Next Gen Hotel Revenue Management
The practice of hotel revenue management is constantly evolving. As the space moves towards automation and more intelligent, dynamic pricing, many revenue managers that I speak with are looking for new ways to optimize revenue growth and profitability. However, achieving a consolidated view of data and actual guest spend across disparate systems and reports is a challenging proposition. The good news is that next generation systems and technologies are starting to address this challenge, and some hotels are even re-organizing to more closely align hotel revenue management and marketing efforts.
A revenue manager’s toolkit typically includes the property management system (PMS) for pickup data, point-of-sale (POS) for ancillary spend, STR reports, competitive rate shopping tools, and business intelligence. Many hotels now also have a revenue management system (RMS) that brings everything together and includes forward-looking pricing recommendations. In addition, many medium to large size brands also leverage tools that measure GDS performance, more granular market segmentation (by segment, channel, rate code), upgrades, web and call center analytics, and sales.
The ideal state is a fully integrated environment where systems directly communicate with each other, but this historically has been challenging given the fragmented nature of hospitality technology. Paul van Meerendonk, Director of Advisory Services at IDeaS Revenue Solutions, says that the industry has been moving aggressively toward integration. “As hotels are beginning to employ more sophisticated and intelligent revenue management practices, they are starting to look beyond their booking window, facilitated by an increasing convergence of systems,” he says.
For example, a hotel revenue management system from IDeaS integrates with systems ranging from PMS to channel managers to guest feedback platforms like Revinate. This is a step in the right direction, helping hoteliers get closer to a single view of their data, in a more efficient and automated way.
Convergence of hotel revenue management with marketing and sales
The next step is applying this data to marketing efforts, to help stimulate demand. Today, the collaboration between revenue management and marketing is improving. According to Colleen Birch, SVP of Revenue Optimization at The Cosmopolitan of Las Vegas, “The relationship between revenue management and the marketing department is better today than it has been in the past.” However, there is still often a disconnect between marketing campaigns and revenue management insights.
In cases where insights and goals are aligned, a more synergistic relationship can be achieved. For example, the revenue management team has unique insights into a hotel’s guest database to leverage for marketing campaigns. Birch adds, “Part of the importance of revenue management is knowing about demand across all channels, for example, to prevent additional demand stimulation over a highly compressed citywide convention.”
In addition, when a hotel’s marketing team leverages revenue management data, they can better:
- Address forecast periods of low demand with highly targeted, segmented email marketing campaigns
- Mitigate last minute cancellations with quickly created, targeted campaigns
- Create upsell campaigns to drive additional revenue
- Gain insights into all segments to help inform the optimal mix of business (discussed in more detail below)
Revenue managers also need to be in lockstep with sales managers, especially where corporate business is a significant portion of occupied rooms. And often revenue management is the final authorizer for corporate rates. Given such high cross-functional integration, revenue teams are starting to get more involved in marketing and sales-related technology decisions.
It’s all about net revenue
Ultimately, hotel revenue management is all about driving hotel revenue and profitability, filling to the highest possible occupancy at the highest possible rate. A critical KPI has been the Revenue Generating Index (RGI), also known as the RevPAR Index (RPI), which looks at relative hotel revenue performance versus a defined competitive set. However, this metric is only a top-line view. The metric on the horizon is Net RevPAR, where the cost of acquisition is taken out of every rate. This forces hotels to look closely at their margins, and to estimate margins of their competitors where possible.
Most cost in revenue management comes from distribution, with high commissions being paid to third party channels. Beyond active negotiation with these channels, another way to manage cost is to convert your OTA guests to direct bookers with targeted marketing campaigns. These OTA winback campaigns can reduce your commissions and drive profitability.
As mentioned above, determining the right mix of business is also critical, to accurately target and market to your highest spending guests. For example, do your direct bookers spend more than your OTA guests? Do your transient guests spend more than your corporate individual guests? Given rate parity agreements, hotels cannot publicly advertise lower direct booking rates on their website, but they can target more profitable guests privately through email marketing, or offer member only rates (like Marriott and Hilton most recently).
Above and beyond physical assets, the long term asset that hotels can uniquely build is their database of rich guest profiles. Based on this rich CRM data, you may choose to offer customized pricing to certain guests – for example, a lower room rate to a guest you know spends a lot on-property at your restaurants, spa, and golf course.
According to Jeremy Gremillion, Director of Revenue Management at Commune Hotels & Resorts, “Revenue is only half the story. To drive profitability, hoteliers need to actively manage all of their costs (distribution and other), and also work closely with marketing and sales to target the most profitable guest segments.”
In summary, the future of revenue management and hotel marketing is at an exciting crossroads. The integration of data and systems, coupled with more cross-departmental collaboration, is helping hoteliers implement next generation revenue management practices and ultimately start to achieve peak profitability.