The revenue management concept was devised thirty years ago and is effectively employed today by most hotels and airlines. However, even though hotel managers often talk about revenue management, the definition of the concept differs depending on the individual… One thing is for certain – revenue managers are faced with the most important challenge in running a hotel, namely selling the right rooms to the right customers at the right time and rate through the right sales channel.

What is Revenue Management?

The revenue management concept was devised thirty years ago and is effectively employed today by most hotels and airlines. However, even though hotel managers often talk about revenue management, the definition of the concept differs depending on the individual… One thing is for certain – revenue managers are faced with the most important challenge in running a hotel, namely selling the right rooms to the right customers at the right time and rate through the right sales channel.

This article is aimed at broadening your understanding of hotel revenue management. Using my experience, I will try to familiarize you with the concept of revenue management and to present you with a ten-point list of the best practices of its implementation.

Let us start with some history.

A short history of revenue management

Revenue management emerged when the US federal government made the move to deregulate airlines at the beginning of the eighties. A few years on, sales performance strategy planning became a commonplace practice among the biggest carriers. Revenue management even has its unofficial birthday – 17 January 1985 – the day on which American Airlines launched its “Ultimate Super Saver” special offer aimed at weakening their competitor, the low-cost PEOPLExpress airline.

The hotel industry was quick to notice the benefits that airlines gained from embracing revenue management. However, it was initially slow to spread across hotel chains as they lacked adequate data processing technology and often had little guest data to process. What is more, the main obstacle that had to be overcome was managing the length of stay – a variable that was not present in airline revenue management.

The economic roots of revenue management

Understanding the close ties between economics and revenue management is essential if one wishes to understand the philosophy behind the latter. The process of devising hotel rate strategies is directly tied to economic concepts: both revenue management and economics emphasize the meaning of supply and demand as well as the price elasticity of demand. These concepts, combined with methods of determining the associated indicators, are crucial for successful revenue management.

Integrating revenue management into hotel operations

Revenue management is not an independent process in hotel operations. Its full potential becomes apparent only when it is integrated into the remaining hotel management processes. Employees should be familiarized with it and it should become an inherent part of hotel operations. The revenue management culture should be introduced with strong support from the management and be based on a strong conviction in the positive outcomes that the associated practices will bring. Hotel management should set sales goals for each department and for the hotel as a whole. Introducing additional salary bonuses, especially at the departmental level, is also a good solution. When team members are motivated, they focus on doing that which is best for the hotel and not for themselves personally.

Revenue management should not be perceived solely as a manner of conducting business as a hotel, but encompass all of the hotel’s activities with a common commitment from all individuals involved.

Research your market

Below are several questions that will test your knowledge of the market:

• What is your market penetration?
• What is the market share of the individual segments of your business?
• What is your hotel’s position in the market?

Business intelligence reports covering the hotel industry may prove very helpful in obtaining the above information. A good revenue manager is well aware of the influence that external and internal factors have on the local market and on the hotel’s position within it. As a revenue manager, you may carry out a SWOT analysis of the above factors. Do not forget to also carry out a thorough comparative analysis.

Ask yourself the following simple questions to determine your position in the market:

• • Does your hotel set or follow price trends?
  • If your hotel sets price trends, then have you compiled an accurate

list of your competitors? Do you know what factors should be taken into account when doing so? Is your list of competitors based on the number of bookings or only the room rates?

• • How is your hotel positioned with regard to its business mix?
  • What is your RGI (Revenue Generation Index)?

The next article in this series elaborates on the subjects of market segmentation, revenue strategy, forecasting and setting rates. Read PART 2: The basic ingredients of the revenue management recipe.

About the Author 

Zak Ali, the Global Revenue Development Director at YieldPlanet, has over 12 years of experience in Revenue Management and hotel distribution. Zak has managed hotels of various sizes in many of the world’s key markets, including London, Dubai and Singapore. He has also taken part in creating a global rate application which has been implemented in 3000 hotels. Zak is a Certified Revenue Management Executive (CRME), a title awarded by the Hospitality Sales and Marketing Association International (HSMAI).

