Revenue management has never been this simple, revenue management has never been this complex! Thanks to technology, revenue managers today have access to infinite data for deeper insights to improve decision-making processes and customer-centric strategies.
Yet, the opportunity that comes with technology has not yet been able to address one core challenge – what compels a guest to book a hotel?
Human psychology does not follow a cookie-cutter approach, and there lies the need for human intervention. This puts price elasticity or the ability to understand a potential guest's willingness to pay, for a room and related services, at the centre of the hotel’s pricing and revenue strategy.
Understanding Guest Behavior
Revenue management, as we all know, is putting the right price in the right channel at the right time for the right customer. It goes beyond seasonal demands and takes into consideration, that for many guests, lowest price does not necessarily mean better value. In other words, guest behaviour varies. It varies from hotel to hotel, season to season and segment to segment. For example, a business traveller is likely to have higher propensity to spend more than the leisure customer for comparable room rate fluctuations.
The revenue management strategy thus needs to consider price elasticity of demand, market rates, room availability, forecasted demand, target segment and social value. For years, revenue managers have used RevPAR as the key metric to measure performance.
However, as revenue management moves from top line revenue to net profitability, focus has shifted from room revenue on a per-available-room basis to optimizing profits across all revenue streams, including food and beverage, spa, golf, club and even phone/internet services. The new metric to take into consideration is Total Revenue Per Available Room (TRevPAR). This has led to attribute based prices that many hotels are implementing in their revenue management strategy.
The growth of Attribute Based Selling (ABS)
Attribute based selling (ABS) has been a common practice for airlines which allows flyers to pick extras like seats with additional legroom, meals or express boarding. ABS in the hotel industry works on the same concept and moves from traditional “roomtype-rateplan” approach to what exactly the guest wants. The idea is to sell every room attribute separately and allow guests to pick only what they value. Since these attributes can also have dynamic pricing model based on demand, this can lead to an increase in total revenue. However, this hyper-personalized offering can only be successful with the right insights.
Role of data and machine learning
Data driven pricing strategy is the way to handle these challenges. Advanced revenue management systems use Machine Learning for its ability to adjust to market dynamics and re-optimize pricing based on variables like inventory, demand, and behavioural analysis.
Going beyond the traditional segmentation between leisure and business travellers, these systems go into deeper segmentation through clustering for identifying demographic buying pattern and customer lifetime value to tailor rate strategies at an individual basis.
In summary
Revenue management has come a long way from being a top line function to becoming the core of hotel operations. It is no longer about numbers, or just about gauging demand – it is about creating value and generating demand.
The ideal revenue manager of today goes beyond yield management and price optimization to inculcate the overall business objectives into the revenue strategy. Above all, they need to become great storytellers in order to weave in the different hospitality attributes and appeal to the travellers’ perception of value to drive more bookings and revenue.
About Andrew Morsi
Andrew has over 30 years of experience in hospitality operations and revenue space. He continues to be an authority in Revenue Management – having taught the first ever credited "Revenue Strategies" and "Hotels Information Systems" class at New York's University School of Continuing and Professional Studies (Master of Science in Hospitality Industry Studies).
Andrew is the Founder President of eRevMax-RateTiger – the company that pioneered the concept of hotel rate shopping and channel management software back in 2001.
Prior to establishing eRevMax, Andrew was Corporate Director of Revenue Management for Starhotels International in Italy; Regional Director of Revenue Management for Six Continent Hotels and Resorts in New York; Director of Revenue Management for Swissotel The Drake in New York and Revenue Manager for Swissotel Chicago where he started his Revenue Management career.
Andrew possesses immense knowledge on the subject and provides strategic guidance to eRevMax in terms of new product ideas and features.