Revving up the Revenue

Revenue is extremely essential for the progress of any industry. Revenue management in the hospitality industry is undergoing a constant change, with the evolution of technology. Besides earnings f r o m room rents, Revenue management is forecast to expand to other avenues like restaurants, room service, laundering, etc. in the hotel industry. Ashok Malkani takes a look at the fast-changing scenario and the increasing importance of revenue management, whose role is being perceived more as profit-generating rather than revenue managing. The focus on profit is expected to increase as revenue managers use new methods to better understand customers and improve margins. As hotels compete with their rivals the role of revenue management is expected to play a more dominant role in the progress of a property  

Revenue management is an essential part of running a successful hotel as it lowers the operating cost of the property. One can say that revenue management entails offering the perfect room at a perfect cost to the perfect client at the perfect time. But it is not just about rooms. Currently, it is extending to conferences, restaurants and other recreational facilities like spas.  

With stiff competition between properties, it is believed that revenue management becomes all the more relevant. 

But what exactly is revenue management? 

Sucheta Jadhao, Director of Revenue, Sofitel Mumbai BKC states, “Simply put, revenue management is the skill and strategy of allocating the most optimum room at the best price and at the right time. It involves taking pricing decisions considering the diverse distribution channels according to room demand and supply. Along with room pricing, revenue management also accounts for other factors such as pricing based on the quality of offerings, brand goodwill, discounts, holiday packages, merchandise marketing, revenue f r o m events and similar.

“Revenue management is especially relevant to the hospitality industry, as the movement of demand and supply of rooms and corresponding guests is quite a dynamic trend. With the growing competition of hotels in and around the city, the decision to optimally price rooms based on data-driven forecasts becomes all the more significant in order to maximize revenue growth. Being a guest-oriented industry, it is essential to have a staunch revenue management system based on which one has to make knowledgeable decisions to strike a balance in periods of low demand as well. Stable revenue management aids the hotel team in making the most out of the existing room inventory and in achieving and improving overall resource management.”

Vinay Singh, Director of Sales & Marketing, Renaissance Mumbai & Lakeside Chalet, Mumbai - Marriott Executive Apartments, sums up revenue management as revenue maximization. He adds, “A lot of industries follow the same, with the two biggest industries being the airline industry and the hospitality industry. It is dependent on three key factors; time, situation and demand, which helps you optimize the revenue in any industry. Typically, it requires businesses to make effective use of performance data and analytics to predict demand, establish a dynamic pricing model and maximize the amount of revenue that the company brings in.

“With an increase in the competition and number of properties across the globe, it is essential for hotels to have proper revenue management teams in place to analyze the present trends and be at par with our competitors. It is also vital to ensure that we are not losing out in terms of occupancy, ADR (average daily rate) and fair market share. It is also crucial that the hotel is equipped with all the necessary tools and mechanisms to determine the positioning with respect to competition hotels. For example, intelligence reports like STR reports help determine the ranking vis-à-vis competition, as well as help in controlling the fair market share (Revenue Penetration Index). It is imperative to understand the positioning of your property with the competition. Marriott International was one of the first companies that gained awareness regarding the potential of revenue management in the hospitality industry.”

Dilpreet Kaur, Revenue Manager, The Suryaa New Delhi, affirms, “Revenue Management in today’s world is an extremely important concept to anticipate and plan according to the demand in the market and to have the Hotel’s pricing strategies placed correct accordingly to optimize the financial results for the hotel.”

She continues, “Revenue management is a data driven approach to drive the revenues upwards in graph. Unless we do so we will not be able to optimize the available business and it also helps forecast as what is in for the hotel in future dates to sell the same product in higher price and maximize to avail the fair market share.”

Jagdish Singh Koti, Revenue Manager, Holiday Inn Chennai OMR IT Expressway, avers that it is much more than offering a perfect room at perfect cost. “It is predicting future and putting your best foot forward by responding to market behavior. This forecasting extends to all sections like rooms, restaurants, et al.”

