Revenue Management in 2020: the black swan or the perfect storm?

2020 has strongly tested the world of tourism, but the resilience capacity that is typical of this sector will lead it to a recovery that will see those who have been able to seize the wave of change and adapt to it, thrive. In a moment of unprecedented crisis, Revenue Management is among the disciplines most in question regarding its value in a context where the foundations on which it historically rests are apparently lacking.

Revenue management is about forecasting and demand optimization.

In a historical moment in which: the demand is low and evolving, the hotels are operating with reduced inventory, forecasts are not reliable, the price war has taken over and the hotels must protect their margins to survive … is the role of the revenue manager still relevant? 

Revenue Management is not a new discipline, but a practice that was born in the 70s. Unfortunately, the lack of training, misinformation, excessive communication, and the presumption dictated by the “we have always done so”, has led over the years to develop a wrong concept of revenue management with very simplistic commonplaces attached.

Among the most popular ones:

  • revenue management is price management
  • revenue management is only useful in times of high demand
  • revenue management is a technical discipline

When I describe revenue management, I imagine it as an iceberg where only the part that emerges from the water, the small visible part, is the price. At the base of the iceberg, the submerged part, are revolving all activities related to the real foundations of the discipline: segmentation, distribution, time, duration, product … If we do not work on a solid foundation, it all comes down to price and to a mere race to the bottom to fill the rooms, neglecting profit.

Segmentation, distribution, moment, product … these are concepts that are transversal to marketing, digital, sales, operations … The contamination of revenue towards everything that is the commercial area of ​​the Hotel had already started before the pandemic, the evolution towards the role of cross-functional ninja and leader of strategic direction. The time of the excel -nerd revenue manager with analytical skills who sits behind his/her computer, extrapolating complex reports, had long gone. The transformation had already begun some time ago and now that we are in 2020, the latest generation of revenue managers must be born as a natural evolution of the role. Not to survive, but to thrive and grow.

To evolve, we need to change our mentality and make uncomfortable but necessary choices starting from some basic elements that the pandemic is only accelerating in the need to pivot our traditional activities:

  • Segmentation as we knew it no longer exists      

We cannot count on the wide segment mix we used to have before the pandemic. We must go granular starting from the segment (revenue) to reach the target (marketing). We must combine our revenue weapons with marketing, digital, sales to build joint actions based on mutual data and convert the demand into bookings. Even though our hotels operate on a reduced inventory, we can optimize on that inventory and capitalize on the low demand we are able to grasp. Crises teach that every single dollar counts. Only through the creation of specific and targeted value, it is possible to stimulate demand and avoid to reduce everything to just the selling price.

  • The Retail approach to the sale of the Hotel       

Total Revenue Management is a concept that has been talked about for years, and which still has little application. But the pandemic has naturally shifted attention towards the generation of “other” revenues and therefore towards staycations, alternative uses of spaces, dayuse … however, these practices do not work with a “one-size- fits – all ” approach. The conception of the Hotel as a real asset and a Retail approach to sales requires awareness, analysis and customer profiling through the use of internal and external data.

  • Internal data is no longer sufficient

If we don’t fully understand our clients, their new needs, the channels they search from, their travel intentions… how do we capture them? Given the scarcity of demand, the data relating to “on – the – books” is not enough and must be combined with benchmark data, flight searches, travel intentions, travel sentiment, analytics, big data. None of us is an island and the revenue manager needs fresh data to look at: only with so much information can we make timely, data-based and informed decisions at a time when our forecast is zero-based (historical data is no longer relevant)

  • Break the silos       

Since forever, revenue, marketing, digital, sales have had different targets. To break individual barriers and collaborate as a real team, they need to move towards a common goal: profit. For some time we have been talking about Revenue & Profit management as two connected elements, from the RevPAR (Revenue Per Available Room) to the ProfiPAR (Profit Per Available Room). The focus on profit makes it possible to bypass individual silos and move towards a single purpose that is independent of the interests and objectives of the individual functions. Only with strong leadership that is able to read and interpret the data serving as the glue between the various disciplines, you can fit actions that look in the same direction.

  • Embrace technology   

Crises can bring two consequences: evolution or regression. Taking away trust in technology means running a big risk of regressing because if we think that so much unpredictability is difficult to track by a machine, how can the human mind do better? Now more than ever the man + machine relationship must become close, man must feed technology with the correct information and embrace change. Not only Revenue Management Systems: CRMs, analytics, chatbots, social media and all the tools not commonly strictly relevant to revenue, must become part of our working life. They enrich us with information at a time when it is vital to profile the new needs of our guests.

  • Walk the data, Walk the talk 

Interpret, translate and share data. The ability to communicate, create engagement and leadership are imperative soft skills of the revenue manager of the post- covid generation.

The excel -nerd is dead, long live the strategic leader!

… 2020 is the perfect storm.

The fourth generation of the revenue manager is now: transversal to all commercial functions, visionary, leader, focused on total revenue and profit management, in symbiosis with technology and pioneer of different ways of working, with a critical and creative spirit.

From the Revenue Manager to the Commercial Leader.

All this is uncomfortable, it changes our habits but it is only an acceleration of a process that was already naturally underway. As Charles Darwin says: “It is not the strongest species that survive, not even the most intelligent, but the one that adapts best to change”

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