Mr. Bharucha

Revenue Management

Total Revenue Management - The Next Big Step In Revenue Management

By Jaavid Bharucha, Corporate Director of Revenue Management, Arbor Lodging Management

Revenue management is widely defined as the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of revenue management is selling the right product to the right customer at the right time for the right price. The essence of this discipline is in understanding customers' perception of product value and accurately aligning product prices, placement and availability with each customer segment.

The Evolution of Dynamic Pricing

While the term certainly continues to be a buzz word within the hospitality industry, revenue management has existed in different variations for several decades; in its first iteration, revenue management first gained traction in the airline industry, with airlines matching supply and demand and cross referencing market conditions to anticipate consumer travel patterns. At this time, the discipline was referred to as "dynamic pricing," which took it to the next level in terms of frequency. It became increasingly common for price changes to occur on a daily - or even hourly - basis, depending on the market. This was an enormous shift from the longer form fluctuations that would be seen across the board. In high volume markets, dynamic pricing allowed hoteliers to flex the rates as needed, which was a significant departure from any system they had previously employed.

This practice enabled hotels to create a nimble pricing and performance strategy, one which would go on to dictate the future of the industry. Even beyond this, on demand rate shop reporting was an added bonus, making it easier for the revenue managers to review competitor rates and make adjustments at a fast clip. In contrast to the previous practice of having to call competitor hotels periodically or manually visit their websites, the ability to access "dynamic pricing" would forever change the name of the game in the hotel world.

Growing the Business of Revenue Management

Beyond dynamic pricing, the business of revenue management was only just beginning to grow. Over the past five to seven years, revenue management has evolved to incorporate ecommerce and distribution as key components of the function of revenue management. Several hotel management companies continue to hire revenue management positions separate from the ecommerce and distribution. In fact, revenue managers tend to have an ongoing relationship with ecommerce partners to their benefit, selling rooms on various distribution platforms, featuring namely hotel websites (branded or independent), GDS (Global Distribution System) such as Sabre and Worldspan, and OTA's (Online Travel Agencies) including Expedia and Booking.com.

Expanding still today, the trend for revenue managers has grown in the social media space, including the wide discrimination of available rooms being distributed through high traffic channels including, Facebook, Twitter, and several digital platforms that primarily focus on room sales.

While some companies place revenue management teams within marketing to align marketing initiatives and selling to new and existing customers, there is a growing amount of businesses who dedicate a section of accounting or finance to handle revenue management responsibilities based on the bottom line implications. Regardless of the structure in place to orchestrate a successful revenue management team, most if not all companies have come to elevate the position of Revenue Director or Chief Revenue Officer (CRO) to the senior management level or executive committee positions. Make no mistake, the revenue manager position holds a significant role in the success and projected growth of any company.

Beyond Heads in Beds

The position of Revenue Director or CRO is typically seen as being on par with sales leaders, pricing and strategy leaders, new product developers, and marketing and promotions specialists. A revenue director in this sense is responsible for all activities that generate revenue and for directing the hotel company to become more inherently revenue-focused in all campaigns and initiatives.

The current revenue managers, directors, specialists are room-centric revenue managers who tend to be more focused on total spend, which must include the selling of food and beverage outlet space, golf or skiing (sporting activities) space, and meeting space. Sleeping rooms are - and have always been - a perishable commodity, and if unsold on a nightly basis, are considered a loss. Similar to rooms, empty tables in a restaurant, open tee times on a golf course, and lack of SPA bookings are becoming increasingly considered to be perishable commodities. The revenue manager is responsible for understanding the cost of each of these amenities, and working with the marketing and/or sales team to build a dynamic package based on demand. Similar to dynamic pricing for sleeping rooms, rates for these spaces can fluctuate based on demand to influence customers to book during the hotels need period.

Technology's Role in Revenue Management

Undoubtedly, technology is a pivotal factor in realizing total spent, tracking guest spend, and booking patterns, which give any property the enormously valuable data they need. Bearing this in mind, relevant data is key to a revenue manager and management system; the systems capability to provide accurate, actionable information is predicated on the information provided. The system must collect and store historical data for inventory, prices, demand, and other special events. All data that reflects the details of events in the market, their prices, competition prices, and customer purchase behavior must be collected, stored, and analyzed, utilizing the most apt technology available. In some metropolitan markets like New York, Chicago, San Francisco to name a few, specialized data collection methods have rapidly emerged to service properties and companies, and in most cases have grown to dictate the norm.

In this day and age, the hotel has the ability to track guest spend when a booking is make as a group. For properties that have the technical ability to track spend similar to resort locations or cruise liners, the data is readily available and poised to be used in not only record keeping, but in predicting future behavior.

Conceptually, total revenue seems easy and straight-forward enough: it would seem that total revenue would convey simply selling a guest sleeping rooms along with a place to host their meetings with food and beverage and closing the event with an activity (SPA/Golf). Conversely, total revenue is an exceedingly difficult process to push, as identifying what clients want to eat, where they want to sleep, how they want to work and play at the hotel. While this is a difficult process for individual hotel properties to nail down, resort locations have the added advantage of dealing with guests that want to be pampered and are willing to pay the price - and in return, are able to charge every activity, every bite, and every drink back to their room clean and simple. However, hotel guests on the other hand are far less likely to take advantage of all the components of the hotel as they are on a cruise line or in an upscale resort, where their expressed desire in visiting this clientele is luxury and relaxation.

On the meetings side, corporate meetings with mid to large scale attendance prefer to keep as many activities and meals in-house and keep their guests in one location, making these groups more likely to adapt and utilize the hotel and all various amenities. When convenience is king for their attendees, groups are more willing to consider all on-property options.

Whether family gatherings or friend outings, social groups are primarily looking for sleeping rooms while they are in town for a larger event or goal; however, enormous opportunity abounds in being able to encourage these social groups to have a meal in the restaurant on property, or a team huddle in one of the meeting rooms during their stay to increase the value of the group and overall spend.

A significant part of the revenue process also includes changes in the transient selling thought process. Hotels generally tend to sell rooms at a higher price for a future date; however, closer to the date, hotels are more likely to drop rates in order to sell out efficiency. On the consumer experience end, this last minute scramble creates an overall bad customer experience; they will have had to plan ahead, pay a higher price, and be penalized for that preparedness by seeing customers come in last minute with a drastically lower room rate than they paid initially.

The Opportunity for Revenue Management

Technology is no doubt driving the continued evolution of revenue management, as it always has in the industry. And rightly so.

However, in a time when hoteliers covet and require the insight to achieve total revenue, there are very few technology companies in this space that work on various parts of the process. In order to be successful in the coming years, on-property sales and marketing teams face the challenge of needing to start focusing on selling on-site amenities in addition to sleeping rooms to achieve total revenue, and ultimate, total profit.

Jaavid Bharucha, Corporate Director of Revenue Management for Arbor Lodging Management. Mr. Bharucha develops and executes revenue strategies. Through his career of over 12 years in the industry with revenue management experience, Mr. Bharucha brings insight from his time at Radisson Lexington and Hotel Pennsylvania in New York and The Bricton Group and TPG Hospitality in the Chicagoland area to his current role at Arbor Lodging Management. Throughout each role held, Mr. Bharucha worked directly with on-property general managers and vice presidents or sales & marketing to generate forecasts, monitor the comp set, check for movement and rate variance, and assist in development of sales plan across the board. Mr. Bharucha can be contacted at 312-854-0540 or jbharucha@arborlodging.com Please visit http://www.arborlodging.com for more information. Extended Bio...

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