He cites the importance of revenue management thus: 

  • It focuses on each group or department within a hotel on the actions to be taken to increase profitability.
  • It makes the overall company more efficient by driving down the costs.
  • It leads to innovation in both the creation of new products and services and their pricing.
  • It helps in improving demand forecasting.
  • It gives the hospitality personnel an idea of how to manage revenue flow.
  • It helps in gaining competitive intelligence and market awareness
  • It helps a person to critically consider a condition and also provide the best techniques towards a possible hotel management system.
  • It reduces the time and costs associated with traditional pricing tactics.

Nitesh Rana, Cluster Revenue Manager, Aloft hotels succinctly puts it as “the act of skillfully, carefully and tactfully managing, controlling and directing capacity and sources of income, given the constraints of Supply & Demand. In a nutshell, providing the right product to the right customer at the right price is the art of revenue management.

“The relevance of revenue management is the most in this dire competitive environment. We can see a sizable difference with the introduction of revenue management practices and systems.” 

The relation between Revenue and Data Management 

Most revenue managers believe that Data Management and revenue are interconnected. So what is the relation between the two?

Dilpreet  Kaur explains that data and facts help one to understand the historical demand and the booking patterns of your hotel and also helps to forecast business accordingly.   

Jagdish Singh maintains that data is the very essence of revenue management. “Every decision is based on the trends depicted by data. But at the same time, having a lot of data does not guarantee any help until and unless you are aware of the logical combination which needs to be driven out of the data, that’s where revenue management comes in. Data available in website analytics, efficient benchmarking information, review score analytics all help. Revenue managers need to manage this information and translate it into digestible information for stakeholders at all levels in hotel organizations.”

Sucheta opines, “The entire revenue management system of a hotel is based on data related to past and future bookings and historic demand, supply. Data such as upcoming festivals, holidays, weather forecasts, are also critical in formulating revenue and pricing decisions. As rooms are a limited inventory source, records are an important back-up to formulate rates and consequently arrive at the identified financial results. The software’s that are now available help us with crunch data into various parameters, such as guests’ length of stay, nationality, sourced business rate segmentation, booking a place and more, which assists us in improving our revenue management decisions.”

Vinay Singh professes that analysis and comparison of the correct data is key to identifying the growth and maximizing revenue in any industry. “It is essential to have an overview of the past trends and future analytics, without which accomplishing revenue management becomes very difficult. For instance, while following a particular trend, if our competition hotel is selling at a certain rate and at the same time, we are selling for a 25% lower rate, we lose out on the opportunity of capitalizing on the natural demand which exists. In doing so, not only do we lose out on the potential ADR and the penetration index dips, but analysis of the overview will also make one realize the decline in the RPI resulting in a negative fair market share. Hence, the emphasis and importance of the two together which eventually leads to better yield in revenue maximization.” 

Marketing and Revenue Management 

Revenue management and yield management go hand in hand to maximize the hotel’s performance. Market intelligence like supply and demand helps in marketing the property and increasing the revenue. Marketing is also essential for revenue management.  

Sucheta explicates “Yield management is indeed closely inter-dependent to revenue management in terms of profit maximization. However, yield management is a more targeted approach to increase the volume of sales by leveraging principally room pricing, whereas revenue management takes into factor a host of other aspects.

“As market supply and demand have a crucial role to play in determining revenue management strategies, it is of paramount importance to monitor the same regularly. The pricing would need to be updated constantly each day based on the on-going supply of rooms and guest demand. The best way to manage this is to keep an eye on the trends and update one’s database corresponding to the demand. At Sofitel Mumbai BKC, we manage to determine demand through various sources such as researching the major events that are taking place in the city, big MICE events blocks that have been closed in the city, auspicious wedding dates and most importantly the hotel bar pricings, based on daily pickup trends for the next 3 months. 

