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by Ahmed  Mahmoud

Year after year revenue management is gaining wide acceptance as a key marketing and pricing strategy in many hotels. Even the phenomenal revenue gains attributed to revenue management—typically in the range of 45 to 85 percent, virtually all of which drop to the bottom line—have prompted executives to investigate the potential applicability of revenue management to their hotels. 

These executives, taking notice of how the airline industry has used yield management principles to its gain, are beginning to apply the same principles to generate millions of dollars in extra profits.

However virtually all hospitality industries, including hotels and travel sector, are facing increasing pressure to boost their revenues to maintain, if not improve, their profitability levels. Yet greater competitive pressures are making it more difficult to generate these additional revenues. This is especially true in hotels where inventory or sales opportunities "evaporate" at the end of the day. As a result, more and more hotels are turning to revenue management concept.

Today, revenue management strategies have become increasingly complex; encompassing concepts such as “dynamic pricing”, “displacement”, and “profit contribution by customer”. Hotels are struggling to develop and implement the sustainable revenue management processes, structures, and best practices required to remain competitive.

For these hotels who are in between whether to implement full revenue management optimization including high technology, or for those who implement half way, all need to analyze the revenue management requirement as not all properties require the same level of revenue optimization. Remember great resources are difficult to find and expensive to keep. Find the right match between the requirement and resource will benefit your bottom line. Determine the dynamics of the hotel that will drive the most revenue.

Thus here below are some tips on how to make revenue management work for you

1. Do It or Don't Do It, Take It Seriously

Effective revenue management requires a significant commitment within the hotel staff starting from the doorman up to the general manager. Managers and staff who are involved in the revenue management process must demonstrate their support for implementing the revenue management concepts and allocate the necessary resources for developing, enhancing, and implementing revenue management capabilities. In addition—both in time and money—hotel management should participate in regular progress reviews to help prevent efforts from going astray. Such management involvement can be instrumental in maintaining project focus and achieving timely completion of major enhancements.

2. Create a Revenue Management Culture 

Following the wisdom of an ancient proverb, "A journey of 1,000 miles begins with a single step; the scope of revenue management programs is so broad that attempting to implement everything at once can overwhelm any hotel. Therefore, revenue management must be introduced gradually, i.e. some of the hotels still depend on Excel sheets, some others with semi automated RM systems ……etc " While a revenue management program may ultimately involve sophisticated computer programs and software, hotels can achieve initial revenue gains and customer satisfaction improvements without investing in high-technology approaches. Often, changes in a hotel policies, procedures, or performance measures are sufficient to lead to these benefits. And the magnitude of these benefits can be substantial.

If a revenue management system is not implemented gradually, it can be easily be 9 to 18 months before the hotel obtains any benefits. An evolutionary approach allows incremental gains to be achieved, and my recommendation is that it is better to be approximately right than precisely wrong.

An all-at-once development approach also increases the risk of encountering obstacles that jeopardize the entire project. System development efforts should be highly focused, allowing for short-term victories. This also keeps the development staff and senior management motivated—and convinces skeptical staff of the benefits of revenue management.

Staff members must agree to accept an imperfect system, albeit only temporarily, and trust that improvements over time will occur. The decision as to what constitutes an acceptable imperfect system and what constitutes a system that is too inaccurate, even temporarily, is not easy, but it must be made.

One of the major elements of successful revenue management culture is to make sure that your market segment is correct. When you have this properly created it will have a positive ripple effect on the other elements of revenue management. If you have the right segments you can then achieve better demand forecasting, as you will be able to understand the behavior of each of your markets. You will also be able to apply effective pricing strategies, as your hotel will come to understand the full pricing potential of each of your segments. Also, do not forget that analytics tools can greatly aid you to become a better revenue manager. These are just some of the concepts that hotels need to understand to achieve a thriving revenue management culture.

3. Communicate, Communicate, Communicate

Communication is always acknowledged as important, but rarely implemented well. Interdepartmental communication about the purpose and types of revenue management controls is essential within and among many hotel departments; e.g., sales, marketing, reservations, pricing, and front office. All too often, revenue management information among these departments is communicated haphazardly, and misinformation is rampant.

As example for the miscommunication, it’s no good to implement a length of stay restriction on a certain night for example and have a reservation sales agent allow a shorter stay for a general caller. It’s equally challenging when a group sales manager neglects to share that a group is not going to pick up to their anticipated level, or a front desk associate gives away a free night as compensation for a poor guest experience at the pool.

Conclusion

The role of revenue management will remain foundational in progressive organizations. Those that embrace it will have a distinct strategic advantage over competitors. It is the diligent efforts of those early pioneers got us to where we are today and have what has paved the way for the future of this discipline.

About Ahmed Mahmoud

Ahmed Mahmoud has more than a decade of experience in hospitality industry and business administration, Ahmed began his career early by holding a variety of management positions with such top hotel chains as Accor Hotels, Hyatt International and Starwood hotels. With decades of revenue management experience Ahmed founded Revenue Your Hotel.com the very dedicated site for revenue management news, articles, events,….. etc , Ahmed is considered a successful hospitality executive, educator, author and consultant. He is a frequent keynote speaker and seminar leader at many hospitality industry events and contributes articles to a number of industry publications.

Contact: Ahmed Mahmoud

ahmed.mahmod@gmail.com / 00966 55 2037655

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