Most hoteliers would dream of having predictable numbers of guests booking at the established rack rate, and knowing for months in advance how their business was going to do. However that really is a dream, and in reality the dynamics of the hospitality industry mean that predicting and responding to changes is a case of trying to hit a constantly moving target. One of the most important tools to help hotel managers optimise profitability is revenue management, a methodology to effectively control pricing, inventory and demand. Revenue management helps forecast, and make informed decisions about room rates and availability, ensuring that the hotel maximises income while meeting market demand.
Effective hotel revenue management results in:
Any of these points are worth pursuing in themselves, but when put together in an overall strategy, hotels gain ‘muscle’ to be more effective in a highly competitive market.
This is fundamental for all businesses, but is especially true in the customer-facing hospitality industry. Guests come in all shapes and sizes, with different needs and wants. Understanding the primary market that your hotel serves goes a long way to being able to identify the messages you need to convey. For instance, are your guests ‘Bleisure’ travellers, or families? Are they most interested in low prices and convenience, or luxury ‘experience’ stays? Know your market and then you can more clearly appeal to the key demographics that will return the highest revenue. Once you are sure of who you are communicating with, then make special offers, discounts or packages tailored to your chosen segment. By understanding revenue management it’s possible to see how much different customer segments are willing to pay. Even with a clearly defined target audience, this can still change according to different market factors, such as seasonal demand. What’s more, different room types will support different spending patterns on ancillary services, and revenue management measures what different segments will pay. This is done by regularly monitoring the supply and demand of hotel rooms, and all associated billing.
How do you get to know your customer? - By being aware of the feedback that is available online through social media, and reviews on the Online Travel Agent sites. This is not a one-way passive experience of waiting for people to say nice (or sometimes not nice) things about your hotel. Communication is a two-way street, so you have to actively engage with social media, posting regular updates and offers. Naturally your website must be smooth, attractive and up to date, and your profile on the OTA sites should be regularly refreshed. Post online news-and-views frequently, respond to guest reviews, and try out different offers to your core market to see what works best.
A marketing initiative doesn’t have to involve huge effort. For example, if you’re targeting family stays, offer a ‘Second child stays free’ or similar discount and monitor how that goes. Do bookings increase, and how is the bottom line impacted? This is data which can easily be measured with modern technologies designed to support the hospitality industry. Online Travel Agents have been able to study guest responses in granular detail for many years, but now every hotel can analyse the figures just as easily.
As you collate and analyse feedback, and get to know your customer in ever greater detail, this gives the opportunity to create tailored loyalty programmes to encourage repeat bookings. Even smaller, independent hotels can create and promote a loyalty programme because it will be based on real information about guests’ interests and taste. Rather than attempting to reach ‘everyone’, you can concentrate with greater focus on a narrower market segment, leading to more rewarding results.
By deep diving into the data available through a modern Property Management System, it’s easy to see peaks and troughs of demand, what sort of guests have stayed, and what seasonal variations there are. What percentage of guests took the option of upgrades, and how well did restaurant and leisure services perform? Data analytics tell the truth about how your hotel bookings shape up. A very experienced manager might be able to base decisions on their recall of previous years, and make predictions about upcoming demand, based on major events in the pipeline, or seasonal attractions.
Now data analytics allow anyone on the management team to access and understand trends. Mining the data provides an open book that everyone on the team can read, giving clarity about customer behaviour and market conditions. Utilising data from previous weeks and months shows market trends and enables the forecasting of future demand. That in turn provides the ability to set optimal pricing.
Just as a constant scanning of social media and other channels is essential to know your market, it’s also vital to be aware of what’s happening with direct local competitors. What is their rack rate, and what discounts are they offering? Do they have any special deals or initiatives on the go? What comments are their guests posting? Gaining intelligence about the competition has never been easier - it’s all there on social media, through the OTA sites, and on the hotels’ own websites - so become very aware of what others are doing. Your hotel’s reputation is one of the greatest assets you have, so ensure that it outshines the competition, and constantly seek ways to burnish it. Positive reviews can drive higher demand and make it possible to go for premium pricing.
Knowing what’s happening in the market, especially with local direct competitors, means that pricing can be adjusted to counter other marketing initiatives. Modern hotel management systems partnered up with intelligent pricing tools can scan the market and update information on pricing, automatically adjusting room prices (within set parameters) many times during a single day.
Using software to automate pricing enables room rate adjustment in real-time based on current demand, competitor’s rates, and other market factors. Conditions ‘out there’ are highly fluid, so the hotel that can anticipate and respond swiftly to external parameters will gain a strong competitive advantage. Dynamic pricing isn’t just about downward adjustments to room rates either - it can also spot upswings when market demand is high and an enhanced room rate is justified. Effective revenue management comes from predicting guest demand and behaviour, to sell rooms and other services at the most optimal price, every day.
Until recent times, the OTAs held all the cards when it came to market intelligence, and acted on that by adjusting prices and looking ahead to times of peak demand, or alternatively to slack times. Now that hotels have similar forecasting and data analytic capabilities available to them, it might seem that the OTAs are not really needed any more. While on the face of it that might be true, looking at things from the channel perspective reveals other details of revenue management. Of course the OTAs take an often hefty slice of the room rate in commission, but there are times when OTA channels can deliver results quickly, and are therefore a valuable ally to hotels. For example, if a major sporting or cultural event is taking place and room demand is high, potential guests may not risk ‘shopping around’ directly to hotels, but instead opt for a trusted OTA route. This means that hotels should be ready to optimise the mix of third party booking channels, and wherever possible negotiate favourable deals for OTA commissions. After decades of dominance of the OTA model (and the Hotel Global Distribution System or GDS), hotels can now access the technology to balance these channels with their own direct booking systems, and update their rates and availability in real time across all connected channels. Your hotel’s rates are therefore perceived as consistent by guests searching for a room.
The core aim of hotel revenue management is to optimise room occupancy, along with getting the best rate per room, but rooms are not the only source of revenue for a hotel:
As with room sales, such initiatives can easily be measured and evaluated, because the data is readily available within your hotel’s Property Management System. Find out what worked in terms of revenue, then make any necessary adjustments, and do it again, only better! The more you can get to understand guest behaviour and their needs and wants, the better you can track and satisfy your market.
Understanding your guests and responding swiftly to market changes is easier than ever with modern hotel solutions . Uprating your hotel’s technology will play an important part in your revenue management story. Check that any tech solutions you may be looking at offer the following:
We know about all of these features - and many more - that make the job of the modern hotelier easier and more effective when it comes to revenue management. That’s because our cloud-based software has been supporting hotels worldwide for over eleven years, with an ever-expanding range of Smart Solutions which enhance and extend the already awesome capabilities of our core Property Management System. We know how important crisp revenue management software for hotels is, and we make it super functional and remarkably easy to use. We also know that the dream of predictable and consistent guest bookings will never quite come true - because uncertainty is baked-in to the hospitality market. However, book a free no obligation demo of our solutions, you’ll see that with our technology, and by employing a mix of knowing your customer, dynamic pricing, data analytics, and creative marketing, you can enhance your hotel revenue management strategies to achieve sustainable growth.