“The marketing team of the hotel has a direct impact on the revenue management team. Promotional activities and marketing efforts of a hotel help boost sales and thereby garner growth. Effective collaboration between both teams leads to increased bottom-line sales, positively impacting various other internal metrics. The data records leveraged by the revenue management team can help the marketing team to make more informed promotional decisions whereas an in-depth understanding of guest segmentation and behavior shared by the marketing team, aids the revenue team to focus on profitable areas and address challenges.”

Vinay Singh adds, “Within the hospitality industry, revenue management and yield management are two of the most useful tools available to managers, which allows them to maximize the amount of money they make f r o m guests. The two concepts can be used in conjunction with each other since they deal with slightly different things. Yield management’s focus on maximizing revenue f r o m hotel rooms alone is important because it allows owners to optimize the very core of their business. However, the wider focus of revenue management complements this because it allows owners to maximize the overall revenue generated by their hotel.

“It is imperative for teams to understand future trends in terms of the demand analysis. During busy periods in a city, when there are international conferences, conventions, exhibitions, and city-centric events, the demand is much higher than supply. While an international exhibition attracts worldwide travelers leading to higher demand during the season, the lack of maximizing on the same demand in terms of ADR based on your inventory could lead to losing out on the opportunity. Hence, planning the pricing and distribution keeping the future trends of the city in mind is extremely essential to generate higher yields.

“In addition, keeping in mind business and city hotels, the pricing is of utmost importance, especially the variance during the weekdays and weekends being separate. While weekdays can be higher considering corporate-led business, the weekends can have a lower rate since they focus on staycations and leisure activities. Marketers are experts at creating demand by inspiring people to commit to hotel products and services. By knowing when marketing places offers into the marketplace, revenue managers can create better, more accurate forecasts in relationship to demand. This knowledge leads to better revenue optimization.

“Hotels that have their marketing and revenue management departments in sync have reported an increase in revenue of more than six percent, along with with increased market share, and an increase in demand for shoulder and low-demand periods. Collaboration between these departments makes providing the right price to the right customer at the right time, a reality. Pricing is the revenue manager’s forte. They use data-driven software and tactics to accurately set rates and prices that optimize revenue according to different market conditions and demand. Since marketers create offers and promotions that drive demand, it’s important for them to have access to the right pricing information that will help generate revenue. However, unlike marketers, revenue managers run transactional data reports every day. 

“The transactional data contains facts that tie campaign offers to revenue. By working with marketing, revenue management can see which campaigns make money and, more importantly, how much money the campaigns bring into the hotel. When these reports are provided to marketing, it completely changes how marketers communicate with the product or service. In addition, revenue managers and marketers also discover that through regular communication they can significantly impact the hotels’ bottom lines. Blending these two valuable job roles together, it is a win-win situation for everyone involved, including the hotel.”

Nitesh asserts, “Revenue management is a larger term, yield management falls under revenue management practice. Yield Management, on the contrary, is a function of revenue management.

“The dependence on market intelligence is extremely high. In Marriott International, we are proud that our systems are capable to compute all variables for market intelligence. To an extent Revenue, Management & Marketing are inter-related but in our organization, this is not the case.”

Jagdish Singh disclosed “As a pricing strategy, yield management is concerned with generating the maximum possible revenue f r o m a perishable inventory. Within the hotel, this means it is concerned with using data to ensure the right room is sold to the right customer, at the right time, for the highest possible price. Revenue management is not only concerned with earnings f r o m room rent but also other sources like food, laundry services, etc.” 

He added that successful revenue management was done by keeping an eagle’s eye, not only on new developments but also on central and state government’s strategies as well as using market intelligence reports like STR and TravelClick.

He continued, “One of the greatest challenges faced by hotels today is the increasing number of hotels in the market. The supply is more than the demand and hotels now have to fight harder than ever to capture a fraction of the business. It’s not enough just to be the newest, trendiest hotel on the block anymore. Today’s consumers expect exceptional service and inclusions at bare minimum prices. Hotels have to stand out f r o m the crowd and continue to excel in overcrowded marketplaces. The rate and demand strategy brought to the table by revenue management, with the creative edge offered by marketing it can give the competitive advantage that makes all the difference between success and failure. Hotels have to make efforts to drive bookings away f r o m OTAs and onto their websites.   

