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Best Practices in Revenue Management, Part 3

Automation, Channel Management and Decision Making

By Jean Francois Mourier 
September 7, 2010

This article is the third and final in a series addressing best practices in the area of hotel revenue management. 

For the past while, we have been discussing integral areas of revenue management and aspects of revenue management systems that give hotels the best possible competitive edge.  In previous columns, these have ranged from general attitudes and approaches to revenue management to more specific, actionable components of the practice like strategic pricing and rate discipline.  Most of the best practices we have already identified are applicable to both traditional revenue management structures- wherein a revenue manager and their staff perform tasks manually- and to those that rely on comprehensive revenue management systems.  The best practices we examine today, focus more tightly on the RMS side, as this is where we believe the industry as a whole is trending, and the style of revenue management that we believe gives hotels and hoteliers the best opportunity to consistently grow both RevPAR and bottom line profits.
While channel management and decision making- two aspects we are exploring today- are certainly aspects of the revenue management process that can be performed by flesh-and-blood revenue managers, a third- automation- is, by definition, not.  Yet automation is often the single most important aspect of revenue management systems, the crucial component that bestows competitive advantage on those hotels employing it.  As such, we will take a look at this aspect first.
This is perhaps the most visible advantage RMS systems hold over the traditional approach to revenue management, yet few systems leverage automation to its fullest potential.  Most RMS systems, in fact, leave the most time consuming tasks- like rate adjustments- to be performed manually, under the rationale that they are too important not to be under the total control of human hands.  This is flawed reasoning, as achieving optimal results in the performance of these tasks- rate adjustment in particular, which directly influences both RevPAR and occupancy- requires a speed and response ability that a person cannot attain.
In truth, automation is integral to making the sort of moment-to-moment, demand-based adjustments in pricing that can yield substantial increase in RevPAR.  An automated system can recognize when demand is too low for a room at a particular price and drop the rate to encourage more buyers.  Conversely, an automated system can also raise prices at the right time, sensing high demand and thus a tolerance for a higher rate, which allows a hotel to avoid leaving money on the table in the form of a room sold at a rate lower than a guest would ultimately be willing to pay.
And although many systems claim that they are automated, most RMS usually only adjust once a day.  A truly automated system will make many adjustments an hour, across multiple sales channels, earning a property significant increases in operating dollars from these changes.
Channel Management
The channel management systems available on the market today are great tools to save time for revenue managers, but none are automated or integrated into a property’s pricing. They still require manual input, manual intervention and manual pricing decision to operate. Channel management is an increasingly important practice as OTAs and third-party booking sites continue to proliferate.  Though often a task is labeled as too important to delegate to a system or software, we contend that the only way to optimally manage the dizzying array of sales channels is with the help of a comprehensive revenue management system that integrates in real-time the automated distribution, allocation, pricing and yielding while benchmarking against all competing hotels in a destination.
In a sales environment that features more online channels than ever, the ability to manage rates across all OTAs is paramount.  Moreover, the ability to change rates and inventory allocation to various third-party booking sites individually is crucial, as each sales channel may exhibit different demand levels.  The challenge of identifying demand levels on any one of perhaps a hundred online portals where a hotel has inventory posted, then adjusting that rate or inventory allocation to maximize the revenue earned on the set of transactions that may occur within that channel is virtually impossible for even a talented team’s worth of personnel.  But it is readily achievable by a real-time RMS system that has fully-integrated channel management capabilities.
“Smart” Computing
The third area of revenue management to be examined today is decision making, something nobody but science fiction writers typically assign to computer systems.  Yet this is precisely what the most sophisticated RMS systems do; accurate and reliable decision making is what enables these systems to generate and adjust rates, execute rate strategy, interpret competitors’ data and allocate inventory effectively.
Those capabilities are informed by the system’s ability to make good decisions.  Decision making, though it’s often thought of as synonymous with self-aware intelligence, is actually a central component of any computer system.  What sets the most comprehensive systems apart are the formulas and algorithms underlying those decisions and the amount of data a system incorporates into those decision making processes.  A more powerful system will collect and use much more data than a less capable system; using the largest amount of data is the best practice in this area.  Another hallmark of a good decision-making system is redundancy.  Parallel programs that correct and analyze the decisions made by the other are state-of-the-art, and also reflect one of the best practices in revenue management.
All three of these practices are crucially important to the field of revenue management, particularly with respect to the use of comprehensive revenue management systems.  Automation is the catalyst for many of the benefits of a revenue management system can offer, channel management is one of its most visible and important tasks and effective decision making is the engine that makes all of it run.
We firmly believe that the widespread use of revenue management systems that can effectively execute these practices is the future of the industry- a future, it should be noted, that has largely arrived for many forward-thinking hotels and hotel chains- and therefore these characteristics in particular deserve extra attention.  There’s a practical aspect to all of this examination as well: any revenue management system being implemented or considered by a hotel ought to feature all of these capabilities or else they are losing out on bookings and giving away money to the competition.
So is your property one of these forward-thinking hotels?  If not, will you be?

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. You may reach him through or by calling +1.786.478.3500. 

786-478- 3500


Also See: Best Practices in Revenue Management, Part 2; Rate discipline, the leveraging of real-time information, and price prediction / Jean Francois Mourier / August 2010

Best Practices in Revenue Management, Part 1; General revenue management and strategic pricing / Jean Francois Mourier / July 2010

The Irresistibility of the Obvious; How a new trend in revenue management and metrics is missing the point / Jean Francois Mourier / July 2010

Pricing Beyond the Compset - And other new pricing strategies that really work / Jean Francois Mourier / June 2010

A Tale of Two Strategies; Contrasting boutique and chain hotel revenue management approaches / Jean Francois Mourier / June 2010

Historical Pricing Is History, Well, Not Exactly; Examining the Role Historical Pricing Should Be Playing in Hotels’ Pricing Strategies / Jean Francois Mourier / May 2010

Tipping Your Cap (Rate) - Why hotel owners need to pay attention to RevPAR / Jean Francois Mourier / April 2010

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