Advantages Disadvantages RS

www.revenue-service.com 2005

Hotel Revenue Management

Advantages & Disadvantages


Advantages & Disadvantages

From Whose Perspective?

• Hotel• Competition• Management• Front Office Staff• Or……. Customers


Disadvantage: A Lot More Complexity

• Rate Allocation• Inventory Control• Revenue

• Pricing• Distribution• Contribution


Disadvantage: more questions….• Sales

– What is the trend of the business ? How is our performance?– Where do we have to focus our efforts to improve profitability?

• Marketing Manager– What kind of pricing policy will increase our revenue – Which marketing programs should we develop? – What was the performance of each new rate/product

• Reservation Manager– Which rate should we apply? Shall we overbook or should we

stop selling?– Which rates should we suggest in view of this arrival date and

this LOS?• Group

– What price shall we quote for this deal? How many rooms can we give at this rate?

– Is there a better period for this group to come?


Advantage• A range of technology is available

– To reduce complexity and time-comsuming tasks– To increase Hotel Revenue management to a level of

effectiveness that was never possible before– For all types and size of hotel

• Hotels can also make investments in technology to:– Know who the current/future most valuable market

segments are/will be……or…..– Facilitate staff in showing they (really) care at every

valuable opportunity– Optimise service efficiency

• Provide personalized service, no matter the size of the customer base


Disadvantage: Commoditization

• Too much of an emphasis on pricemay:– Drive down rates – Decrease the « reference price »– Cause customers to see hotel rooms as

commodities– Customers may not differentiate between

high-end budget and luxury propertiesofferings


Advantages For Customers

• Room availability when really needed• A greater choice of products• Good deals available during low

demand times• New opportunities for price sensitive

customers


Disadvantage for Hotels: More Complicated

• Optimise• To avoid filling the hotel

too soon and turning awaylater booking higher ratedbusiness

• To build revenue on shoulder nights

• Use– Inventory control– Product management– Rate Allocation– Cheapest channels

Stimulate• To maximise

occupancy• To avoid profit erosion• Use

– Open All ElectronicChannels

– Price– Creative product

development

REVENUE DILUTION

UNHAPPY MANAGEMENT, CUSTOMERS, STAFF.


Disadvantage: If done incorrectlymoney can be lost, not made.

• Due to the fact that hotels often forecast that demand will be strong but still expect to have some empty rooms, there is a needs to simultaneously:– OPTIMISE …and– STIMULATE

• This is what is most difficult…to minimise:– Profit Erosion– Revenue Dilution

• This need to optimise and stimulate often may affect customer retention and hotel revenue if not carried out carefully


The Need for Variable Pricing Makes Life Complicated.

Managing Internet Rates Can Be Very Time-consuming


Rate Parity

• A customer-centric approach thataims to make prices equal in order to reduce customer confusion, increasetrust and make searching for the bestrate less time-consuming

• Drives business to the cheapestchannels

• Allows product rather that pricecomparison

It is Time Consuming to Check This Manually, and

Expensive to Acquire Reports That Do It For You!


Disadvantage: Lower Rates?• If hotels cannot differentiate themselves

effectively then customers will select thehotel with the lowest rate

• They will find this via intermediary sites• Look at the airline industry, the current

winners are those that:– Are very creative– Have the lowest costs– Offer a comparable product (which is sometimes

better)– Are perceived to have the lowest rates– Avoid selling via intermediaries– Use the Internet to optimise distribution and

auxilliary sales


It Boils Down to 3 Issues• People

– Customers• leisure, business, individual, group, contract

– Management of revenue generating areas– Sales (& data input) staff: front desk, sales, reservations– Technology vendors– Distributors

• Product– Place, promotion, price…

• Technology– Electronic Distribution– RM systems– In-house systems and their ability to integrate