“To be a top performer in today’s competitive hospitality landscape, revenue management and marketing must play a leading role in the hotel’s strategy.”   

Dilpreet Kaur declares, “Yield Management shares many similarities with the concept of revenue management. Yield management focuses on selling the right room in the right amount and attain maximum occupancy whereas revenue management consists of many more things than just achieving occupancies. Revenue management is all about data and facts, as it helps you to understand the historical demand and the booking patterns of your hotel and also helps to forecast business accordingly. 

“There are various tools that help in keeping a close watch on the comp-set trends, strategy and availability of rooms and this helps the revenue managers to determine their own strategy to capture market opportunity. Hotels, where marketing and revenue managers work in collaboration, achieve higher results. Marketing techniques help us to win business and drive it through our brand website.”

Technology & Branding 

The days when travelers sought accommodation by perusing through local newspapers and booking rooms on the phone are now a thing of the past. Today marketing and sales are a more vibrant and complex activity. Revenue managers have to deal with multifaceted stakeholders. This is complemented by a proliferation of new brands, ever-increasing rivalry, and a race to introduce new tools before competitors do.  

So what are the latest technological tools to enable a higher income for hotels and what is the relationship between revenue management and brands?

Jagdish Singh is of the opinion that though hospitality was a business that still needed the human touch AI (artificial intelligence) integration was in continuous evolution. Technology has helped in providing one integrated platform where one could synchronize the available data. “Technological developments are pushing revenue managers into a logical obligation to become acquainted with advanced technology implementations. Plenty of technologies are available nowadays that are supposed to make the life of both hotel operations and consumers much easier and significantly more efficient.

“Branding is indirectly adding value and revenue, but the calculation of ROI is very much needed to balance the branding effort and the real materialization of the same.”  

Sucheta declares, “As hoteliers are looking for increased tools to maximize revenue, the role of technology is becoming indispensable to assist the revenue team’s decisions. In hospitality, the guest is always the prime focus and the continuing change in their behavior has been due to advancement in technology. As technology advances and people start adapting to these changing trends in technology, the hospitality sector cannot be left behind and hence has to update and upgrade to meet with guest expectations. Electronic devices such as the mobile phone and wireless communication systems that enable voices, text, and data communication among employees, managers, departments, and guests are now being adopted by hotels and restaurants to monitor room availabilities and vacancies.  

“At Sofitel Mumbai BKC, apart f r o m the above-mentioned techniques, we are using a revenue software known as EZRMS, which reads and understands the various trends that are currently playing in the market and assists us with future forecasts relating to rooms.  OTA’s (Online Travel Agents) insights that provide us with a rate shipping tool, Social media channels such as Facebook, Twitter, Instagram and Linkedin which improve visibility and our own brand website are a few examples of technology that help assess our revenue management as well as increase visibility. 

“The impact of revenue management is not immediately evident and measurable. However, the pricing of a hotel’s products does significantly impact guest’s perceptions and expectations. Direct pricing of a luxury hotel brand’s offerings creates a reputation for the brand based on its attributes and lineage. It is important the pricing of rooms and F&B at a hotel is set as per the clientele it is looking to attract. Guests must be notified and educated that room rates tend to vary based on demand and at the same time, hotels must ensure to keep a consistency in their pricing to assure guests of their brand credibility.

Dilpreet Kaur avers, “There are many tools available in market today to aid Revenue Management which helps in budgeting, forecasting, comp-set analysis and more.  It helps predicts the consumer behavior and optimize product profitability and focus on volume business. 

“Brand image of the hotel also gives an opportunity to maximize in revenue. Branding not only drives the customers to the website but also compete more strongly against competitors on OTAs. Brand enables you to control your online presence with help of the content and the reviews given by the customers.”

