ÒYou don’t need a weatherman to know which way the wind blows,Ó sang Bob Dylan in his classic 1965 song ÒSubterranean Homesick Blues.Ó He was right. Knowing which way the wind will blow in the future, on the other hand, is a whole different matter. It requires not only a weatherman, or meteorologist, but also massive amounts of data and computational processing power. Accurate weather forecasting means knowing the temperature, humidity, air pressure, soil moisture and wind speed at many different points and elevations.
The predictive model may also call for multiple other types of data sourced from historic observations of the atmosphere and underlying surfaces. In addition, accurate weather forecasting requires advanced technologies like Doppler and dual polarization radar and next-generation analytic software. As a result, seven-day weather forecasts today are more accurate than were 24-hour forecasts only a couple of decades ago.
By the same token, you don’t need a revenue manager to know how many guests are currently checking into a hotel. However, knowing how many guests will likely check into a hotel a few weeks or a few months out Ñ and knowing what types of guests they will be, what kinds of rooms they will want, how much they will be willing to pay to stay at the hotel and how much they will likely spend during their stay Ñ presents a much bigger challenge. Accurately forecasting guest room demand by segment, room type and rate, and ensuring that the hotel maximizes the value of guests through optimized pricing tactics, may be even harder than accurately forecasting the weather.
What is certain is that in a dynamic market characterized by ever-changing numbers, patterns and results, it is impossible to optimize room rates and overall revenue outcomes without the right data from a diversity of relevant sources. It is also impossible to do so without a next-generation hospitality revenue management solution.
The good news is that some of these solutions have become extremely sophisticated and effective, fueled by the rapid growth of big data processing, demand forecasting and pricing optimization models. The best of these solutions have the ability to generate pricing strategies based on real-time analysis of all relevant data, automating the decision-making process for pricing rooms, driving increased revenue per available room (RevPAR), and finally giving hotel operators the level of inventory management control that has eluded the hotel industry since its initial foray into revenue management, and especially with the proliferation of the OTAs.
Today, most hotel operators view the need to progressively improve their revenue management capabilities as a strategic imperative worthy of garnering ever-increasing amounts of attention and resources, given the opportunity to improve financial performance in highly predictable ways. For most hotel operators, the investment in upgrading their revenue management capabilities has paid off in spades. In fact, according to The 2018 Smart Decision Guide to Hospitality Revenue Management, large and very large hotels have enjoyed, on average, a 10 percent increase in RevPAR, often resulting in millions of dollars in additional profit. Midsize and limited service hotels have faired only slightly less favorably, with a 7 percent average increase in RevPAR.
Making the business case for upgrading revenue management capabilities means projecting the likely return on investment (ROI). Unlike many other technology-enabled business initiatives, the results of a revenue management initiative can generally be measured by way of an ROI calculation. Assessing the value of a revenue management solution from a cost standpoint means determining the extent to which the technology is achieving optimal financial results. Comparing historical performance to current performance is one approach. But due to changing business practices, market conditions and various other factors, this approach may fail to provide an apples-to-apples comparison.
Revenue opportunity uplift goes beyond a simple ROI calculation or historical performance analysis. A careful measurement of RevPAR performance during a given time period compared against the same time period in the year prior to technology implementation may allow hotel operators to track incremental improvement driven solely by the new solution. In this way, hotel operators can gain an accurate read on time to value and determine the lift in revenue and profitability the new technology is currently delivering.
Not all revenue management initiatives are the same. Different approaches, technologies and resources can yield dramatically different results. Here are seven recommendations to keep in mind when it comes time to upgrade your revenue management capabilities:
1. Focus on data integration
The revenue management solution needs to seamlessly integrate with the property management system (PMS), which, in turn, needs to integrate with the central reservations system (CRS) or channel manager. For revenue strategy to be most impactful, the PMS also needs to incorporate valuable data streams from all point of sale (POS) systems in order to capture ancillary spending on food and beverage purchases, as well as function-specific solutions (spa, golf, etc.).
2. Focus on data quality
Choose data sources that will help with accurate decision-making and steer clear of all the rest. Be wary of incorporating every last piece of data that may be available from every possible data source into the decision model. Revenue forecasting accuracy tends to be a case of Òquality over quantityÓ rather than Òthe more, the merrier.Ó While poor technology integration can result in some data discrepancies, most data accuracy issues stem from human error. Put consistent processes in place that staff can follow to help improve data accuracy.
