People often ask us: is it possible to apply Revenue Management strategies to 5 star hotels? The answer is simple and clear: yes, it is! I’ll tell you more: luxury hotels are definitely the most suitable to apply Revenue Management policies because they have all the characteristics needed to succeed.
Luxury hotels’ characteristics
Usually, they are in wonderful and famous locations, that are well known and self-explanatory. They are certainly close to historic and panoramic places of interest; they are often in scenic locations or in historic centers, antique or modern buildings, but anyway prestigious. They are desired or desirable and this makes it easier to find tourists who are willing to go there.
If it’s true that 5 star hotels’ characteristics are suitable for Revenue Management’s applications, it is also true that they don’t make the most of it. If they did, other than obtaining excellent benefits in terms of income increase, they’d be the driving force for all the related services such as rental places, restaurants, shops and all those activities that are directly or indirectly linked to tourism. Then, if other hotels – of same or lower class – applied these techniques, the entire destination would benefit from it. Moreover, the season would become longer, and a longer season means more people employed, turnover and well-being for everyone.
This might seem idealistic to those who don’t know us; however, we talk and write about what we experienced first-hand. Over the years, we have worked with 5 star hotels and collected data and statistics that prove how Revenue, when applied to many hotels of the same destination, increases their benefits (see Grado case study).
Why don’t luxury hotels apply revenue?
At this point, the question that arises is: why isn’t it applied? Why don’t 5 star hotels become the bearer of this relaunch? In my opinion, there are many reasons. Nevertheless, the ones I’m interested in are that, first of all, they don’t know this and, then, that this would cause a remarkable work disruption.
We all know how difficult and complicated changes are, abandoning the way of working we have had for years and starting doing different things with all the risks they may present; leaving the known for the unknown, especially in a moment in history when everything seems going wrong.
Applying the Revenue Management techniques we have been using for years means approaching the market with fresh eyes, understanding what people demand and giving it to them. Thanks to the internet, sales price has begun an excellent sales instrument (my apologies for the turn of phrase) that could give excellent results, if used in a modern and up-to-date way.
When we analyzed the data of luxury hotels that asked for our hotel consulting (unexpectedly they were just few), we asked ourselves: why do they sell at such low prices in high season? Why don’t they increase them? Then, looking at low season’s data, we asked ourselves: why do they sell at such high prices? They are the most desired hotels and they don’t take advantage of this.
Wrong fears and beliefs prevail
The explanation is not technical, but psychological. Luxury hotels’ owners and managers have the same fears as the others: if I decrease prices too much in low season, I’ll ruin my hotel’s reputation and scare my clients away; at the same time, if I increase prices in high season, my clients will complain and ruin my reputation.
5 star hotels are convinced they can’t dare, as this would ruin their reputation. They are victims and prisoners of their own beliefs, result of many years’ experience. In the past, this was probably true, however sooner or later they will have to put up with the fact that the world has changed, people have changed, maybe not all of them, but the large majority did, without any doubts, and I think this is clear to everyone.
But I assure you that…
I’d like to reassure 5 star hotels and explain why their fears are not well-founded: wealthy clients, whom these hotels like the most, who know how to behave in these environments and use the offered services, travel in high season, because they have the financial means to do so and choose the best for themselves and their family. Less-wealthy clients, who pay attention to price, don’t travel in high season because they can’t afford spending that amount of money. Therefore, we are talking about two different targets of clientele that frequent the same places and hotels but in different periods. Both of them will be satisfied.
This doesn’t mean that having unpleasant and rude clients is impossible. However, those who have gained experience in luxury hotels know that paying a lot is not necessarily a guarantee of politeness, as well as paying little doesn’t imply rudeness.
Worries are enormously bigger than the problems that could actually arise and, in case you should have any kind of problem, they wouldn’t be as serious as you think, they’d be manageable by using common sense.
I conclude by inviting luxury hotels to play their role, that is a responsibility role, because they are the main players of their destination and have the power to do a lot, including changing its fate!