Revenue management has long been one of the cornerstones of hotel operations.
NB: This is an article from Demand Calendar
Its traditional definition has guided countless professionals in optimizing profitability and driving success. But as the industry matures and guest expectations evolve, I have asked a crucial question: Does our established understanding of revenue management truly serve our current needs?
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More importantly, does it encapsulate the heart of hospitality?
Having been deeply entrenched in the hospitality industry for decades, I’ve witnessed the evolution of practices, strategies, and ideologies that drive this sector. One constant in this ever-changing landscape has been the definition of revenue management.
Instead of fostering genuine connections and memorable experiences, there’s been a palpable shift towards the transactional. This subtle yet profound transition has spurred me to rethink, reassess, and reframe our understanding of revenue management. I invite you to join me in exploring a perspective that prioritizes the heart of hospitality over mere transactions.
The current definition of revenue management
Let’s start by deconstructing the standard definition of Revenue Management and analyze its implications:
“Selling the right capacity to the right customer, for the right price, in the right channel, at the right time.”
- Implication: The emphasis on “selling” prioritizes making the sale over understanding and fulfilling customer needs. While sales are crucial, this approach might risk sidelining the customer’s desires, needs, and experiences.
- “the right capacity”:
- Implication: Leading with “capacity” indicates an inside-out approach, prioritizing the hotel’s inventory rather than understanding customer desires. It suggests that the hotel’s primary concern is filling its rooms, irrespective of who fills them or why.
- “to the right customer”:
- Implication: This implies a reactive approach. It suggests the hotel is looking for customers who fit into its existing inventory rather than tailoring offerings based on customer needs and preferences.
- “for the right price”:
- Implication: While dynamic pricing is a cornerstone of revenue management, this phrase can indicate a primary focus on revenue optimization without necessarily considering value delivery or customer perception of value.
- “in the right channel”:
- Implication: The introduction of this phrase, albeit later, underscores the importance of distribution but might inadvertently prioritize the mechanics of distribution over the quality of the customer experience. It emphasizes where the sale happens over how or why it happens.
- “at the right time”:
- Implication: This phrase emphasizes the importance of timing in revenue management. However, it might suggest focusing on opportunistic selling (capitalizing on peak times) rather than building long-term customer relationships.
Focus on transactions
While comprehensive in its coverage of essential revenue management components, the traditional definition strongly emphasizes the process’s transactional aspects. It starts with the hotel’s perspective (selling what’s available) rather than the guest’s perspective (offering what’s desired). It’s a product-centric approach in a world rapidly moving towards customer-centricity.
In today’s hospitality landscape, where customer experience and loyalty are paramount, a definition that starts with the customer and emphasizes understanding their needs might be more apt. This shift doesn’t negate the importance of selling, capacity management, pricing, or distribution. Instead, it reframes these elements in a context where the customer’s needs, desires, and experiences are at the forefront.
A subtle updated definition of revenue management
Now, let’s analyze my updated definition of revenue management.
“Revenue Management is understanding and meeting the right customer’s needs, with the right product, at the right price, through the right channel, at the right time.”