By Jean Francois Mourier 
February 4, 2011

The revenue management system is not a new concept for the hotel industry.  Selling the greatest number of rooms at the best possible price has always been the central operating concern for hotel owners and managers, so some systems for achieving this goal have always existed.
 
Yet today, with all of the amazing technological tools at the industry’s disposal, hotels are still losing money due to inefficiencies in their revenue management systems. Why does this happen, one has to ask?
 
At first glance, this inefficiency could be the result of outdated thinking on the part of individual properties.   Hotels that, through avoidance or the inertia of the status quo, cling to time-honored but ultimately outdated strategies like historical pricing or static rate-setting formulas, continue the inefficiency of revenue management systems.  Though this is surely the case across many parts of the hotel industry, it is only part of the story.
 
Fulfilling only one part of the RMS equation
The fact is that although many hotels have embraced the evolution in revenue management system technology and have taken proactive steps to implement advanced revenue management systems, inefficiencies in these very systems still plague the industry.  This is because few revenue management systems actually incorporate the eight crucial aspects of revenue management most hotels need.  Hotels tend to engage a revenue management system - one that often claims to “do it all”- and then find out later that the system can really only effectively handle one aspect of the revenue management matrix.
 
Other revenue management systems, for example, excel at managing multiple sales channels -- a key in an era of too-many-to-count OTA and other online sales outlets -- but fail to adequately account for booking pace or yield management.  Other systems focus on pricing and rate optimization, but leave channel management as a manual task.
 
While both examples are quite legitimate in their own right, they ultimately leave money on the table in the form of unsold rooms, or rooms sold at too low a price.  And no hotelier wants that. 
 
We need to make one thing very clear here.  We are not advocating against revenue managers.  Definitely not!  We know how important revenue managers are in the marketing and pricing process, but we are advocating for a change in their responsibilities.  Revenue managers shouldn’t be spending their days (and nights!) calculating and changing rates; instead, they should be focusing their attention and expertise on making the proactive pricing decisions necessary for long-term growth and financial success.
 
So what is the solution?  How can we make sure that revenue managers are spending their time wisely, focusing on the bigger picture? 
 
Hoteliers must force out inefficiency in revenue management systems, and implement an automated system that incorporates each of the major areas of concern for revenue managers simultaneously.
 
Eight is the magic RMS number
These areas, as any revenue manager can probably list off the top of his or her head, are 1) yield management, 2) channel management, 3) competitive pricing, 4) inventory control, 5) rate optimization, 6) GDS distribution, 7) booking pace, and 8) page positioning on third party websites (OTAs).
 
A system that automates one or two of these functions is useful, but dooms revenue management personnel to manually filling in the missing functions.  A system that focuses primarily on distributing rates across multiple sales channels but requires a human user to generate those rates misses out on the incremental revenue that can be earned by adjusting rates in real time, and is thus inherently inefficient.  As is a system that generates rates, but relies on a human user to distribute those rates to the appropriate sales outlet; a system that performs this function alone cannot adequately manage demand and inventory, and so on – you get the picture by now. Realistically, these techniques will have only a slightly better impact on RevPAR than publishing the rack rate in a newspaper ad would.
 
Which brings some explanation, if not resolution, to the conundrum of inefficient revenue management systems. 
 
It’s not that these systems have not advanced enough, it’s that they haven’t cohered enough.  They aren’t embracing the eight areas of revenue management and working simultaneously to calculate and adjust pricing in real-time.  In an era of integration and immediacy, the true way forward for the hotel industry is to encourage and adopt those systems that effectively integrate these essential functions.  There are systems available that do just that, and until the industry wakes up to these systems’ potential, the early adopters will prey on the inefficiencies of existing revenue management systems to significant competitive advantage.
 
Which might already be you?

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Schooled By Wall Street
Our upcoming article takes a look at the differences between the historically static pricing habits of the hotel industry and the much more fluid approach by systems such as stock markets. The latter are successful because they constantly react, in real time, to factors such as supply, demand, costs and inflation. As a result, stock markets thrive and savvy traders and sellers optimize their profits. So why should it be any different for hotels?
 
Market-based pricing needs be the rule, rather than the exception it currently is. We’ll tell you why and how. Look for the story on Friday, February 18, 2011.

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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 www.revparguru.com or by calling +1.786.478.3500.