what is revenue management

what is revenue management

Understanding Revenue Management in the Hospitality Industry

1. Introduction to Revenue Management

The new management science fields known as “revenue management” and “yield management” provide companies with new techniques and technologies specifically designed to maximize revenue from fixed-capacity resources such as airline, hotel, ballpark, and rentals and other similar fixed capacity service industries. Using applied mathematical models based on operations research and/or dynamic pricing, revenue management focuses on proper sales forecasting and adjusted pricing strategies to capture as much revenue as possible from perishable goods. Revenue management in these industries affects the production of old products in new ways and can make significant contributions to the professionalism of industry revenues. Hotel operators and revenue managers especially owe it to stakeholders to make the most of this potential.

Every day, millions of passengers are affected by overbooking of over-profitable flights, and millions of hotel guests are walked or transferred to other hotels because an overbooking error reduces their hotel’s profits. In today’s global marketplace, many fundamental business principles apply to the hospitality industry. Both the purchases and departures of guests in many ways should be automated as much as possible – exposures for less tangible materials such as rooms and seats in a hotel or an airplane. Other principles such as customer segmentation and brand positioning have been adopted to various degrees by players in both industry sectors.

2. Key Concepts and Strategies

– Setting achievable critical success factors – Developing a pricing strategy that satisfies both guests and hotel management – Balancing pricing considerations to maximize net room revenues – Understanding the impact that various market segments will have on room demand – Creating plans that address both demand increasing measures and demand decreasing measures – Using marketing strategies that support critical pricing, segment mix, or loss reducing strategies – Developing a sales structure that meets objectives by market segment – Incorporating technologies that provide information for use in price optimization.

Key elements for a successful revenue management strategy include:

Revenue management is a set of tools that enables a hotel manager to balance all of the market considerations and make informed decisions, increasing revenue. These tools include forecasting revenue, creating pricing structures, managing resistance to price, implementing effective promotional and marketing strategies, overseeing the distribution channels, and using the latest technology to enhance decision-making processes and revenue.

3. Technological Tools and Systems in Revenue Management

TES Enterprise Solutions is integrated into SIMS Technologies Limited, and this gives it incomparable accessibility to transactional, operational, and marketing data that may be required for updating and optimizing forecasts. Roomlynx, ResortSuite/Coordinates, and Level60 Consulting are other examples of integrated technologies. Large, multinational, and global hotels and chains prefer to use standalone technologies; however, smaller hotel chains and independent hotels are benefiting from the use of integrated technology. Business Processing technology helps generate crucial performance reports for revenue management purposes, in addition to business processing. As a hotel owner, information on how guests book a hotel, for example, channels or origin markets, can be very beneficial for making a revenue strategy. Other hotel-level revenue management software includes Preoday, Atcore, Upside Services, Cybrosys Technologies, Allocate Analytics, HeBS Digital, Triometric, MyHotelsonnet, Digital Alchemy, EZYield, RateTiger Corporation, and WHIZX.

Some of the technological tools used in revenue management are standalone technologies, while others are integrated into commercial property management systems. The independent tools are specially designed for the task of revenue management and include capabilities for business processing, competitor analysis, forecast, optimization, and access mining. However, standalone technologies often have less access to up-to-date facts, such as pricing and business processing data, compared with integrated technologies. Examples of some leading standalone technologies, who are also trailblazers in revenue management, include IDeaS, Duetto, and Rainmaker.

4. Challenges and Future Trends

Despite these hotel profitability levels, the typical increase in costs associated with labor and supplies has created an environment where lower occupancy or rate fluctuations can imperil both the hotel’s survival and economic feasibility. The day of the super sophisticated computer system has arrived for many hotel chains – NHMC, Hotel Corporation of America – just to name a few. These systems provide the chain with a Daily Operating Ratio (DOR), which includes last-minute bookings, local coupon rates, and group handling by an MX280, and inventory moves from the yield system. In fact, since 1986, three companies have emerged solely to offer yield management services to hotels. High-volume software suppliers have also developed yield software that interfaces with standard revenue management systems (i.e. MICROS, Data-Star, Spring, etc.) However, some chains have custom-designed software that interfaces with their proprietary hardware and software systems (i.e. Holiday, Marriott). This is in addition to internal efforts to design and implement revenue systems, including information networks.

When and where will the next revolution occur in hospitality management? In a changing world, the number and type of signals determine the answer. Given the pace of change and demographic patterns, the timing is now and the place is the 18th floor. The challenge facing management and educators is formidable. However, the dynamics of change can spark the revolution in hospitality management. Over the last decade, hospitality has emerged as one of the fastest-growing industry segments. Hotel rates, occupancy, and per-room profit levels have soared to new heights, reaching a critical mass in many U.S. and international cities. Yet paradoxically, this financial success is fraught with a myriad of management dilemmas. Expensive both tangibly (exclusive leisure time requirements) and intangibly as perceived by the 21st-century customer, hospitality requires a delicate balancing of human service skills, leisure perceptions, and controlled yield management.