Revenue Management Is the Key to Full Occupancy
Revenue management is a common term used in the hospitality industry, yet few hotel managers fully understand its value for generating revenue. It offers immense potential for boosting sales. For example, Marriott International, the first hotel chain to use revenue management, increased sales by $150 to $200 million. Successful revenue management gives hotel managers insight into many hotel functions, including pricing, marketing, and inventory control, to generate the highest revenues possible.
Definition of Revenue Management
According to Revenue Management and Pricing International, the revenue management definition involves “providing the right product, or bundle of products, at the right price, in the right place with the right promotion.” For hotel management, this means being able to sell the right room, at the right time, to the right person for the right price, with the right promotion. To achieve optimal revenue management, several processes, such as inventory control, market segmentation, data collection and analysis, and forecasting must work together. This allows hotel managers to predict consumer behavior, maximizing customer satisfaction and profits.
History of Revenue Management
American Airlines CEO Robert Crandall was one of the first executives to use a variation of revenue management, which he referred to as yield management. While similar to revenue management, yield management primarily focused on inventory control, forecasting, and overbooking. Affected by the emergence of budget airlines, Crandall was looking for a way that American Airlines could compete with the other companies’ low prices. Knowing that he could not offer the same low prices on regular airline seats, he devised a plan to offer lower rates on flights where there were extra seats.
The theory was that it was better to sell these seats at a substantially reduced rate rather than fly with them empty. American Airlines was able to offer these available seats at a lower rate than even the budget airlines. However, it required taking analytical data and predicting when these surplus seats would be available — thus the use of yield management. It wasn’t long before rental car giant, Hertz, used the same practice to boost sales.
Crandall shared his successful yield management plan with Marriott International CEO J.W. Marriott Jr., who was facing the same competition for budget hotels. Marriott revamped the system to meet the specific needs of the hotel industry and changed the name to revenue management. Today, this practice is used by nearly all major hotels in the world.
Benefits of Revenue Management
The benefits of hotel revenue management are far-reaching, but here is a look at the primary ones:
- Improves Customer Satisfaction
Obviously, customer satisfaction is job one. After all, what customer doesn’t want to get the best price? Being able to offer discounted prices at a specific time can keep a customer coming back to the hotel instead of looking elsewhere.
- Combats Competition
Knowing what price to ask at a specific time enables hotels to remain competitive in an ever-changing market. Take American Airlines, for example. Without revenue management, it would never have been able to compete against the less expensive airlines and their budget-minded customers. Revenue management allows the company to ensure its prices stay consistent with demand.
- Provides Better Channel Distribution Management
With the emergence of travel sites such as Expedia and Travelocity, clear and accurate channel distribution management is more important than ever before. A mismanaged distribution strategy could cost a hotel thousands of dollars. Revenue management helps by predicting consumer behavior and the pricing market.
- Allows for Advance Marketing
Marketing is a must whether operating a small, medium, or large hotel. Revenue management enables managers to identify the hotel’s target audience at any given time. This paves the way for market segmentation and the use of targeted marketing strategies. It also can identify new market segments that the hotel might otherwise overlook.
- Generates Additional Revenue
The primary goal of revenue management is to optimize room availability and pricing to maximize revenue. There is a delicate balance between knowing when to lower room rates to fill rooms that would otherwise stay empty and keeping the rates the same. Through data collection and analysis, revenue management enables hotels to predict consumer behavior and forecast the optimal prices, channel, room, and promotion to maximize profit. It also allows for better inventory and cost control.
The last thing a hotel manager wants is an empty room. With revenue management, hotel managers can minimize the number of times this occurs throughout the year. Without it, potential customers are likely to find another hotel offering better rates. Today, this is avoidable.
LightsOn Digital understands the importance of hotel revenue management and the many benefits it offers hotels, both large and small. LightsOn Digital provides superior OTA channel management services to ensure hotel managers are making the most of their revenue management data by using the right channel, at the right time, geared toward the right customers.