3. Hire the right revenue manager(s)
The role of the revenue manager has never been more important. In fact, some industry observers contend that revenue managers should be the highest paid employees in the hotel, given their potential contribution level to top-line revenue growth. Of course, in smaller hotels with limited budgets, the revenue manager and general manager are oftentimes one and the same person. Unfortunately, general managers may have little or no training in the science of demand forecasting and price optimization, invariably leading to suboptimal results. Ideally, the individual running the show should have the specialized skills and knowledge needed to ensure the solution produces maximum benefit. In addition to employing large teams of seasoned revenue managers, some major hotels are now carving out positions for data scientists to evaluate all of the data that is collected and to refine the pricing models based on that data.
4. Think in terms of Òtotal revenue managementÓ
While guest room revenue is the bread and butter of most hotels, ancillary revenue steams can contribute significantly to overall revenue and profitability. Look to see if there may be a golden opportunity to apply revenue management tactics in these and other non-room categories to achieve optimal financial results. Hotels that fail to embrace next-generation solutions that enable Òtotal revenue managementÓ will fall behind their competitors. The best of revenue management solutions allow hotels to consider the contribution margins and capacity constraints of not just guest rooms, but also restaurants, bars and cafes, spas, golf courses, ski lifts, and any other assets of the property. Some advanced revenue management solutions include capabilities specifically focused on optimizing meetings and events revenue and driving profitability. These capabilities allow hoteliers to optimize profits across multiple revenue streams, from guest rooms and meeting spaces to food and beverage, catering, A/V equipment rental, ancillaries and more. Thinking in terms of total revenue management, taking into account the ancillary spending that takes place in hotel restaurants, bars, conference centers, banquet space, golf courses, etc. and not just revenue management as it pertains to guest rooms, can mean leaving a lot less money on the table and significantly boosting revenue and profitability.
5. Partner with the sales and marketing departments
The pricing recommendations and market insights generated by revenue managers can be valuable across multiple parts of the organization. Access to the tools and dashboards should be made available to marketers, in particular, who are charged with demand generation activities. Insights, such as those that forecast periods of high demand versus low demand and that reveal which customer segments are planning to book rooms for a certain period, should inform every campaign. The insights should inform how aggressive to be with marketing offers and promotions, toward which customer segments the offers and promotions should be directed, and when, exactly, to present the offers and promotions, and which marketing tactics are most likely to elicit the desired responses. To achieve optimal results, it’s imperative that revenue managers work hand-in-hand with the sales and marketing functions and integrate all of their customer acquisition strategies.
6. Ensure automation of room availability and rate change distribution
Hotels need to customize the direct booking engine within the CRS, or channel manager with revenue decisions and to automate channel-specific offers via the call center and other channels. The CRS should integrate with OTAs specific to the market in which the hotel operates. Built-in mapping capabilities should make it possible to organize OTAs, which today serve as both booking engines and online shopping channels. Channel management integration ensures that room rates and inventory availability update quickly and accurately across all booking channels. Otherwise, prices presented on some channels may be lower than desired. Similarly, rooms presented as available may, in reality, be unavailable, in which case the property risks becoming overbooked. Manually inputting room and rate changes can result in errors that, ultimately, can damage the brand’s reputation and result in revenue loss.
7. Build a revenue management strategy and culture
A revenue management strategy is a blueprint for improving financial performance over a specific period of time. It should incorporate all of the revenue streams from across all parts of the hotel as well as all of the revenue drivers, from the sales department to the online distribution channels. The strategy should be built upon a solid foundation of revenue goals using targeted RevPAR, GOPPAR and other relevant metrics for tracking progress. It should include a timeline with key milestones and spell out the tactics for achieving success. The strategy should be as specific as possible, detailing, for example, how the property approaches pricing. Done right, the strategy will help create cognitive alignment amongst all employees regarding the value of a revenue management initiative.
About the author
Jeff Zabin is Research Director atÊStarfleet Research, which benchmarks best practices in hospitality technology. Recent titles include The 2016 Smart Decision Guide to Hotel Property Management Systems, The 2016 Smart Decision Guide to Hospitality Revenue Management and The 2016 Smart Decision Guide to Restaurant Management and POS Systems. A globally-recognized market research executive, Mr Zabin’s bestselling business books on data-driven marketing improvement have been translated into more than a dozen languages. He has also written hundreds of popular benchmark reports and articles in leading trade publications across multiple industry sectors, including hospitality.