Beyond occupancy. What’s more to revenue management?

An industry report by RezNext

Today, revenue management is all of this and much more. It is a complex process of profit maximisation in a market that is constantly evolving. Competition is high. Technology is influencing consumer behaviour. Market segments are changing from being generic to more specific and defined.

Revenue management is becoming more dynamic than ever. Strategic decisions need to be taken every minute. Price optimisation now is a multi-channel strategy - occupancy, average daily rate, revenue per available room, competitor rate, performance of marketing campaigns, guest reviews, market segmentation - all play a vital role in determining the revenue and bottom line profits of the hotel.

Recently RezNext interacted with over 70 leading revenue managers to understand the current techniques adopted by them to manage their revenues. Based on our findings, we have compiled some best practice recommendations to help hotel revenue managers simplify profit maximisation at their properties.

• Is it only about driving occupancy?• Is it only about selling rooms at a high price

during peak seasons?• It is only about offering lower room rates

than competition?

Decoding hotel revenue management

What’s today is not for tomorrow.

Incorporate real-time market trendsThe demand patterns within the hospitality industry are changing every day. The kind of business you receive on Monday is different from what you receive on a Tuesday. On weekends your booking trends will vary from weekdays. Monsoons will attract a different set of guests than summers. December in Goa will be different from December in Gangtok.

Revenue optimisation means the ability to capital-ise on such minute-to-minute opportunities. This means rates and inventory need to be constantly revised to suit the time of the day, week, season or year. However, in our study conducted among revenue managers we found that over 40% of hoteliers only update their rates on a weekly or monthly basis. 26% hoteliers mentioned they rarely change rates on distribution channels.

This means hoteliers are losing out on important opportunities of revenue maximisation. Travellers are constantly looking out for best deals available. Their requirements are varying from time to time. Hoteliers need to adopt a dynamic rate and distribution strategy.

How often do hoteliers update rates on distribution channels?

Everyday Weekly / Monthly

Rarely34%

26%

40%

Beyond seasonal rates

Room and service rates should be flexible and must respond to the changing demand pattern in real-time. It should not be driven by peak and non-peak season only. It needs to be based on consumer insights.

While monsoons are usually low-peak season, it may be the perfect time to travel for nature lovers. Similarly, summers in Rajasthan attract fewer visitors, but it is also a great time to spot tigers at the Ranthambore National Park and makes it the best time to travel for wildlife photographers.

Similarly a hotel with a conference room, situated close to the airport, can choose to price their rooms higher for business travellers than a hotel with equally good facilities but away from the airport.

Identifying the right customer and targeting him with the right offer should be an important part of your rate strategy. Travellers are always on the look-out for the best deals available. This means rates and inventory need to be constantly refreshed on booking channels to ensure that they are displayed among the top deals at all points in time of the day. Rates and inventory should be visible to the traveller at the opportune moment when they are looking for it and it should match with what they are looking for.

Distribution – Do it right

This is about optimising your distribution strategy to gain the maximum revenue from it. Revenue managers need to work with the distribution and marketing team to understand what promotions are yielding best on which channels. Look at channel performance by booking source and ensure the inventory displayed on that channel matches with the segment of people booking through it. Do not display B2B rates on a B2C channel.

Real-time intelligence from big data analytic solutions and key insights from advanced revenue management solutions can offer effective recommendations of what rates and room types will yield better on which channels.

Smart revenue managers need to be powered by real-time revenue intelligence

53% of revenue managers we interacted with mentioned they do not use a revenue management solution to assess the performance of their revenue strategies. This means that most revenue managers today rely on a manual evaluation of their revenue plan. This is not only time consuming and prone to errors, but also restrictive in many ways. For instance, forecasting demand and revenue patterns accurately become challenging. So does setting revenue goals and measuring performance vís-a-vís such goals.

Moreover, according to the survey, most hotels have a revenue team of less than 3 members. This makes it close to impossible for such hoteliers to evaluate the profitability of current techniques, forecast short and long-term revenue patterns, set realistic goals and develop strategies to achieve them all at once, manually. In our survey 15% people indicated that they rarely track their revenue performance while 20% of hoteliers are able to monitor it only on a weekly basis. This means the response time between realigning revenue strategies based on changing market conditions is long, leading to loss of revenue opportunities.

ADR

RevPARActual

revenue

Occupancy

Channel e�ciency

Forecast

Bookingpace

How can technology automation improve your revenue strategies?Implement stay controls effectively

Stay controls, if used effectively, can be a great tool to optimise profitability. However, without proper insights from a revenue management solution it is difficult to apply such controls. Close to 60% hoteliers said that they apply closed to arrival controls either occasionally or never. This indicates that hoteliers do not have insights into important booking trends and demand patterns, thereby hindering them from optimising revenue through stay controls.

Also, when it comes to applying minimum length of stay controls the strategies are again fragmented. Instead of basing it on logical inputs from the revenue management solution, 11% hoteliers said they follow the same pattern as last year when applying MLOS controls; 18% apply it during non-peak seasons only; while 27% hoteliers do not apply MLOS controls at all.

27% hoteliers do not apply MLOS at all

11% hoteliers apply MLOS in the same time as previous year

December

31

18% hoteliers apply MLOS

during non-peak seasons only

44% hoteliers depend on RMS insights

12

Big data analytics can improve your yield through stay control recommendations

Are you applying stay controls based on what you did last year?

