during particular times, whilst there was no real planning for the future as there is in today's industry.

When revenue management was first used in the hospitality industry, and the aviation sector for that matter it was designed to fulfill a very simple outcome. It was to fill rooms and fill space on planes as quickly as possible, with no real view to the long term effects of these pricing decisions.

Whilst the initial outcome of more customers and greater streams of revenue may have been viewed as a great benefit to the company, the long term effects were not as positive and many companies took some time to recover financially from short term pricing decisions. According to Colin Jasper from Beaton Consulting "Poor marketing can damage an organization, poor pricing can damage an entire market" (ii).

As the hospitality industry has continue to evolve and the revenue management product offering has begun to vary significantly, leading revenue management companies have started to promote a longer term approach to pricing and sales. Whilst a quick rundown sale may achieve fantastic results for a specific period of time, this will leave your hotel in a less than sound position in the long run.

Revenue management is able to assist in optimizing the revenue of your hotel, but all decisions implemented must be done with a long term strategy in place. This outcome has been one of the more important changes in the way the industry has approached the issue of optimizing revenue. Now the majority of decisions are made using structured and strategic levels of thinking, with a view to how the decisions will affect the financial well-being of the company in the future.

The advent and rise of internet as an online booking tool has shaped the hospitality industry dramatically in recent years. The internet has seen a large rise in third party bookings sites, allowing consumers around the world the opportunity to book their hotel accommodation at any time they choose to do so.

Whilst this has opened the door to a much larger number of customers around the world, it has also presented numerous problems for hotel owners and managers. Many of their existing sales and marketing strategies were now seen as redundant due to the advent of these third party booking sites.

The ability of companies such as IDeaS to alter their approach to revenue management to cater for these new technologies was one of the major evolutions of the product offering. For hotel's to be able to compete in this ever changing marketplace, the various pricing and marketing strategies they had in place needed to be able to evolve with the times.

Revenue management was being forced to operate in an ever increasingly networked and complex world. While this dramatic shift in the operation of the hospitality industry was seen with both optimism and trepidation, it was opening many new channels of revenue which previously had been unavailable to wider industry.

If these new types of technology were approached by hotel revenue managers in a strategic and structured manner it had the potential to optimize revenue in a manner never seen before.

Over a period of some years, mainly in the late 1990's there was a steady and constant increase in the numbers of people using third party booking websites to choose their accommodation options. This number has continued to rise ever since, and now third party booking sites are one of the primary booking sources throughout the world. It was estimated in 2009 alone, that over 40% of hotel bookings would be done through third party booking sites.

While a figure of this size presents a fantastic opportunity for hotels, they were only able to capitalize on the number by using revenue management solutions and services that had evolved as a result.

If hotels attempted to take advantage of these figures, and put in place sales and marketing tools they used during the early 1990's, they would be putting both their sales figures and ongoing financial viability at stake.

The many tools used by leading revenue management companies can now assist hotels in all manner of ways. A leading revenue management company can help put in place a range of strategies to help hotels deals with new technologies, third party booking sites, sales and marketing strategies and even assist in providing different levels of ongoing staff support and training.

Whilst previously revenue management was designed in a manner which catered for individual hotels, over the years it has continued to evolve into a number of different and varied areas. No longer are hotels just using revenue management as a tool to sell a set amount of rooms on a one off basis. While in its original form, revenue management was seen as a helpful but not a necessary tool, in the modern day hospitality industry it is seen as vital to the ongoing success of an organization.

References

*(i). Neil Salerno, Hotel Marketing Coach
http://www.hotelmarketingcoach.com/What-the-heck-is-Revenue-Management.htm

(ii). Colin Japer, Beaton Consulting*

Klaus Kohlmayr currently holds the position of Senior Director - IDeaS Consulting for IDeaS Revenue Solutions, the global leader in Hospitality Revenue Optimization. (www.ideas.com) He is responsible for leading and growing the revenue management consulting and advisory division assisting clients in the Hospitality and Travel sector worldwide to develop, implement and enhance best practice revenue optimization, pricing and forecasting strategies and tactics. Mr. Kohlmayr can be contacted at 612-840-3301 or Klaus.Kohlmayr@ideas.com Extended Bio...

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