Disadvantage: Perception of Price

• Customers– Have already experience « Topdown » pricing– Have a broad choice: If do not perceive price as

fair can easily switch and never return– Often find pricing too confusing– Have increased price sensitivity and, due to

relaxed controls, often find ways aroundrestrictions


Using CRM and RM Together

• The way RM is implemented can positivelyor negatively affect loyalty

• Loyalty is mostly generated from howpeople are treated as human beings

» KLM, eyefortravel, Copenhagen

• The only reason to know who the most frequent (not always loyal) customers are, is so that more resources can be invested in them in order to maintain their patronage

– This may mean offering upgrades andcomplimentaries as rewards (where appropriate)


It’s a Culture, Not a System.• People

– Customers– Management– Sales (& data input) staff: front desk, sales, reservations– Technology vendors– Distributors




Advantage: The Impact of RM

• Focused sales force on periods of need (forecasting is important)

• Low rates are restricted early enough for high demand periods and LOS controls applied

• Optimization of contribution • Strategic focus as well as tactical • The most profitable market segments

are given priority



– Customers: leisure, business, individual, group, contract– Management of revenue generating areas– Sales (& data input) staff: front desk, sales, reservations– Technology vendors– Distributors




Importance of Perception of Price

• Competitors– Track prices on a more regular basis via

competitor reports, robots, spiders. – Match or beat prices causing a downward

spiraling of the revenue of the entire competitorset


Product Management• Create innovative products to match specific

segments and stimulate demand to fill holes– Physical differentiation: floor, bed, décor, view– Amenities: standard, superior, deluxe …..– Services– Value-added products or services

• Develop tangible or intangible FENCES to avoid dilution and ensure fairness

– Restrictions– Subtract value to differentiate and cause

customers with a high WTP to not desire thelower priced product.


Processing of the Data•Examples of pictures used in the interviews


Optimal Price Premiums



– Customers: leisure, business, individual, group, contract– Management of revenue generating areas– Sales (& data input) staff: front desk, sales, reservations– Technology vendors– Distributors




New Challenges• Traditionally, companies in the hospitality industry

only needed to manage in-house sales and travel agents

• Now, several other distribution channels have increased the complexity and opportunities

• Some fundamental issues to consider:– What channels should you employ?– Which are most effective?– What are the demand patterns by channel?– Is it necessary to maintain parity in prices and

products across all channels?– What are the opportunities for targeted product

offerings?


New Opportunities

• Can take advantage of this by offering distressed inventory without diluting the overall brand

• The Internet also provides the ability to create price and product experiments

• New opportunities for directed sales taking advantage of personalization capabilities


The impact or ROI of a RM System– 3 Key Criteria:

• The revenue management practice in place before the RMS programme is implemented

– The more sophisticated this 'manual' practice is, the less benefit will come from the implementation of an automated system. NOTE: few hotels can indeed invest in dedicated resources to make sure that manual practice remains at an adequate and good level.

• The level of demand that the hotel has– Increasing revenues by 4 per cent, presupposes that demand

can fill the hotel up to at least 50 per cent of its actual capacity.

• The ability of users to seize revenue maximisationopportunities

– in this respect, the more integrated the system is with the hotel marketing policies, practices and systems, the closer the actualrevenues arc to RMS revenues.

• Source: Bernard Rannou , Delfo Melli . (Oct 2003). Measuring the impact of revenue management Journal Of Revenue And Pricing Management 2 (3), p. 261-270 London


Hotels should not implement a Fully Automated RMS if they…

Are brand new properties with no historical data to produce an accurate forecast

Do not have a 70% average annual occupancy and at least 20 sellout nights per year where a good portion of the clients are yieldable

Do not have clearly defined market segments

Do not have fluctuation in demand

Are not ready to nurture a Yield Management Culture

Do not have a PMS that can interface with a Yield Management system


Revenue Management

For assistance with your revenue management program visit

www.revenue-service.com orcontact: [email protected]

Documents

Advantages Disadvantages RS