This year is different. The weather conditions may be different encouraging people to travel. The socio-political situation may be better influencing the economy. People may have more spending power. Your city may be hosting an important match of the Cricket World Cup. A new hotel may have come up right next to you. Would you still want to follow what you did last year?

Accurate forecasting and prognostic intelligence from revenue management solutions takes into consideration various such factors before providing recommendations on stay controls that will improve your profitability and not generalise it.

Big data analytics can improve your yield through stay control recommendations

Are you applying stay controls based on what you did last year?

This year is different. The weather conditions may be different encouraging people to travel. The socio-political situation may be better influencing the economy. People may have more spending power. Your city may be hosting an important match of the Cricket World Cup. A new hotel may have come up right next to you. Would you still want to follow what you did last year?

Accurate forecasting and prognostic intelligence from revenue management solutions takes into consideration various such factors before providing recommendations on stay controls that will improve your profitability and not generalise it.

Adopt an effective last minute pricing strategy

Pricing strategy is the core component of your revenue plan. And last minute pricing decisions are even more crucial in deciding your bottom line profits. The generic approach to last minute pricing is to lower room rates for unsold rooms as mentioned by over 50% of hoteliers. Among these 50%, some of them try to balance the lower room rates by increasing costs for ancillary services. While a significant 16% said their room rates are static across the day.

Lowering room rates to drive occupancy or to beat competitor pricing can have negative impact on the hotel's revenue. Last minute pricing should be an integrated component of current availability, expected demand curve, booking source, present total revenue of the day, competitor pricing and more. If the current occupancy is high and demand is expected to rise as well, pricing can be increased. Pricing needs to be adjusted based on the revenue goals of the day and how near or far are you from accomplishing it.

A discounted rate strategy can not only hamper your immediate profitability, it can also have a long-term impact through brand dilution, inability to deliver the brand promise and negative online reputation.

Pricing strategy therefore should be structured based on intelligent and timely inputs from the revenue management system.

How do hoteliers arrive at last minute pricing?

28% lower rates for unsold rooms

25%balance lower room rates with ancillary service rates

22% Lower or higher the room rates

depending on booking trend insights from RMS

16% don't change room

rates at all

9% Separate price

segmentation for last-minute channels

Run highly targeted and uniquely designed campaigns

Product innovation is the key to sustenance in any dynamic market. And that's exactly what hoteliers should do to stay a step ahead of their competition. Don't just sell rooms or services. Sell unique experiences.

Sell the freshness of the first rain to a nature lover. Sell the 'only us' experience to the honeymooner. Sell the thrill of white water rafting to an adventure seeker. Sell convenience to a business traveller.

This means hoteliers should adopt a new approach to market segmentation. Over 40% hoteliers believe that market segmentation should be done based on both objective and subjective traits of the traveller. Along with age, gender and location, hoteliers should also take into consideration purpose of travel, preference and interests when approaching market segmentation.

Special packages should then be created to target such niche segments and displayed on the right distribution channels as well as the hotel's website. Such packages should also be backed by effective marketing campaigns so that the right audience is intimated about the right packages. Marketing campaigns need to be run across all customer touch points - print media, online channels, social networking sites, mobile platforms, and emailers.

Responses from marketing campaigns should then be analysed and fed back into the revenue management team. Together the departments should analyse the performance of such campaigns and its impact on the hotel’s profitability. What is the consumer reaction to such packages? Are they willing to purchase such packages at the decided rate? Is the hotel making profits through such packages? If sales are high, can the price be increased?

While in our survey almost 60% of hoteliers agreed that marketing campaigns should be based on collective inputs from revenue, distribution, reputation and CRM teams; there are still 26% of hotels where the marketing team works independently while in another 14% cases the marketing team only follows competitor strategies.

How can hoteliers focus better on customer service?

Almost 50% hoteliers believe in partnering with revenue management service providers to ensure that enough time is being spent on guest service without compromising the quality of revenue-impacting strategies. This enables them to get a better idea of consumer prefer-ence patterns and collate meaningful data to feed into a revenue management system. At the same time they are assisted by a team of revenue experts who can help them devise methods to improvise on the current pricing strategy and identify new business opportuni-ties to drive profitability.

The ultimate strategy to boost revenues and achieve profitability is to drive customersatisfaction. Satisfied customers mean repeat business, positive online reputation and word-of-mouth publicity. To achieve this, hoteliers should look at spending less time on operations and more on guest engagement.

Secret to success is still guest engagement

Benefits of leveraging a revenue management service team

Lower cost of ownershipAccess skilled manpower at a much reduced cost than having a full-fledged revenue team. Outsourcing revenue management services to a third-party service provider allows hotels to maintain a lean team at their property.

Optimise every available opportunity to drive revenueRevenue managers are so caught up in the middle of analysing the current revenue trends and forecasting demand patterns for the future they often do not have enough time on hand to identify fleeting opportunities of profit maximisation. For instance, hotels in your area are sold out and the demand continues to increase. In such instances you can increase the price of your last few rooms because you are assured of receiving bookings. However, you overlook such an opportunity since you are tied up in the larger scheme of things. A revenue management service provider keeps a watch out for such opportunities to drive incremental revenue for you.

Invest in a custom built solutionYou may be a small, independent hotel and spending on a full-service revenue management solution may not be a preferred investment for you now. Instead you can implement a custom-tailored revenue management solution with just the required functionality that delivers actionable intelligence that you need for your property.

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For more information write to us at info@reznext.com or call us at 91 80 4545 4014www.reznext.comSouth Asia | Middle East | Asia Pacific | Africa