Hotel Start Up: 6 Steps to a Correct Revenue Management Strategy

A recent publication about the Italian hospitality real estate situation showed that trades and new hotel openings have been a very few.

NB: This is an article by Emanuele Nardin of Hotelperformance

Anyhow, every year and everywhere there are new hotel openings and renovations and each of them need to find the right strategy to emerge into a filled market such as the Italian one, that counts 1 million rooms and represents the 1^st market in Europe and 4^th in the world.

The definition of the right strategy begins much earlier than the opening day, and must be referred not only to the right price, but to the right product, the right guests and the right channels: define the product before looking at the potential clients would be the biggest mistake of the entire project. So, look first at the market, at the targets, and at the competitors in order to better define the right product for your future guests, and find out how to be different from your competion. This is how you can get higher success possibilities.

Together with the marketing and design projects, there are 2 important phases to conduct:

The strategic phase that is the definition of sales, revenue and distribution strategy.

The tactical phase, that is the application of the action plan decided.

These need to be done at least 6 months before the opening and must include 6 very important steps:

1. Room Type definition, classification and description.

The room type definition and, above all, their names are so important. Split them by size, occupancy, rooms, view, balcony or terrace, shower or bathtub, and find the right name relevant with the hotel type and positioning, always respecting the “Keep It Simple” principle, can be more difficult than you think! In this phase, we need to consider characteristics of each room, define room services to help the differentiation among the room types and identify the key selling points to drive sales for each room type.

2. Competitor analysis and market positioning.

Decide the competitive set it’s not as easy as you might think: look for hotels pretty much similar to yours and nearby is not always the case, unless you are located into a very crowded destination. You need to define the parameters you want to take into consideration: size, services, location, star rating or review rating, etc. Once defined your competitive set, do first a SWOT analysis to identify their strengths and weaknesses, then a price analysis to detect their positioning on the market and their rate structure. These help you to identify our added values and the right positioning for your product.

3. Distribution channels relevant to your hotel type, desired positioning and targets.

Distribution offers huge opportunities. Online, with all types of channels we can find: OTA merchant and agency, Opaque sites, Bid sites, Package sites, Travel Clubs, etc. Offline channels: Tour Operator, Wholesalers, Corporate, TMC, GDS. We need to look at the type of hotel and targets to choose the right channels, and please do not underestimates direct channels, not only online (as your hotel website), but also offline as telephone and email. They still represent two of the main channels for many hotels, especially those with a particular vocation for leisure customers. Train the staff to phone sales procedures, draft catchy email template using the right copy to highlight your key selling points, or evaluate to use canvas or even better specific RFP software (actually called also Guest Relation Management) or CRM tools, even if this definition is not very appropriate in many cases.

4. Rate Strategy definition by segment and by channel.

Each segment and each channel can have proper rates and conditions. Selling all your products everywhere is not always the right solution: we can reserve specifics room types, rates, promotions to specifics channels, and we can define different sales conditions for different channels. One of the factors that makes Revenue Management so interesting is that there is no rule that applies to everyone, nor a rule that is valid forever: what you decide today you can question it tomorrow, the important thing is doing it based on data collected and analysed.

5. Demand trends

Some call it seasons, some demand pressure, some demand calendar, whatever the name you are used to, it is important to estimate the demand for every single day of the year, in order to define the correct rate to use since the beginning. The analysis needs to consider all events in the destination (congresses, fairs, sport events, etc), all festivities of the main countries of origin of your targets, and everything that may have a positive or negative impact on demand trends.

6. Data analysis tools

Excel or not Excel, this is the question. Nowadays you have more and more software to use into the hotel: PMS, Booking Engine, Channel Manager, GDS, CRM, Brand Reputation…but you cannot ignore something for the data analysis, and Excel is not always the solution because it needs a good knowledge, maintenance and several manual operation…that means a lot of time. Costs for Business intelligence or Revenue Management software are nowadays much more accessible, so consider this as an opportunity and do the right choice depending on your needs and objectives, but data are too much important so don’t understate this decision.

This process as a whole can be defined as a Revenue Management strategy and needs to be executed months before the opening, because you must open sales on distribution channels and operators no later than 3 months before opening, and then dedicate yourself to staff training, standards and procedures definitions.

Consider Revenue Management only as the practice of increase and decrease prices is a big mistake, done unfortunately by a lot of people, which limits its potential and, mostly, the performance you can reach.

It is certain that in a dynamic market like this, it is important to dynamically re-evaluate the Revenue Management strategies initially identified during the pre-opening phase, with what we are actually achieving: it would be even too strange if the post-opening reality turned out to be identical to the hypotheses developed in the pre-opening plan!! It is therefore essential to be flexible and ready to change strategies according to what we observe from the market, and from the data collected and analysed.