This is the first part of a three-part series that examines the value of revenue management from the perspective of different leadership roles within a hotel’s operational structure. This first article examines how revenue management is important for Hotel/General Managers and the next two will explore the subject further from the perspective of the Front Desk Manager and, finally, the Owner/Operator.
The role of a Hotel Manager (or General Manager) is multifaceted, requiring a blend of leadership, operational expertise and the ability to develop and oversee the execution of strategic business goals.
One of the most important actions that a Hotel Manager, especially in independent accommodations, must take is to develop the property’s revenue management strategies—a critical component that can make or break a hotel’s financial success. A Hotel Manager should be comfortable with using revenue management insights for strategic planning, including setting long-term goals, budgeting, and investment decisions. Additionally, understanding the competitive landscape, including competitors’ pricing strategies and market positioning, is vital for maintaining a competitive edge.
This article will review everything that an effective Hotel Manager needs to understand about strategic pricing and the importance of using revenue management systems (RMS) or automated pricing solutions to support and execute their strategic decisions.
What is revenue management?
Revenue management, at its core, is the practice of analyzing and predicting consumer demand to optimise room inventory and price rooms to maximise bookings and revenue growth. To make effective revenue management decisions, Hotel Managers must understand the fundamental principles of supply and demand, segmentation and effective pricing strategies, as successful revenue management is about selling the right room, to the right customer, at the right time, for the right price, through the right distribution channel.
Pricing 101
Research shows that hotels that price their rooms higher than the competition tend to make more profit overall, in both good and bad times. This reinforces the need for Hotel Managers to understand and integrate demand prediction and forecasting (see below) into their revenue management strategy to ensure that their pricing is accurate, no matter how the market changes.
Forecasting and Demand Prediction
Effective revenue management relies on the ability to forecast future demand accurately.
There are two ways to predict future demand: manual analysis of past and current booking trends, market conditions and external factors (such as events or holidays), or by using automated pricing technology that will do all the data collection and analysis automatically, in real-time, freeing up the Hotel Manager to focus his attention on strategic decision-making and on improving the guest experience. Obviously, the latter is a much more effective use of the Hotel Manager’s time, as manual data analysis is time-consuming and is prone to human error.
Speaking of automated pricing solutions…
Revenue Management Technology
As we just mentioned, using a Revenue Management System (RMS) or an automated pricing solution (like RoomPriceGenie’s!) leverages data analytics to forecast demand, analyse market trends and competitor pricing and adjust room rates in real-time, ensuring prices are competitive yet profitable. This data-driven approach enables hotel managers to make informed decisions and stay competitive. Automated pricing solutions enhance operational efficiency and provide valuable insights into customer behaviour and booking patterns, helping Hotel Managers to increase their property’s occupancy during off-peak times to ensure a steady flow of revenue.
Market Segmentation and Price Optimization
A crucial aspect of revenue management is identifying the most common market segments that make up a property’s guests. Common market segments include business travellers, leisure travellers, groups and customers who are part of the property’s loyalty program (a.k.a. repeat guests!). Each segment has unique booking behaviours and price sensitivities, so Hotel Managers need to understand each segment and how to best set their rates to appeal to the property’s most profitable segments, optimising occupancy and ADR.
Distribution & Channel Management
A hotel’s visibility across various distribution channels is critical, as it will directly impact the property’s long-term profitability; knowledge of the cost-benefit analysis of each channel and how to leverage them for maximum exposure and profitability is essential for a Hotel Manager’s success in revenue management.
Generally, Hotel Managers should put a greater emphasis on driving direct bookings (through the hotel’s brand.com website) whenever possible because of the lower cost of acquisition and use online travel agencies (OTAs) as a back-up to drive visibility and bookings when the property is not likely to be at 100% occupancy. The basic rule to manage OTA availability is this: give as much availability as possible to the OTAs if you’re not likely to be fully booked (as they reward you for sharing your inventory), but limit availability when OTA sales will limit your direct sales.
Being on the OTAs gives hotels additional reach and the benefit of the billboard effect; therefore, the more OTAs a property is listed on, the more people who will see your property, and the better chance that to convert the sale (either through the OTAs or direct).
One important note: maintaining a property’s presence on more OTAs requires more work, including setting up the hotel’s profile and updating content and photos across all distribution channels whenever anything changes, so a channel manager is a must-have in all properties’ basic tech stack. The channel manager will make it relatively straightforward, on a day-to-day basis, to be listed on as many channels as possible, without creating extra work or added headaches.
Finally, it’s important for Hotel Managers to evaluate each channel’s performance on an ongoing basis, and if bookings aren’t converting on a particular OTA, re-allocate the inventory to a more profitable channel.
The Art of Hospitality
At its heart, hospitality is about creating exceptional guest experiences. A Hotel Manager must understand how pricing impacts the guest’s perception of their overall experience to develop revenue management strategies that will bring in new business and ensure that each guest has the optimal stay experience. To accomplish this, Hotel Managers should use guest data (from the CRM) to personalize guests’ experiences, create targeted promotions based on current market demand and build loyalty programs that drive repeat business and attract new customers through positive word-of-mouth.
In essence, revenue management is a comprehensive discipline that touches every aspect of a hotel’s operation but for Hotel Managers, a deep understanding of revenue management is imperative for driving revenue growth, ensuring guest satisfaction and achieving long-term profitability.
The journey to mastering revenue management is ongoing, requiring continuous learning, adaptation and the ability to identify impactful market trends, revenue opportunities and potential opportunities for operational or strategic improvement to yield better results.
This article is Part One of a three-part series about revenue management, which shares information about the specific benefits of revenue management for employees with different operational roles and responsibilities within a hotel. Keep an eye on this space for the two other articles in the series, including “A Front Desk Manager’s Essential Guide to Revenue Management” and “An Owner/Operator’s Essential Guide to Revenue Management.”
To learn more ways to maximize your property’s revenue, download the free RoomPriceGenie guide, “49 Tips to Supercharge your Revenue”. Trust us, your bank account will thank you for it!
