Part 1: The Hotel Industry fragmentation in the revenue management application
Part 2: The fast evolution and the tech revolution
Part 3: The evolution of the revenue management role and the current state
How to make the commercial departments within the hotel work together in harmony, albeit with different skills? How to make sure that the revenue management culture spreads within an organization?
The silo working is dangerous and does not only concern large hotels but also small properties which, although with a leaner organization, have people covering one or multiple functions that do not necessarily collaborate and communicate with each other. Hence the need for growth of the revenue management function towards a transversal role, which plays the link between all the commercial departments of the Hotel, can interpret and share the data with all the people involved in the various processes – to align towards a single common goal: Profit.
A transversal role meant to combine analytical, strategic, communication, and long-term vision skills and embrace a total revenue management culture.
As of now, total revenue management is still being discussed as it was a new concept but the truth is that it has been there for years, and the problem with its implementation is linked to the issues in building and growing a revenue management culture within the organization.
There are also some barriers that are not making it easy for Total Revenue Management (TRM) to break through in the Hotel culture and strategy, such as:
- Data integrity: in room revenue management the main traditional key performance indicators are well-known and acquired. Beyond rooms, there are different indicators that are being used to measure the performance and a great inhomogeneity in their application.
- Communication challenges between departments that are still trapped in the silo working.
- Lack of focus on what is not the core business: Owners/managers question the reason why to invest time and resources in what is not the main revenue and profit stream for the property.
The opportunities brought by total revenue management are great and the mistakes that hotels might fall into when ignoring the total revenue contribution are critical for the profits.
Let’s give an example: a group business asking for a quotation of 50 rooms with 1 dinner and 1 meeting room full day.
If the hotel sticks to room revenue management, the only evaluation would be on how many rooms to allocate, the rate to quote, the revenue displacement (if any), and RevPAR. Dinner and meeting rooms would only be considered add-ons to a room reservation in this case, as the negotiation process would only be focused on the room’s revenue side. If a Hotel applies a total revenue management mindset, on the other hand, it would consider also the incremental revenue brought by dinner for the F&B turnover and the meeting room rental, looking at the total value of the business. In the negotiation process, the hotel would be keen to consider the profit and incremental total revenue that the group would bring. Simply put, total revenue management is about bringing the best possible total revenue and profit for the hotel, even when that means displacing one department’s revenue and profit for the sake of the total revenue and profit turnover.
The opportunities for implementing TRM are the same as implementing traditional room revenue management.
TRM is based on the exact same fundamentals:
- a fixed inventory of resources (tables, meeting rooms, spa cabins, or treatments…)
- perishable resources (you cannot sell tomorrow, what you haven’t sold today)
- customers that are willing to pay different prices for the same resource.
This does not mean that e.g. restaurants must have the menu items prices fluctuate as we do with the rooms. We have plenty of opportunities to work on the fundamentals of revenue management: product, moment, and time for instance… In a restaurant, what you need to understand is the best combination of Table occupancy x Time spent x Revenue generated for each meal period and by day of the week. During the peak days, for instance, the restaurant will try to maximize the table mix by accepting the bookings of the more profitable tables in the early evening, with the scope of doubling or tripling up the revenue return of the table. At the same time, it would try to push the worst revenue contributors (e.g. big parties that book large tables, stay longer, or are less predictable) later in the evening when there is lower demand compression.
Again, this example reminds us that revenue management is not (and has never been) about pricing only.
Linked to Total revenue management, is the concept of Retailing. Hotels followed the same logic of airlines in seizing the opportunity to drive ancillary revenue through retail selling and add-ons that can be promoted at the time of booking or before arrival, by upselling services such as a better room, dinner at the restaurant, and a massage at the Spa. To better define what is retailing for hoteliers, I quote Eben Hewitt, CEO at Sabre Hospitality who describes it as
“…Realizing New Revenue Opportunities for Hotels and Personalizing Offers For Guests That Build Deeper Engagement And Make Them Happier”.
Basically, we understood that if a hotel competes solely on price, it will not succeed since other hotels will quickly undercut the price or will offer additional value for the same rate. Price is a strategic weapon, not a tactical tool. To become tactical and make financially sustainable decisions for the short and the long term, Hotels must develop a managerial vision starting from the way they sell their rooms, work at the foundations of revenue management for a solid strategy and embrace technology to support it.
There is no routine in the day-to-day activity of the revenue, but there are some pillar tasks that are necessarily performed daily to be efficient and effective in the management process.
Hotels cannot reach a top-level performance where a proper education and management organization is missing, leveraging technology helps them to improve their performance and reduce non-value add activities.
Revenue management fits all kinds of Hotels but it’s not a one-size-fits-all approach: the logic and principles remain the same but the application must adapt to the individual property. Revenue management is an investment and an opportunity for growth and learning: developing a revenue management culture within the organization will help to thrive in an industry that moves fast and that requires constant adaptation to stay profitable and competitive.