hotel revenue management

hotel revenue management

Optimizing Hotel Revenue Management Strategies

1. Introduction to Hotel Revenue Management

The implementation of revenue management in hotels has gone through several stages. The first vision of the hotelier was to equal the sales revenue of the airlines. In the second stage, hoteliers created links with the reservations platforms to have an image of the price that competitors were handling. The good results of these actions made the hotel industry study this concept more deeply, the hotel federations began training courses, and the universities offered it as a degree option.

The hotel industry has embraced the theory and strategies of revenue management, a concept that has been defined as the set of systematic and organized methods by means of which they will be able to optimize profitability for each client, selling the product in time and at an appropriate price. It helps to analyze the demand, how much demand there is for rooms, and know what will be the best price to charge. Control and vision of the inventory and slots that are offered are studied and evaluated. This concept is simple and very difficult to apply, but the good application of the methods, tools, and ideas will allow increasing profits and a significant competitive advantage. The positive effects of revenue management are the possibility to reduce costs and avoid the discount strategy traditionally used. In the hotel industry, each product is unique, although they may belong to a chain of hotels; the product is unique to each client, that is, no two clients are paying the same price.

The hotels realized that due to the perishable nature of their product, they lost the possibility of selling at the end of the day when the guests did not occupy them, so they had to discount, which in the long term means reducing their income. Revenue management appeared in the eighties as the solution to this problem. Therefore, revenue management consists of applying the tools that allow optimizing revenue for each selling situation.

2. Key Concepts and Components of Revenue Management in the Hotel Industry

The automotive industry includes a number of technologies for controlling the production of a car; systematized through budgets and production resources but, no matter how many automobiles one sells per year, the variables are limited. Moreover, the variants of a product can be important, as is the time of exposure of the same product and if its sale is seen as a disconnected product or as a market need. The hotel industry is treating a product that can be transmitted in seconds and which has dozens of distribution channels. The successful Revenue Manager will have to work as an integrator of distribution channels and optimize the exposure of the product to achieve optimal prices, but it must also be able to discuss individualization or categorization in the use of hotel accommodation.

Revenue management has its roots in the business sciences but is actually a logic to maximize profits through prices. Revenue management is actually not much more than a pricing strategy in which the market promise is kept as well as possible and in which many, if not most, prices are “fluid”, depending on a combination of market demand and rental production costs, the so-called dynamic pricing method. Revenue management is not linear, it is not a plan and it follows many variables that may change. It is a business process and realizes that there is always an optimal price for a product at a certain time if one takes into account the cost that the production of that room or product brings with it.

3. Tools and Techniques for Implementing Effective Revenue Management Strategies

Yield-management-based hotel reservation systems can help achieve a hotel’s revenue management profit-maximization goal. Yield management systems (YMS) are interactive, demand-sensitive and forward booking tools. Yield management systems forecast future demand patterns using mathematical algorithms, and then allocate fixed perishable assets across multiple booking channels in a manner that ensures the highest possible revenue yield per unit. Hyper-information technology has made yield management systems more flexible, modular and user friendly. Promotional tactical campaigns, overbooking and forecasting tools embedded in modern yield management systems heighten hotel revenue managers’ ability to produce even greater profit enhancements. The main benefits yielded from a yield management system in a hotel are through the efficient management of inventory per individual guest segment so as to achieve the highest possible yield, as well as increased accuracy in future demand forecasting.

The best way to forecast demand is to carefully investigate historical data. Most advanced forecasting methods rely on historical data. Therefore, carefully designed tools are needed to predict future demand based on past information. Many statistical forecasting methods can be used in hotel demand forecasting, but the most frequently used methods are time series models. Time series forecasting relies on examining past (observed) time series datasets and patterns and applying that information to future periods to produce a forecast.

4. Case Studies and Best Practices in Hotel Revenue Management

Case Study shows how the hotel employed a three-night minimum stay requirement for its rooms during the Christmas holiday season.

Case Study 2 provides insights into the architecture and web design vehicles used by hotels to sell rooms. Case Study focuses on how the hotel offers customers the chance to stay at specific hotel suites such as the cinema suite, royal suite, and aura suite. Data analysis is performed on a hotel that shows the revenue benefits of offering themed suites.

Case Study 1 describes a hotel that implemented a three-night minimum and high room rates that takes a percentage off room rates for persons who book 60 or more days in advance. The empirical results from Case Study 1, as well as hotel daily occupancy and average room rates, indicate that the new and innovative revenue management flagship strategy permits the Atlanta hotel to maximize their average daily revenue per room due to a trade-off angle guaranteed hotel management a revenue margin close to 40%.

Innovative and new marketing and revenue strategies will be an effective way that hotel managers in the hospitality industry can optimize room sales effectively. Hotel managers will benefit from a better understanding of how these strategies work in hotel situations because knowledge of these strategies will allow them to identify the best revenue strategies to achieve the hotel’s specific revenue and marketing goals. This chapter presents case studies and examples of best practices in innovative and new marketing and revenue management strategies employed by the hotel industry to optimize their overall room sales.

5. Future Trends and Innovations in Hotel Revenue Management

The reviewed literature suggests several possibilities for future research in hotel revenue management. The primary areas involve the customer experience and use of technology as core tools for maximizing revenue management across the global society. An enhanced involvement of customer feedback in the revenue management process should be used to measure the customer experience at the property level and a clear identification of what causes reaction from the revenue management side to exceed customer expectations. Overall, hotel brand customers seeking further enhancements in the way hotels deliver their service product should provide the competition between hotels and destinations to reach a level of customer preference that brings the guest back again and again. Revenue management processes focused on creating a two-way client relationship with customer needs and growth of database, and customer behavior data will lead to higher property revenues. The value of the customer experience will drive the revenue management processes and budget, executive meetings weekly, forecast review, and daily business review will become the measurable way for top management to understand and use revenue management principles.

Revenue management processes create a bridge between the physical day-to-day structure sets of hotel capacities and the electronic and digital information systems that support the sales and marketing of lodging products. Past innovations in hotel revenue management processes led to the creation of intermediaries in electronic product distribution that sell to customers, flight-based pricing strategies for guestrooms that closely mimic those for airline fares, lodging central reservations computer systems that are fully centralized due to central distributor consolidators, and an increased corporate demand for hotel properties at an international level. The trend is a clear indication that the hotel industry’s use of revenue management processes is continuously evolving and will eventually lead to the leisure traveler becoming a primary buyer rather than the corporate traveler. Enhancements that embrace e-commerce, customer relationship marketing, and the use of strategic electronic alliances to increase product sales for lodging rooms are foreseen in the hotel sector as hotel operators use revenue management forecasting and optimization processes.