In the second article of the series devoted to hotel revenue management we will examine its main components.  

Segmentation

The need for segmentation is a logical consequence of diversity among clients (business travel and tourists, individuals and groups, domestic or foreign, etc.) and the services offered by the hotel (room categories, length and conditions of stay, packages, etc.). Segmentation allows to optimize availability, rates and revenues within individual segments of the hotel’s services. It is important to precisely determine the results of your activity in individual sectors. The concept of segmentation has changed very little since the beginnings of Revenue Management, however, it must currently take into account the enormous changes that took place in the distribution of hotel services within the last few years and the associated increase in rate transparency. 

Forecasting 

Forecasting is the most complex area of Revenue Management and is often based on complex calculations. It is also the hardest element of Revenue Management to implement. Effective usage of forecasting to boost sales and maximize revenues requires hotels to utilize a broad set of techniques and simultaneously prepare demand forecasts, revenue forecasts, strategic forecasts and operational forecasts. Each type of forecast serves a different goal and requires a different approach while having its own specific role in the overall maximization of hotel revenues.  

The revenue management strategy

Although a clearly defined Revenue Management strategy is crucial, effectively communicating its goals and convincing all of the hotel staff to accept them is equally important.  The Revenue Manager will only be successful if he takes into account the point of view of all departments while keeping in mind that the opinions of the management are as important as those held by lower-level employees. Some hotels go as far as to include the customers in their decision-making process and, thus, make use of an objective, external opinion when devising a sales strategy. 

A Revenue Management strategy should set precise, achievable goals and outline a clear set of criteria used to determine whether they are being met. Each of the hotel’s departments should be held accountable for lacking performance and be rewarded for successfully implementing the strategy. 

Rates

Revenue Management is a key tool for setting hotel room rates. The goal is to select the right product for the right customer and sell it at the right time for the right price. Setting the most beneficial hotel rates requires adopting a scientific approach, but nevertheless remains an art. Inadequate rates, being a result of adopting an incorrect customer habits model for example, may lead to lost opportunities for increasing hotel revenue. It is important to observe discipline when introducing Revenue Management and to not bend under external pressure – lowering rates when faced with decreased demand, for example, may cause a spiral of rate drops in the market and have an impact on the long-term profitability of the hotel.  

Availability strategies

Decisions regarding availability, coupled with a rate strategy, have a profound impact on hotel revenue and profitability. Offering a product meant for the right client at the right time is the key to success. It is also very important to effectively manage availability across all distribution channels and to not focus solely on privileged clients.  

Social networks and client opinions on the Internet

Many hotel operators wonder how best to use the potential of social media and websites that allow customers to publish opinions. These media have a direct influence on the manner in which you conduct your business and the new modes of communication allow to build and maintain more effective relationships with customers. Hotels must learn to use this to their advantage and those that do gain a competitive edge. 

Measuring and analyzing effectiveness

That which can be measured is easier to achieve. This holds true for many sectors and is especially important in the hotel industry. Setting precise goals and comparing outcomes with objectives using appropriate indicators (KPI – key performance indicators) is crucial. Implementing a remuneration system that rewards individuals who contribute to hotel revenues is equally important. Employees will focus on increasing sales and maximizing profits if appraisals and remunerations are based on hotel revenue and profitability. 

This article was meant to present the key elements of Revenue Management. The next article in this series will delve into more detail on segmentation, rate strategies, forecasts and comparative analyses of hotels.   

Read PART 1: A step-by-step guide to achieving success with revenue management.

 

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).