wallet with money and cards reflecting revenue management drive to understand guest profitability and increase share of wallet

Today’s revenue management systems – integrated with the other hotel systems – are providing highly accurate and useful data that allows hotels to calculate total guest value, offer personalized rates that reflect demand and inventory, and ultimately increase the property’s bottom line.

NB: This is an article from Duetto

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Even though the big data captured by the integration is an essential factor in mitigating risk and creating proactive revenue management strategies to manage uncertainty, the hotels that integrate a dynamic revenue management system with their other systems – specifically the property management, channel management, and distribution systems – ensure better data quality and generate vital guest folios.

While more than 1,800 hotels were opened in 2022 alone, less than a third of all hotels across the world actively use any revenue management tools, and only 10 percent use advanced revenue management technology. That means that 90% of the world’s hotels are missing out on the benefits of the quality data captured by the integration of systems and they are leaving money on the table.

More importantly, hotels that implement a revenue management system generally experience a RevPAR increase of 5% to 20%. These systems seamlessly transform complex data sets into an easy-to-use and easy-to-understand format and streamline manual workflows, doing away with difficult manual calculations and cumbersome spreadsheets and saving revenue managers 20 to 40 hours per month.

Big Data’s Role in Mitigating the Hotel Industry’s Top Three Risks

The first and biggest risk is opportunity cost, or leaving money on the table by not accurately pricing inventory – and that can be in either direction. A hotel’s rates could be too high or too low. If they’re too high, the property is missing bookings that it would have received, and if they’re too low, the hotel is leaving money on the table for every individual booking.

Another risk is conflating channel complexity with pricing complexity. So often hoteliers must decide which business they want to capture, so they open and close different channels. The simpler and more profitable solution is to let the guest decide; the hotel presents them with a price, and the guest decides if it’s too high to book rather than the hotel running the risk of closing a channel and turning away bookings they thought they wouldn’t get at a higher price point.

If a property is managing five channels, 10 segments, and 25 room types, it has a group thrown in plus meeting space utilization, it adds in profitability margins, and it focuses on areas where it has available staffing – all of that together can be paralyzing. The amount of complexity is inherent in optimizing a hotel. Using data and the property’s systems can help get that complexity under control. Without the right data flows and the right systems, hotels risk making a mistake – for example, publishing a bad rate or a poorly-timed restriction. Managing the complexity of all of the decisions the property has to make is a meaningful risk.

Then there is the risk that comes with volatility. Travel is highly competitive, guests are very well informed, and they have a great grasp of shopping tools. An example of volatility is when a large event is canceled or postponed – everything becomes hyper reactive. Even when an individual university shifts an event date like a family weekend, it can cause a sudden surge in bookings on an off weekend. The dynamic nature of the market requires properties to keep track of both what’s happening inside their building with large-scale changes in booking velocity, as well as what is happening outside the walls such as special event calendars and overall market differences. This can also lead to opportunity cost risk, but these volatile, quick-moving changes can have a serious material impact.

Factors that Ensure Better Data Quality

First and foremost, it’s important to make sure that all of the property’s systems are speaking the same language, that largely is the property management system, the revenue management system, the channel management, and distribution systems. Additionally, data modeling, data cleanliness, and data governance is a discipline and a practice that properties need to invoke and adhere to, but it requires constant care.

When hotels do not have proper system integration, a situation as simple as introducing a new rate code every time a situation arises can cause chaos. Over time, the hotel will end up with a growing complexity of data, and that makes it harder and harder to analyze, and more difficult to find trends and opportunities. Keeping clean data on the operational side of managing reservations, inventory, and blocks or groups, and having some foresight or knowledge of how that flows from one end of the system through the decision-making aspects and out to the market, creates a data asset for the company over time and it is often overlooked.

Understanding how to interpret and use big data insights can be a game-changer in developing resilient revenue management strategies that can adapt to various unforeseen circumstances. More and more hotel properties are finding they need the tools to capture big data and better understand total guest value to make actionable pricing decisions.

How Revenue Management Plays a Part in Calculating Total Guest Value – and Pricing

There are two important aspects of guest value: share of wallet and time. It begins with determining what the economics of the guest look like as early as the first booking at the property, from pre-booking and the shopping stage through checkout. There are major decisions and major costs on the guest acquisition distribution side.