Running a 21st century hotel requires processing a staggering amount of data, including rates, types of rooms, booking details and the competition’s activity on booking portals. The growing importance of the Internet forces hotel operators to search for tools that will help them manage the massive flow of data and analyze it with the aim of making key business decisions.

Due to a rapid development of the Internet the hotel industry, just like any other industry in the world – has been undergoing some big changes. The World Wide Web holds a gigantic amount of data with terabytes of information flowing among servers. The development of Internet shopping, social media, tourist websites, etc. requires data to be arranged in ways that will allow the businesses to grow further. This is where big data comes in.

Big data – what exactly is it and how can it apply to your business?

It is a concept used to define enormous collections of data that are hard to process and analyze, but further information leading to new business opportunities may be extracted from them. Using user data makes it possible to carry out successful advertising on the Internet. Tracking the behavior of users visiting hotel websites provides information on what exactly they are interested in. This allows hoteliers to carry out personalized advertising campaigns, both through email, as well as through displaying banners, for example using Google’s advertising network. Big data informs hoteliers on the number of prospective guests who visit the website through smartphones and traditional computers. It is big data that makes it possible to form target groups used in Google Adwords and Facebook campaigns. There are currently several thousand websites through which hotels sell their services. Some of them are large and well-known, such as Booking.com and Expedia, but there are also numerous small local OTAs and those that offer only a selection of hotel services, e.g. wedding receptions. Hotels currently rent their rooms through an average of 5-10 OTAs, whereas big hotel chains sometimes use as many as 25 OTAs at once. Effectively managing such a big number of channels, including full sales analyses and competition monitoring, is extremely time-consuming and, at a certain point, becomes a huge burden for hoteliers. This is where professional multichannel selling tools come to your rescue. They centralize all sales in a single account and, thus, hotel operators are not required to log into all of the websites one by one.

Channel Manager: a tool to process big data

YieldPlanet’s Channel Manager is one such tool. It uses SaaS technology (which means that you are not required to install it on your computer) and because it is connected to more than 500 most popular OTAs, GDS, wholesalers, etc. it provides you with a wide range of distribution channels to choose from. Channel Manager is also integrated with most popular PMS systems and, therefore, provides a trouble-free and quick transfer of data from partner websites to the hotel’s website.

Central processing of large amounts of data, and in the case of tools meant to manage room reservations this includes mainly rates, restrictions, bookings, types of rooms, etc., become easier thanks to the principles of automatic sales. You only need to define the basic room type and rate plan after which the system will recalculate all of the plans for all types of rooms within a specified time period. This allows you to plan sales months in advance without worrying that your employees will forget to take care of it while they are preoccupied with their other duties. Another example is the central allotment function that allows you to manage all bookings and cancellations through an automatic system that updates room availability across all channels.

Use big data to monitor your competitors

Big data also makes it possible to follow what the competition is doing. A single OTA website hosts offer from thousands of hotels. Each of them has a number of room types and various special offers. Such large amounts of data may only be processed in a short time by using an algorithm. Sales channel management tools are able to monitor the rates of selected hotels in a given time period. Users are provided with a report that will prove helpful in planning short-term sales strategies and making key decisions regarding rates. A revenue manager who is keeping up with the times will use management tools to not only supervise sales channels but also manage rates. The available tools identify and recommend rate strategies that correspond with the hotel’s general strategy based on an in-depth analysis of customer habits. Revenue management systems use big data to analyze historical data, but also forecast rates up to a year in advance. YieldPlanet has recently teamed up with academics from across the world to work on a new rate management tool. This will be a new generation tool using algorithms that mimic the artificial intelligence of a virtual revenue manager.

