How to overcome the flaw in hotel revenue management - Insights

How to overcome the flaw in hotel revenue management

Revenue managementmost-popular2Revenue managers have a tough gig.

Being responsible for the pricing decisions of a hotel is not a responsibility many would envy, and of course hoteliers who can’t afford a revenue manager have it even tougher.

Nevertheless, revenue management is essential for any hotel today. Without it, hotels forfeit the ability to boost their bookings, revenue and profit; offer competitive rates and promotions; and forecast the upcoming booking season. However, successful revenue management requires full visibility of all revenue streams for a hotel – from the online booking websites where the hotel chooses to advertise its properties, to its marketing and sales – in order to provide meaningful decisions that are based on one of the most fundamental principles of economics: supply and demand.

For support, many hotels turn to a revenue management system (RMS) – and there are some brilliant RMSs out there. At its most basic level, an RMS uses data to determine, primarily, a hotel’s supply and demand, and recommend the optimal price at which hoteliers should sell their rooms.

An RMS is clean and efficient for business. But to be effective, it first needs to know – with certainty – a hotel’s room supply, as it is impossible to make optimised rate recommendations without it.

The keyword being: certainty. And not many hoteliers have it, which leads to issues such as over-bookings, increased costs and missed opportunities to offer the most competitive room rates.

Why determining a hotel’s supply isn’t as simple as counting rooms

It would be easy to assume that a 300-room hotel, with 150 confirmed bookings, for example, still has a remaining supply of 150 rooms available. But the truth is, if that hotel has advertised its property on online booking websites, has its own website, has tour operators, deals with walk-in guests and takes direct calls, its supply has changed from the time you started reading this article. In fact, it’s probably changed more than once – and it’s still fluctuating now.

Hence, the importance of dynamic pricing, which Vishwas Bhatia, VP of revenue optimisation for Aston Hotels & Resorts, summed up perfectly in 2014 as “time-based pricing” or, in other words, hotel room pricing that meets real-time demand.

As with any business, a hotel’s pricing should be directly linked to live market conditions and availability. Yet, too few hoteliers can accurately determine what their availability is when the point-of-sale comes, making that availability impossible to manage at the same rapid pace that room bookings – and cancellations – occur in today’s dynamic online environment.

When the absence of real-time reservations means uninformed pricing decisions

One of the greatest opportunities for hoteliers today is in the sheer volume of channels available for them to select from in order to achieve their revenue goals. Today these channels not only include online travel agents, but metasearch sites, global distribution systems and wholesalers, as well a hotel’s own website.

However, while the selection offers greater diversity and choice, it also means a greater risk of hotel room reservations not being captured in real-time. In fact, it’s not uncommon for reservations to be received from a channel and then sit with a hotel for days without ever being captured into its property management system (PMS) or central reservation system (CRS), as a result of the dangerous – but very real and prevalent – reliance on manual data capture and entry which continues to exist within the industry today. Too few incumbent distribution systems deliver real-time reservations at an affordable cost and, ultimately, inaccurate data means those hotels never truly know their correct, real-time supply, making it impossible for them to make good and informed business decisions.

According to the American Hotel & Lodging Association, there are an estimated 480 hotel bookings made online each minute within the US, alone. That’s a lot of bookings made in real-time, and a hotel’s room supply should reflect that to be truly competitive. The good news is that, using real-time technology, a hotel can get this visibility and use it to help to drive better business.

How real-time reservations can be managed with real-time technology

Best-of-breed (real-time) distribution and revenue management technology has made the instantaneous nature of online bookings easier to manage and optimise for today’s hoteliers by providing complete automation that further improves the hotel business’ efficiency and speed.

For a low monthly fee, distribution technology systems are available to offer hotels the opportunity to be connected to a greater number of channels and deliver real-time reservations. Such technology gives hotels an accurate understanding of their supply and enables informed, optimised pricing decisions – whether it’s made by a revenue manager or an RMS.

Similarly, where once only global hotel chains implemented the discipline of revenue management and could afford a sophisticated RMS (or, indeed, a cluster of highly skilled revenue management experts), RMSs and skills in revenue management are today also accessible to small groups and independents and can be one part of a more holistic hotel technology solution; one that is integrated and cloud-based.

The end result? Better results to both the hotel’s bottom and top line revenue.

Best-of-breed solutions not only eliminate the real risks of failed reservations and overbookings; they allow hoteliers to lower costs and take advantage of pricing opportunities, in turn generating greater revenue. Equally important, they also remove the need for manual entry which is never a feasible solution in offering real-time rates and ensuring the right room is selling at the right price.

About the author

Mike FordMike Ford is the Managing Director of SiteMinder. Since founding SiteMinder from his home, Mike has pushed the business to the forefront of the global hotel technology landscape. For its 20,000+ hotel customers, SiteMinder powered more than US$10.8 billion in revenue and close to 27 million hotel reservations over the 12 months ending June 2015.

SiteMinder’s products include The Channel Manager, the industry’s leading online distribution platform; TheBookingButton, a wholly-branded booking engine for direct bookings via the web, mobile or social; Canvas, the intelligent website creator for independent hoteliers; and GDS by SiteMinder, a single-point of entry to a six-figure network of travel agents and the world’s major GDSs.


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