Author: Rafael Gómez / 5 minutes read.
In 2014 I participated with four colleagues from EAME in the development for Starwood Hotels & Resorts of the Revenue Management system in Boston called ROS (Revenue Optimization System), where the programmers fiddled with algorithms to obtain correct estimates based on historical data, considering trends. That moment was crucial in my career to realize the great change that was happening. After 6 months of mistakes and successes, we achieved a Revenue Management system that would adapt the demand, anticipate the Potential Sell Out days, and offer accurate recommendations for minimum stay, prices, analyzing the unconstrained demand to establish strategies. The new system was finally installed in more than 1,000 hotels around the world.
I mention this because in terms of Revenue Management, we had great advance taking place in the past decade at a technological level, but let’s not forget that distribution, OTAs, Metas and mainly Google, leading innovation with very interesting products and solutions.
Although we cannot compare with the evolution that has occurred in the airline industry, in 20 years of experience I was able to experience the beginnings of hotel Revenue Management in an international chain, when we began the segmentation at the early 2000s, until today where we have integrated systems that analyze demand considering competitors, offering price and minimum length of stay recommendations, or even implementing these recommendations directly.
Although Revenue Management was born to balance demand and supply to maximize results, the development of applications and technological solutions have played a very important role in recent times, as expected. There is no doubt that at the this level there are many resources, however, the purpose of this post is to focus on the figure of the Revenue Management professionals and analyze how the day-to-day has evolved in hotel Revenue Management and what the future holds in this regard.
We cannot ignore that Revenue Management is very popular nowadays, just searching in Google for “Revenue Management” and infinite pages of results appear. This is positive but it also has its dark side. The positive is that it drives and recognizes the opportunity to generate additional revenues with strategic changes, putting in its place the great importance of Revenue management. On the other hand, the less positive part of being so popular is that it seems that now anyone is qualified to work in Revenue Management after a course, probably due to the lack of professionals with experience in the hotel industry.
Are we really trained and qualified?
I observe on many occasions how the person in charge of Revenue Management focuses on controlling inventory, but not making the most of it. Let me explain myself, the lack of deep knowledge of Revenue Management is latent. Managing closings and controlling inventory is not Revenue Management, it is simply inventory control, which probably more than 10 years ago could be the main task. However, technology has changed helping us to develop it deeper. When I speak with colleagues in the sector who support tourist properties not having the figure of a Revenue Management, the main activity continues to be inventory control.
However, inventory control is only one of the pillars that Revenue Management supports, leaving many other important pillars untouched, and that are the most important part of optimization, such as:
- Anticipate, control the distribution by reviewing what is signed, what conditions and, most importantly, with whom and for what. Signing more contracts does not mean selling more, but surely complicate the already complex distribution even more.
- Monitor how, when and in what way the accounts are producing and their contribution to RevPar and GOP, establishing future strategies. Not for producing a lot an account is good…
- Estblish price strategies focused on changing the segmentation in favour of the most profitable direct segment, studying marketing campaigns online, google, Metas…
- Evaluate future opportunities, try to control distribution and stop the redistribution that cannibalizes the hotel’s direct channel strategy.
- Control, measure and determine the displacement produced by certain segments such as groups, discounts or even Wholesale with a lower price, limiting its volume in advance in periods of high demand (constrained vs. unconstrained demand).
- Analyze constantly the position in the market and competition (ideal comp set), competitor strategy.
- Maintain a global vision through Total Revenue Management, to develop Ancillary Revenue, up-selling and cross-selling strategies.
These are some of the current foundations of Revenue Management. It is vital to anticipate, analyze and change strategies based on events. It is therefore necessary to act proactively rather than reactively to truly improve results. As a fairly recurring example, when I am asked how are we selling the last 5% of available inventory, my answer is always the same, “… I was more concerned how we sold the other 95%”
What can we anticipate for the future of Revenue Management?
I have previously mentioned a point that continues to be the main challenge nowadays for Revenue Management and in my opinion should be the protagonist in the hotels where it is not yet implemented. I am referring to Total Revenue Management. Much has been said about it for years but little progress has been made in this regard. An example, have you ever heard the KPI “RevPASH – Revenue Per Available Seat Hour”? How much revenue can each chair in a restaurant produce for an hour of operation? There are also many techniques to maximize the income generated by each chair and it is something that every restaurant should consider, mainly if for some reason chairs are added or removed, allowing this KPI to analyze the optimization. If the inventory of a hotel are the rooms, for a restaurant it is the number of chairs. The RevPASH is for the Restaurant like the RevPAR for the rooms. In the same way that RevPar is used to measure the combined occupancy and ADR performance (a single separate piece of data does not provide information on performance), RevPASH combines Average check with capacity by adding the time factor, because a room is sold for one night but a table can be sold multiple times…
This interaction of Total Revenue Management is still under development, where clearly did not show the same progress than systems and solutions. Undoubtedly within Total Revenue Management ,we will always find opportunities to generate additional revenue such as Spa, Golf or any other hotel income generator.
In conclusion, there is no doubt that today the Revenue Management is very popular and constantly developing, being more advanced of what is currently used in the hotels. We are constantly learning, this is a long-distance and team race, where our goal is to continue optimizing the GOP,…and why not a little more?