Many would probably wonder why you should invest in such solutions. However, the annual growth of the world hotel market in essence forces you to use increasingly modern tools, which will do complex data analyses for you and streamlinedecision-makingg processes. Are you ready for the new dimension of hotel operations?

New rules in online distribution might be well underway, but rate parity it is still very often a contractual requirement for the hotel to do business with large OTAs. For many properties, the practice of rate parity goes beyond any binding agreement. It is part of the hotel’s strategy as it ensures a consistent price and supports the brand by adding to its rate integrity.

YieldPlanet helps hoteliers willing to maintain consistent prices for all partners, for all the various room types, dates and restrictions. By automating the entire process, YieldPlanet’s Channel Manager takes risk, cost, and effort out of online channel management – so that the hotelier can sell online in full confidence and focus on other important hotel management tasks. In addition, YieldPlanet’s Price Shopper allows verification of the hotel’s pricing over the last 30 days across up to three different OTAs. A red highlighting will alert the user to prices which may not respect rate parity.

For hotels wishing to differentiate their pricing strategy, YieldPlanet’s Channel Manager can help in ways. The mapping tables allow you to introduce formulas (plus or minus an amount or percentage of the price) which enable different prices per channel. It is also possible to display price and availability separately for each OTA, where values can be input manually.

Regardless of your price strategy, it is worth to remember that room rate is just one of the tools at your disposal to attract and satisfy guests. With this in mind, YieldPlanet designed products ready to serve different pricing structures and strategies, depending on your hotel, room products, and services.

Nowadays, metasearch engines are a fast-growing advertising model in the travel industry. They can be an alternative channel for generating traffic and therefore represent an opportunity for hotels helping them to increase direct bookings.

Metasearch engines present a consolidated offer while providing travelers with a wide choice of properties and price transparency. The mechanism is simple with benefits for both hotels and consumers. Hotels pay advertising fees which ultimately lead to direct bookings. The traveler clicks on their chosen property and completes the transaction directly on the hotel website.

Metasearch engines search for the user’s request in other search engines and databases, aggregating then the result in a singles list. For travelers, this means easy access to real-time availability and pricing. For hotels, metasearch engines represent a key driver of traffic and direct bookings.

Metasearch engines can be an important tool to reduce their dependency from OTAs as they redirect the users to the property’s website, to complete the booking process. Generally, metasearch investment produces a very good return-on-ad-spend.

Metasearch engines, include the giants Google Hotel Finder, Trivago by Expedia, and TripAdvisor. The hotel’s goal should be to see themselves in the Google Hotel Finder metasearch pricing menus or among the top three features advertisers in the TripAdvisor meta-search menu. These metasearch functionalities, although not reaching very significant results at the moment, are constantly growing and increasing their functionalities, and could raise their role in hotel online distribution in the next few years.

The XML connectivity with Szallas enables YieldPlanet clients to make immediate prices and availability updates on the channel through YieldPlanet’s Channel Manager in a few clicks. This partnership is a great opportunity for hotels to drive more bookings by targeting local audience from the eight countries in Central Europe where Szallas operates.

The Szallas Group started in 2007 as a start-up founded by a group of friends. Today, it is a major player on the Hungarian hotel booking market, operating in eight countries and ten languages, in Central Europe.

How to use this channel to increase the number of guests?

Once your hotel is added to Szallas.hu it will become visible in all countries where Szallas operates with its portals. This means that a tourist from Hungary or from Slovakia looking for a stay in Poland will find your property when searching in his local Szallas OTA, and the hotel description is available simultaneously in 10 languages.

Are you ready to start distributing to a new sales channel? Click here to register to this OTA and fill in the web form. After submitting it, a Szallas’ sales specialist will contact you to assist you with the completion of the registration process.

Do not forget to contact our Customer Support in order to plug the new channel into YieldPlanet Channel Manager. The XML connection between YieldPlanet Channel Manager and Szallas Group allows you to manage prices and availabilities of your room inventory in real time.