Whether you’re sourcing that guest and attracting them directly, whether you’re using meta, Google, or Facebook, whether you’re actively marketing, or you’re relying on an OTA to do the heavy lifting of delivering a reservation, there’s a meaningful chunk of guest value that is tied in that complex guest shopping and interaction step. Then you get to the core pricing decision, which lives in the revenue management system and plays a part in both the shopping and purchase behavior.

Once the guest arrives on property, there’s room revenue which might include upgrades, and depending upon the property type, there is the opportunity to achieve revenue from non-room purchases. Casinos are some of the most advanced property types for understanding and capturing guest value. There are options such as food and beverage (including in-room dining), spa services, and even multiple tiers of parking like self-service and valet. Many properties have pool cabanas, golf courses, and other non-room ways of capturing spend, and let’s not forget gaming.

When you put all of these offerings together, the optimal price point for the room can often be zero – like low-demand days where 80-plus percent of the total guest value is in non-room revenue. Putting people in those rooms is very important – and you see that across the hospitality industry. Casinos are pricing below their variable cost to put people in low-demand rooms. Similarly, cruise lines are putting them in the undesirable cabins on the ship at a lower rate because they’re going to capture so much more in ancillary spend.

The second denominator is time, or the lifetime value of a guest. Many hotels have a strong sense of customer lifetime value that includes both rooms and repeat business as well as non-room spend, and they use that to match inventory and need dates with optimal pricing to fill rooms when needed. This includes how they effectively comp guests on the gaming side and how they bring together the experience opportunities that are offered at a complex resort with the way that they yield it. Ultimately, it’s understanding the business end to end, understanding the data collected by the property’s systems, and using it to drive the best prices, capture value, and deliver a great guest experience.

If the hotel property is paying attention to the guest data, it can craft personalized guest experiences over time. That leads to repeat business, five-star reviews, and referrals through public channels. Positive reviews on social media, high ratings on travel review sites, and word of mouth to friends and family drive high-value, low-cost repeat business. The time element and the interplay between the lifetime value of guests and what they do to drive awareness and consideration on the shopping side for others is a meaningful part of guest value.

Adoption as a Critical Part of the Process

Revenue management is best described as managing the pricing, inventory, and channels to optimize profitability, and that requires adoption from the revenue management team. Often, people will assume that the systems are going to do everything for them, and that’s just not the case. The revenue management team needs to lean on their business sense and also look at revenue management as a set of tools. While big data and AI technologies are helping to increase the sophistication as well as manage complexity, at the heart of it, there are strategies that underlie the decisions, and the team members are the ones with those strategies.

If a hotel has a system that doesn’t have the data that it needs, one that is unintuitive, that creates situations and recommendations that don’t build trust among its users, it will be a struggle. The more that the system can do for its users, the more likely it’ll be adopted, and that is critical.

Hotels have a team of professionals whose job is to manage this complexity, and the property needs to give them the tools that help them do that and don’t get in the way. That comes from data through to all of the integration and workflow aspects, and through the core user interface that they’re interacting with – the analytics, data science, and recommendations that come in the system – all of those facets drive adoption and adoption drives value.

The Bottom Line

When integrated with the other systems in a hotel, today’s revenue management systems are providing highly useful and accurate data that allows hotels to look at revenue beyond the room or total guest value, personalize rates, and improve their bottom lines. Using a dynamic guest folio or a guest profile built from the data provided by the revenue management system and property management system, hotels have a pretty complete picture of a guest’s value that incorporates history, behavior, purchases and interests. The property can then use this data to understand its guests, its business, and in setting revenue management and pricing strategies.

Big data accessed by these systems is critical for hotels to mitigate risk and uncertainty. Properties ranging from standard hotels to high-value resorts and casinos have learned how to use the combination of these systems to efficiently run their businesses and unlock value. Understanding reservation data is imperative to make actionable pricing decisions. By combining powerful analytics, real-time data, and human process, hotels can create, set, and manage revenue strategies that work.

Read more articles from Duetto

Reprinted from the Hotel Business Review with permission from www.HotelExecutive.com