Revenue Management

Revenue Management

Revenue management is a practice known for several thousands of years. The application of this principle is acknowledged from the moment the first human beings started to trade goods for goods, and later for money. The understanding of how the variables between demand and supply influence a price that can be charged for a product or service has defined the laws of economics as we know them today.

In order to apply revenue management there must be 3 essential conditions: fixed amount of resources available for sale; resources to sell are very perishable; and, customers willing to pay a different price for using the same resources. The approach of revenue management in the digital age is born on 17 January 1985 when American Airlines launched its ‘Ultimate Super Saver’ fares in an effort to compete with the low cost carrier ‘PeopleExpress’. As defined by Xotels and many other experts we can set the following definition of revenue management in the hotel industry: “Selling the right room to the right client at the right moment at the right price on the right distribution channel”.

In the past decades revenue management has been widely embraced by the major hotel chains in the world. The bigger brands were quick to adopt the pricing and yielding strategies applied in the airline industry. In contrast, I noticed during my time as a consultant for Horwath HTL Cape Town in 2008 and 2009, that the small to medium sized properties (such as independently owned hotels, B&B’s, lodges…) usually did not apply revenue management. At most there was a rate alteration between high and low season. However, this initial step to differentiate a price depending on high or low demand is the most important step a hotelier needs to take, in order to further apply the principles of revenue management.  Being aware of the impact that the price difference has on sales of hotel rooms is key. Next to awareness, the two factors a hotelier should take into consideration in order to apply successful revenue management strategies are knowledge & technology.

At SmartHOTEL we are aiming to offer both knowledge and technology to the hotelier.

Knowledge is shared in the form of consultancy from our Sales & Support team, but also through a partnership with Hotelschool The Hague. With Hotelschool The Hague we offer an eLearning Revenue Management Course at significant discount to hotels. It is important for the independent hoteliers to understand the principles of revenue management and recognize how these can be applied in their unique situation. As stated in an article in Misset on 27.02.2015, Mr. Van der Rest (Prof. of Strategic Pricing & Revenue Management, HTH) and Ms. Lang (Consultant Revenue Mangement Solutions, KL Consulting) both confirm that revenue management in the independent small to medium hotels will have a direct impact on revenue (4 to 12 percent increase). Big Data, Marketing, Reputation Management together with the current  “Kinship Economy” and the ever growing need for individualization are factors that should be taken into consideration when applying revenue management. We should also remember that with today’s information overload allowing us to access an infinite amount of data, we can apply revenue management in a different way: Start focusing on guests as individuals and ensure that the most profitable customer is offered a fine tuned stay through the hotel’s own sales channel. In the same edition of Misset we can read about an innovative approach that will bring hotels closer to guests in many ways, benefiting both parties: An app called Enjoya.

At SmartHOTEL we find that the independent hotelier does not have a lot of time and resources to spare to put in practice all aspects of revenue management. However a large amount of software providers are offering a wide scope of solutions which are available at reasonable price. SmartHOTEL is connecting the channel manager to revenue management systems such as IDEAS, Pricematch and RevparGuru. We are excited about increasing the portfolio of connected revenue management systems. At the same time we are investigating what useful features can be added to a channel manager or SmartPMS in order to integrate more revenue management tools.

Please feel free to share your ideas and opinions about the future of revenue management by a reacting on this post, emailing or by giving us a call!

Maik

By Basil May 11, 2015