Vinay Singh revealed, “Hotels invest big in their revenue management software. These significant investments mean it’s extremely important to recognize that the revenue management technology brings unrivalled advantages to a hotel’s business. With technology systems continually improving, redesigning and updating workflow, it’s become increasingly challenging for users to keep up with all of the ‘newness’. The few advantages of technological advancements nowadays are remote accessibility, optimal pricing, online reputation insights, powerful analytics etc. On the technology front the continuous improvement also results in more data being collected, analyzed and leveraged to drive sustainable income growth. Majority of the hotels worldwide have subscribed to various intelligence reports. Our property, Renaissance Mumbai Convention Centre Hotel & Lakeside Chalet – Mumbai, Marriott Executive Apartments, heavily depends on STR reports, Hoteligence and TravelClick etc. to understand data analytics and effectively focus on improving and enhancing our revenue management. 

“As far as branding is concerned, it plays a crucial role in any industry. Stronger the brand recognition, more are chances of garnering business opportunities; in turn assisting the growth in revenue management. As revenue management evolves with the industry and the world around it, revenue managers need to stay on top of their game by paying close attention to new trends as they arise. To achieve the crucial revenue-management goal of optimizing profits by managing the availability and price for hotels, one must have an in-depth understanding of the digital-distribution and traceability mechanisms for those services, all within a well-defined strategy to create a positive impact for the brand. 

“Few elements that have direct impact on the revenue and distribution is price parity, online reputation management, loyalty based pricing, advances in group bookings, personalisation to drive direct bookings etc. The rate and demand strategy brought to the table by revenue management, in tandem with the creative edge offered by marketing, can lend the competitive advantage that makes all the difference between success and failure.  Hence to be a top performer in today’s competitive hospitality landscape, revenue management and marketing must play a leading role in the hotel strategy.”

Nitesh adds, “The wide use of RMS like IDEAS have made revenue management accessible to small hotels also. The latest technology which is currently under development is the introduction of Artificial intelligence to revenue management.

“Revenue Management has a direct effect on branding because of the core marketing concept of STP. We are the custodian of STP. Without revenue management the positioning and brand value come to doubt.” 

Future of Revenue Management 

There has been a trend of elevating the role of revenue management in the hotel industry. Several hotels are seeking analytical overview and strategic knowledge to make key decisions. Revenue managers are increasingly participating in executives committees with a similar status as that of directors of marketing and sales departments. Many hotels are now not having a revenue manager but a director of revenue management. So what is the future of revenue management and managers?    

Vinay Singh states, “The revenue profession in the hotel industry has grown up: there are revenue analysts, revenue managers, directors of revenue, even vice presidents and other executives which makes it fair to say that the revenue profession is emerging as a champion of progress and a key to profitable growth in businesses that understand how mission-critical it is to drive revenue. Revenue professionals will use the understanding of the potential upside of meaningful consumer insights, faster and better analytics, constant connectivity and responsiveness without forgetting that the fundamentals of hospitality never change. The future of Revenue Management is exciting and it is unfolding at a rate that was unimaginable a decade ago.”

Sucheta declares, “In the coming years, revenue management will further benefit f r o m the technological advancements in the field. The on-board focus on customer engagement and bookings on digital platforms will see a continued surge. As revenue managers explore newer avenues to increase profitability, hotels will benefit as guests f r o m all over the world are connected and aware of the available amenities and on-going offers.”

Jagdish Singh affirms, “The future of Revenue Management is likely to be more than total revenue management or lightning-fast market report generation or individualized room rate adjustment on the fly. If the fine balance between human strategy formulation, decision making and the application of artificial intelligence is found, good things are likely to happen.”

Dilpreet Kaur sums it up thus: “Future of Revenue management is very promising as without that it will be difficult to imagine optimizing the Hotel’s revenue. And as the revenue management evolves with the industry and the world around it, the Revenue Managers need to stay on top of the game paying close attention to changing trends.”   

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