Revenue management (RM) is concerned with maximizing the revenue performance of an asset by setting different prices and optimizing inventory availability according to the predicted demand.
NB: This is an article from Cindy Heo, Associate Professor of Revenue Management at EHL
Therefore, one of the key principles of RM lies in the company’s ability to forecast demand, which has been greatly impaired as a result of COVID-19’s unprecedented impact on hotel occupancy and rates. Therefore, revenue managers will need a new set of skills, built on analytical thinking and cognitive flexibility, to maintain the effectiveness of their decision-making in light of greater industry volatility.
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Deemphasizing historical data and analytical tools
From a RM perspective, the COVID-19 pandemic is a massive challenge for the hospitality industry affecting both the relevance of historical data and the ability to forecast the future demand. There is no previous precedent, no historical data to refer to and revenue management system (RMS) does not work without reliable and predictable data to process. While new technologies such as artificial intelligence are used by sophisticated RMS nowadays, unanticipated situations such as the COVID-19 pandemic require high level of human intervention. Having talented revenue managers who understand the market situation intimately and can sniff out potential business opportunities will be the critical element to effective use of analytics. Data and tools are still important, but secondary.
Emphasizing the integration of CRM and RM
Recovery will be slow, uneven and dependent on numerous external factors. Revenue managers must be able to develop different scenarios that have to be continuously updated according to the situation. Domestic travel will recover first for most destinations and different segments will recover at different paces. Transactions are going to be at historical lows for some time. The major challenge that hotels face from the COVID-19 pandemic is not only about demand disruption. Most revenue optimization models regard capacity as given, but potential social distancing policies can impact daily capacity (e.g., rooms, restaurant tables, and common areas). In such situations, increasing RevPAC (Revenue per available customer) may be more important than improving occupancy and customer retention matters to RM. Although several scholars have advocated the need of integrating RM and customer relationship management (CRM) within the hotel industry to benefit long-term revenues (e.g., Noone, Kimes & Renaghan, 2003; Wang et al, 2015), there is no systematic RM and CRM integration due to the potential conflicts between CRM and RM implementation (Wang, 2012) and system infrastructure (Denizci Guillet & Shi, 2019). However, CRM should be an important topic for RM education to assess the guests’ ability to bring incremental revenue to the hotel and to segment guests based on long-term value.
Incorporating a new conceptualization of service offerings and rate fences
Dynamic pricing strategy is a core component of RM. In principle, price increases when demand is high and decreases to stimulate demand when it is low. However, driving down the rates is unlikely to increase demand during these periods due to low travel intentions. A clever revenue manager should concentrate on demand generation without lowering rates. RM education should not only cover demand management methods based on differential rates but demand generation approaches through a greater understanding of customer needs. For example, some current rate fences (rules that apply to rates) may be no longer effective as guest needs and expectations in a post-COVID-19 world may be very different. Hotels can build resilience in the short term in response to COVID-19 by developing new rate fences and new service offerings that meet such guests’ needs. Therefore, designing proper rate fences and estimating customer value and willingness to pay for each rate fence and new service offering should be also one part of RM education.
- Denizci Guillet, B. & Shi, X. (2019), “Can revenue management be integrated with customer relationship management?” International Journal of Contemporary Hospitality Management, Vol. 31 No. 2, 978-997. https://doi.org/10.1108/IJCHM-01-2018-0039
- Noone, B. M., Kimes, S. E., & Renaghan, L. M. (2003). Integrating customer relationship management and revenue management: A hotel perspective. Journal of Revenue and Pricing Management, 2(1), 7-21.
- Wang, X. L. (2012). Relationship or revenue: Potential management conflicts between customer relationship management and hotel revenue management. International Journal of Hospitality Management, 31(3), 864-874.
- Wang, X. L., Heo, C. Y., Schwartz, Z., Legohérel, P. , & Specklin, F. (2015). Revenue management: progress, challenges, and research prospects. Journal of Travel and Tourism Marketing, 32(7), 797-811.