News for the Hospitality Executive
By Jean Francois Mourier
April 1, 2010
Examine everyday life for a short amount of time, and you’ll discover hundreds of little myths that are assumed to be reality. The Discovery Channel has a whole show based on this premise: Mythbusters. Though the myths that the hosts have tackled lately have departed a bit from those little myths we all deal with, the show has encouraged a healthy questioning of status quo assumptions.
As it happens, there is desperate need for this type of “mythbusting” in the hotel industry, particularly with respect to revenue management.
The practice of revenue management is rife with misconceptions about best practices and what roles technology and personnel ought to play. Often, these arise from the inertia of traditional revenue management tactics, as hotels continue to do what they have always done to manage their pricing, sales and inventory. Sometimes, however, certain revenue management activities are simply assumed to be the most effective, even if they are essentially obsolete, or worse, detrimental to a hotel’s bottom line.
We’re here today to debunk both sets of myths. And unlike TV’s Mythbusters, we encourage you to try this at home – or rather, at your hotel.
Myth 1 - Day-to-day revenue management functions, like pricing changes, are so sensitive they must be handled by revenue managers themselves.
FALSE - This is a popular misconception; the truth, however, is that the best pricing strategy is one that can react quickly, and often, to subtle market changes, in order to present the best rate to a potential guest at the right time. If a revenue manager, or revenue management personnel, were to engage in this on a day-to-day basis, it would consume all of their time. Instead, pricing changes should be automated, with a degree of control reserved for the revenue management department, which will free revenue managers to focus on proactive, not reactive, pricing changes. This is a far more efficient use of labor, and results in a far more efficient pricing strategy.
Myth 2 - Revenue management systems will eventually replace revenue managers’ jobs.
FALSE - You can almost imagine the guys on Mythbusters welding together an antagonistic RevMgr Bot bent on the total annihilation of all revenue managers. This might make for good TV, but it certainly isn’t the case in the hospitality world. Revenue management systems have indeed become more sophisticated in the past decade or so, and many have been instrumental in managing distribution of room inventory across multiple sales channels, but they are still just a tool for revenue managers to do their jobs more efficiently. Revenue management systems serve to highlight and augment the efficacy of a revenue manager by removing the burden of manually modifying prices in a real time environment (and enabling, in some cases, continuous automated pricing adjustment), by computing optimal rates and by interpreting historical data and competitors’ data. No RMS can ever replace a strategy formulated by a revenue manager, or make the complex decisions revenue managers must make on a daily basis.
Myth 3 - Average daily rate (ADR) and occupancy percentage are the best metrics for evaluating the performance of revenue managers or revenue management systems.
FALSE - This was the prevailing wisdom a couple of decades ago, and it persists in some places today. Clearly, these two figures remain important to hotels, but the best measure of a revenue manager’s (or an RMS’s) efficiency is revenue per available room, or RevPAR. Maximized ADR can result in low occupancy, and high occupancy can be the result of artificially low ADR. RevPAR, however, takes both of these figures, accounts for available rooms and produces a dollar amount that provides a better overall picture of a hotel’s operational health. More to the point, while ADR and occupancy are numbers on a P&L, RevPAR you can actually take to the bank.
Myth 4 - All revenue management systems are created equal.
FALSE - In the slightly techie world of hotel revenue management systems, there is a fair bit of obfuscation and outright duplicity when it comes to marketing various products. Many competing RMS providers claim their software can perform multiple functions, when in fact their programs address only a part of the revenue management spectrum. One RMS may be capable of managing multiple sales channels, but relies on manual input for rates and pricing. Another may manage inventory well, but lack the capability to distribute that inventory across channels. True comprehensive systems are available, and these tend to distinguish themselves through the results they deliver, not in any questionable messages.
Myth 5 - RMSs are really only useful in managing online sales channels and inventory distribution.
FALSE - Though the rise in consumer Internet booking and the proliferation of online sales channels has led to the development of more capable RMS, most of these systems go above and beyond simple channel management. The RevPAR Guru system, as one example, controls eight key revenue management aspects, including yield management, competitive pricing, inventory control, rate optimization, GDS distribution, booking pace, page positioning on third-party websites and, of course, channel management. This sort of comprehensive revenue management empowers revenue managers, enabling them to concentrate on strategy and business development rather than the mundane aspects of day-to-day revenue management. Though channel management and distribution are key aspects of this, the best RMSs are certainly not limited to this function.
The field of revenue management isn’t a new one, and so it’s no surprise that there are entrenched beliefs and persistent myths about how it should be practiced. Many developments in revenue management system technology are challenging and refuting these myths, though the systems themselves have generated myths of their own. It’s the task of savvy hotel owners and managers to sift through the conventional wisdom and ascertain the truth behind the myths. In doing so, it’s important to remember that not all revenue management systems are created equal, that they feature a range of capabilities not aimed at replacing revenue management personnel, and that the best ones are focused on increasing RevPAR, not the component measures of ADR and occupancy percentage.
By following these mythbusting tips, a hotel can avoid seeing one of TV Mythbusters’ favorite signs on their income statements: BUSTED.
Jean Francois Mourier is CEO & Founder of RevPar Guru, a company that has developed an alternative type of revenue management and real-time pricing solution (combined with automated online distribution) to help hotels maximize occupancy and increase their profits. The company’s Yield Dynamic Price Engine, an integrated revenue management and pricing solution, adds unprecedented power and real-time adaptability to the pricing process, leaving managers more time to run their hotels
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