monopoly hotels on increasing piles of coins reflecting long term revenue management stategy

A revenue manager’s life is never simple, but in the last 18 months it’s got a whole lot more complicated.

NB: This is an article from OTA Insight

It’s been a rollercoaster ride of lockdowns, re-openings and restrictions, which have led to a period of acceleration. This acceleration can be seen across the overall trends affecting the market, ranging from consumer behaviour changes, to the fast-paced quickness with which competitors must adjust strategy, and demand fluctuations that can range shut downs to high demand  – almost without warning.

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While the foundations of revenue management and the importance of having an accurate pricing strategy have not changed, the situation very much has. As we emerge from this pandemic, revenue managers need to continue to be more data-centric, whilst also focusing on an approach that can compress analysis, decision-making and implementation down into much shorter windows of time. It’s now time to re-evaluate, reset, and be resurgent in this new dynamic and fiercely competitive landscape.

The fundamentals of traditional revenue management

Revenue management, at its heart, is finding the true level of supply and demand in a marketplace, and then directing a pricing strategy to maximise several metrics. The critical metric (KPI) has typically been Revenue Per Available Room (RevPAR).

Traditionally, the core of this has been to look at historical patterns of demand and compare the like-for-like demand levels in the current window to that of prior years. Revenue managers have tended to do this by looking at current On-The-Books (OTB) reservations, investigating whether this is up or down compared to previous years, accounting for the factors changing that demand and then adjusting pricing strategy depending on how they forecast the booking window developing.

This allows hoteliers to maximise the potential of their property by reducing periods of low occupancy and trying to generate the best possible Gross Operating Profit Per Available Room (GOPPAR).

Data points don’t exist in isolation

While this can seem simple in theory, the execution of a complete rate strategy is a world of many moving parts, and requires consistent adjustment up until the point of stay – with none of these data points existing in isolation. Instead, it is up to a revenue manager evaluate following factors and try to unpack how each of them is affecting demand levels:

Events
It is imperative that revenue managers take into account events that affect their properties, as the effect of these on demand can be drastic. These include:

  • Major events on a national level, like the Superbowl in the United States or (in normal times) the Olympics
  • Smaller events, like concerts and holidays (for your leisure business) and business conferences or government assemblies (for your corporate business)
  • Unforeseen events e.g. the sudden announcements of lockdowns and international travel restrictions that have rolled out on the travel industry
  • A revenue manager needs to be fully aware of the events affecting their business environment, and notice how these are shifting their customer mix and their overall pick-up rate.

Timing
Timing matters in travel. There are high and low seasons that need to be considered and these can vary wildly, especially in the current climate. For example, British brand Center Parcs recently ran into a degree of controversy for pricing accommodation over their peak summer at significantly higher rates than the off-season, with jumps of more than 150% noted in the media.

However, Center Parcs were dictating rates in the way a revenue manager should, taking into account the unusual circumstances of international travel restrictions, alongside the typical seasonal event of school holidays in the UK. These served to create a major uplift in demand that could support such an aggressive pricing strategy, especially as they generally serve an upmarket target segment.

Trends
Travellers are regularly influenced in their travel decisions by trends. This could be due to a popular piece of media that has suddenly brought a location into the popular consciousness, creating an upturn in demand. It is important to account for these trends, but the only way to be aware of them is to stay updated with your industry association and other educational resources.

Marketing and promotions
Revenue management and marketing teams should communicating constantly, as a major marketing push should stimulate demand, and revenue management should be informing marketing teams when pushes are needed and what effect they have.

Competition
Competition is complex to understand and hard to keep track of, but it remains a vital piece of the revenue management puzzle. While it is important not to let competitor pricing have an outsized influence on your revenue strategy, a true understanding of a realistic and accurate competitive set will prevent you from losing out on critical bookings among consumers who are looking for and booking similar properties.

In order to have a direct comparison you need to consider the kind of filters and search terms that travellers will use to find your own hotels. These include:

Read rest of the article at OTA Insight