5 Results Hotel Revenue Management Can’t Deliver

Believe or not, after more than a decade of the great Revenue Management proliferation throughout the hotel industry (2004-now), the vast majority of properties are just waking up to the potential benefits of RM.  That’s a good thing, but unfortunately, because of their inexperience with RM, many hoteliers have wild misconceptions about what RM can actually deliver.  While it is true that Revenue Management is now the most critical function in the hotel industry, it certainly is not a panacea that can deliver miracles.  Revenue Optimization is about working with what you have, not what you expect to have.  Here are just five examples that I have experienced where hoteliers have combined RM with fantasy.

Add “wildest dreams” growth.  I worked with an owner that had actually budgeted 30% year-over-year growth for 2014 and when he saw it was not materializing he decided to try some RM.  The actual growth turned out to be was 10%. That’s great, but certainly well below budget.  Unless you have no distribution, have never changed your rates, or are seriously under or over priced, there is no way you will add jaw-dropping growth with Revenue Management. Most research shows that RM can be expected to add 1-2% additional growth per year. What you can assure with proper RM practices is that you experience steady growth,

Cancel out market shocks.  I was working with an inn that is located 2 miles from a large university and they were getting a steady stream of business because they were the closest hotel.  Then the school decided to build a franchised hotel practically on campus.  Yet, the inn owner wanted to “price” herself into the same revenue as if nothing had happened in the market.  Well, that didn’t happen.  There’s no way you can react to market shocks with just RM strategy.  You have to implement more aggressive sales and marketing tactics that will expose you to new channels and markets.

Overcome bad online reviews.  According to quantcast.com, Tripadvisor gets twice as much traffic as Expedia and the same traffic as Booking.com.  Therefore, it’s impossible to separate the impact of reviews on the effectiveness of your RM tactics.  I’ve spoken to numerous hotel owners who wanted to be saved by RM because they were being decimated by their online reviews.   Yes, RM works when all the other pieces are in place, but it can’t lift your revenue on its own. Your operations have to be aligned with your rates or else your RM tactics will be rendered moot.

Replace lost or non-repeat group/contracted business.  If your unconstrained demand is over your capacity because you have a lot of group occupancy, then please increase your Transient rates.  A common misconception, however, is that you can replace that group revenue the following year just by lowering the Transient rates.  Some call it “building a base”, others call it “remixing”. Regardless, it does not work.  Basic Revenue Optimization is about finding the rates and controls that deliver the most revenue by market, which means that there is a point where lowering rates actually lowers your revenue.  In other words, you can’t RM your way out of losing good business.

Cloak weak marketing.  If you consistently have lower rates than your comp set and your product is better, but you can’t generate any additional occupancy, then you have a marketing problem.  It means that potential guests can’t find you or they don’t recognize that you are giving more value for a lower price.  I spoke to a hotel owner that had this same issue and I simply advised him to find a marketing firm first and then worry about RM.  Again, Rm tactics can only work if the other pieces of the business strategy are aligned and working well.  It’s like having great midfielders with no attackers – the options are limited.

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