In recent years, we have seen a change in demand trends that require us to review our strategies.
The hotel industry has undergone drastic changes globally in the last two years, having to deal with uncertainty, ADR swings, increased last minute bookings and cancellations. Revenue Managers have been forced to find strategies to deal with this new paradigm and in many cases have had to readjust their planning.
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Here are 3 tips that can help you redefine your revenue management strategies for the next quarter:
- Review and redefine Segmentation
- Take a look at the key dates in your Demand Calendar
- Make sure you have an efficient Rate Structure
Review and Redefine Segmentation
The basis of good segmentation work is the identification of groups of consumers who respond similarly to marketing strategies. The effectiveness of segmentation depends on how well these groups are differentiated and measurable by their behaviour.
The ideal is to start by identifying macro segments such as transient and groups, then dividing those segments into smaller groups that are relevant for your business and measurable. The more detailed the segmentation, the more you can get out of it, but don’t break it down so much that it is more costly to extract behavioural data than the benefit of having the information. Consider yieldability for every market segment: can we work with dynamic pricing in this segment, or is it a contracted rates type of segment? (leisure, business dynamic, business FIT, etc)
Channel segmentation is also key to understand where your bookings are coming from, so for every market segment, you should be able to identify what is the main channel: direct, OTA’s, Tour Operators, GDS, etc.
Reviewing this double segmentation, and configuring it correctly in your RMS will lead to an optimization of your strategy and revenue management procedures towards personalization.
Take a look at the key dates in your Demand Calendar
Once the market and channel segments are reviewed, we must study the expected demand for each period by setting up a demand calendar.
To do this, we must identify “day types” according to events or circumstances that we know in advance and affect the demand. There will be days of high demand, medium demand and low demand. Then we will define the minimum selling price for each day type: in high demand days we can start selling at a higher price than in low demand days.
When setting day types, it is important to make comparisons between similar dates in terms of demand behaviour. If we identify a specific date in the past that we can compare with a present date, then we can have an idea of what to expect from our segments. This is what we call correlation dates, and if we are using a RMS, we need to tell the system how to compare dates, so that the proper correlation is included in the algorithm and you can have your RevPAR maximized.
Make sure you have an efficient Rate Structure
Finally, you will need to create an efficient rate structure to reach your potential customers in every segment and therefore optimise your income.
Use different types of rates that are aligned with your segmentation (flexible rate, qualified rates, negotiated rates, etc.) Then, offer different selling conditions to every segment by using rate fences (CTA, MLOS and other restrictions), and avoiding cannibalization of rates, that is, not to stop selling a rate which is profitable for us, because the demand can access a more advantageous offer. The difference between one rate and another has to be a benefit for the hotel and an advantage for the customer, so that all interesting segments are attracted to our product and profitable for the company.
On the other hand, it is highly recommended that you work with open rates, if your tech stack allows it. This means not having pre-set price levels, but instead prices can move freely without following rules or ranges. This allows a tighter adaptation to the market, since the optimal price can be found between two price levels.
When creating or reviewing your rate structure, the first step is to think over room types and meal plans. To do this you have to define the generic room types available, the different occupancies that each room type admits, the additional attributes that can be added with supplements, and the types of meal plan you want to work with.
A second step would be to set your cancellation policies. The cancellation clauses that may apply and the cost associated to each of them must be defined. Moving forward, you need to think over the restrictions. It is necessary to decide which ones to use and what conditions must be met for them to be applied.
With all these elements defined you can build your rate plans. In short, the rate plan refers to a room type, with a specific occupancy and differentiating attributes, a meal plan, cancellation policy and restrictions. And the price of each rate plan will depend on factors such as the moment of the reservation or the existing demand for the stay period.
Lastly, don’t forget to define additional services that can increase the rate as an add-on to the reservation, or as ancillary revenues during the stay. This is key to increasing your revenues not only from the rooms division, but also from the rest of the touch points of the guest journey.