Hotel Revenue Management: increase the occupancy rate in low season and the revenue in high season. Essentially, Revenue Management is this.. but not only. It’s much more. It is identifying the right price at the right time. It seems like the easiest thing in the world, on the contrary it takes years of study, preparation and experience in the field.
Revenue Management is a system of sales strategies – through online and offline channels -, promotion and definition of a dynamic pricing policy that changes according to the requirements of the market, or else, it anticipates them!
This is done by analyzing the company’s historical data and statistical and mathematical models. Moreover, it also takes into account all those distortive variables (totally independent of who manages the hotel business) that can upset the balance.
Revenue Management – in the hospitality industry as well as any other field – is a concept in continuous development. This is why the keyword is always and in any case one: innovation!
Innovation that involves the approach to a pricing policy in line with the evolution of the market – not only of tourism – with the incessant transformation of the world of technology, but most of all with the demand and supply trend.
Hotel Revenue Management, that’s the subject we mostly take care of as a workgroup, has to take into account a fundamental aspect: an empty room is not only a foregone earning, but a sure remission. It means that for every room that hasn’t been occupied, the owner or manager of a facility personally takes a loss.
Filling the hotel up until the last room is possible, the goal of a revenue consultant or a revenue manager must be this. We plan our activities according to a strategy that covers some steps.
We start with an analysis of the hotel’s strengths and weaknesses, evaluating the conditions we are working in. After the objective market of every single hotel – that is that ideal mix of markets, rates and channels reached through the application of Nesting techniques (segmentation) – has been defined, we make sure to have the right balance in the identification and selection of the clientele with the highest contribution margin.
Once the hotel’s situation, historical data, tourist and cultural potentialities of its location have been analyzed, we proceed with the elaboration of a starting pricing policy: by taking advantage of the “time” variable and applying the strategy with the right advance, we aim at:
a) Turning the statistically unsold rooms into sales
b) Maximizing the commercial effect, multiplying the number of visitors on online channels and triggering a virtuous circle of positive reviews
Starting from that initial rate, we’ll go on with a dynamization action based on revenue parameters (joint analysis of historical and forecasting data, market demand, missing time to the date of interest, online visibility), the rate becomes a dynamic tool monitored every 24 hours.
The use of a dynamic sales tariff aims above all at correcting the most common of the mistakes made by an hotelier: selling at prices too low in high season and too high in low season. Generally the online channels, but specifically the OTA’s, are used to rationalize and optimize the visibility, other than to sell. Our distribution goes also through offline channels, which are used harmoniously.
For the application of Revenue Management techniques, according to our experience, we believe there should be the following prerequisites:
• High fixed costs (that represent the majority of the costs);
• Low variable costs (that range from 10 to 25 euro, as we could observe in most hotels we work with);
• Foreseeable demand (e.g. requests related to parties or events or, simply, Saturday nights and also the high-performing distribution to the OTA);
• Perishable product (the rooms that haven’t been sold today can’t be “stored”, they are lost forever; they represent a fixed cost even though they haven’t been sold).