By Alice (Chuyi) Zheng and Dr. Gabor Forgacs
Revenue management seems to evolve towards total revenue management and hotels have begun to execute strategies using this concept. However, even though many hoteliers understand the importance of utilizing the total revenue management approach, in reality, few are making meaningful progress following this direction. We have studied some of the current practices and future trends of total revenue management in hotels and discussed them in our research paper for practitioners.
This study was designed as a qualitative study utilizing a combination of both primary and secondary research. The rationale for the qualitative approach was that the topic of the paper seemed better suited for in-depths discussions in a strategic context that focused on some of the issues related to the evolution of revenue management entering a new phase, versus a quantitative work that would have focused on data analysis.
One-on-one in-depth interviews were conducted with a representative sample of 12 industry experts offering a cross-section of revenue professionals working in hotels, revenue management consultants and academics teaching courses in pricing and revenue management. The duration of the interviews varied between forty minutes and one hour.
The following is a brief excerpt of key findings based on issues that were identified in our research.
Issue #1) Lack of Talented Personnel to Manage Different Revenue Streams
Revenue management has already been practiced in hotels for more than 20 years, however there is still a lack of a sufficient pool of talented professionals specialized in this area. Given the current circumstances, most interviewees are concerned whether there will be sufficient qualified revenue managers to practice total revenue management in the future.
Issue #2) Technology Challenges for Seamless Management of Multiple Revenue Streams
Based on the interviews it is safe to conclude that talented personnel combined with the right technology are the keys to success for total hotel revenue management. A most pivotal issue for total hotel revenue management is the lack of advanced systems that can support the function of seamlessly interfacing all revenue streams for each revenue generating department. There is frequently a variety of systems acquired over the years from different vendors that work in silos at the various revenue centers of full service hotels and resorts. Seamless data flow for integrated control presents a challenge and solutions may come at certain costs.
Issue #3) Conflicts Between Different Departments
The conflicts between the sales and revenue departments have existed for a long time. Previously, the goals of Sales and Marketing plus the way their managers were incentivized were different from Revenue Management. However, sometimes 95% occupancy may yield better revenues than a 100% occupancy rate. With disparate objectives, the sales unit may sacrifice room rate on occasion in order to achieve high occupancy for meeting a given unit-sales target.
It would require an integrated approach to analyze the decisions of a sales department and align them with revenue and profit objectives of all revenue centers. According to the interviewees, the final decision maker on pricing and group sales (e.g. inventory allocation) should be either the Revenue Manager, the Director of Revenue or the General Manager who embraces revenue management. Furthermore, all interviewees agreed that a Revenue Manager should have more authority than a Sales Manager. However, there are still hotels where the Revenue Management Department reports to the Sales and Marketing Department as per the chain of command.
Issue #4) Organizational Culture and Employee Education
One of the keys to practicing total revenue management is to have it embedded in organizational culture. Most interviewees believe that it is critical to have employee buy-in to embrace this concept. On the one hand it requires a certain level of employee training to operationalize the promotion of revenue opportunities from every facet of a hotel’s operation; on the other hand accepting and embracing cross-departmental thinking for total hotel revenue optimization needs to be firmly grounded in organizational culture to achieve success.
We believe that hotel revenue professionals will find meaningful solutions to the issues discussed above in order to unlock the full potential of total hotel revenue management.
This is a summary of key findings. The full study has been published in September in the Journal of Revenue and Pricing Management, a Palgrave Macmillan publication.