In other words, revenue management is not about pricing only! Revenue Management expert, Silvia Cantarella, explains.
The first association most people still do when they hear about Revenue Management, is pricing and rate management.
But, this is only partially true.
Pricing is only the visible part of this discipline; it is the culmination of the way in which we want to communicate the value of our product in the market at a given moment, through a rate amount. By focusing on this element alone, we’re only partially optimizing our revenue.
Having experienced extreme pricing management during my almost decade and a half in the industry, I have learnt that it is much easier to work starting from the foundation- product, moment, channel, segment and total revenue.
These are essentially to increase revenues, optimize profits and average rate and ultimately make conscious and comfortable decisions on the sell rate.
Let’s see how.
I - Product: When Different Room Types Exist, Value Each One of Them
When selling rooms, it is important to ask ourselves – is the room sold, that is actually paid and booked by a customer, or is it occupied, including upgrades and upselling from an original booking.
Working with room type overbooking to balance inventory and optimize sales is common practice. But, have you considered the above indicators in this process?
In favourable demand conditions, simply by reducing the overbooking of the base rooms and pushing the sale towards higher room types (which does not necessarily imply any price changes), it is possible to increase the overall hotel’s average rate, rooms revenue and profit.
I highly suggest balancing the inventory mix to optimize sales by leveraging other techniques to move occupancy between room types: on top of all the upselling at time of booking, before arrival and/or at check in. Upselling doesn’t necessarily imply forcing; leverage the value of your product (room type) to improve guest satisfaction. 1% of upsold bookings generate an average + 1.5% increase in average rate. Let’s use it.
II – Moment: At the Right Time, in the Right Way and for the Right Length of Stay
Different days generate different levels of demand and your strategy must take this into account. Remember, two average good occupancy days, but not full, can be more profitable than one sold-out day. So focus on the whole, not just the peak.
From my experience, minimum stays are often not used at all, abused or generalized.
Not used at all: “Because we are afraid of refusing bookings”. We indeed do it to lose them, or better “select”: we apply restrictions on stays to skim the demand and increase the total turnover.
Abused: “A minimum two-night stay applies to all weekends”. There is no rule, let’s learn to be flexible, adapting to the individual pattern of each day.
Generalized: Product peculiarities referred to in point I apply to restrictions and minimum stays as well: it is important to capitalize the demand by room type rather than placing fences overall at the hotel level.
Minimum stays, restrictions and fences support our strategy but we cannot be effective on their application if we do not monitor the market and demand trends, we are rigid and are not ready to adapt to real time changes.
III – Distribution: All Channels Bring Value, No Channel Brings Constant and Total Value
Not even the direct booking channel. I do not believe we can eliminate intermediaries, to me it is like trying to go back selling vinyl at the time of iTunes. However, I think it is important to manage distribution and intermediaries efficiently.
Everything is connected: there are room types that sell well through certain channels compared to others. There are days of the week or times when the occupancy suffers and specific channels – even if expensive – can help filling those “holes”. We should leverage and use these channels to drive incremental revenue and rate that probably we, through our own site or direct sales, would not be able to generate.
Important to note that in your focus of the web factor, don’t ignore the voice factor (telephone reservations).
IV – Segmentation: Shift & Lift
The reason why we build segmentation is to group customers who have similar buying behaviours and needs, but above all are willing to pay different rates and have different spending powers according to their trip personas.
Each segment generates demand that we accept or reject based on our forecast. It still often happens though, that besides the anxiety of reaching 100% occupancy still sadly widespread, even the anxiety of filling “as soon as possible” or building the so called “baseline” of reservations, is hard to die.
I have experienced situations where despite being full, the market share for my hotel was decreasing and exactly in average rate. Even though our pricing was well managed, there was an underlying problem of segment imbalance – the dominance of one or two low-contribution segments (the ones that built the famous “baseline”) was causing the detriment of demand on higher-rate segments that I was rejecting due the hotel being full.
Connecting this to point two where all our decisions are based on the booking window: how far from the date we let one segment prevail to the detriment of the rest. My suggestion is to analyze the optimal segment mix according to the trend of the demand.
To reject business in favour of segments with no guarantee, is a bold choice to be made. But, good management of the segment mix drives high turnover and overall rate increase and should not be an option, but active part of the activity.
How to define then my optimal segment mix? Besides demand and average rate, what other factors to consider?
V – TRevPAR, Pleased to Meet You!
Total Revenue Management is not anything new. Without even realising it, when building our hotel’s segmentation, we are already considering the Total RevPAR. When segmenting between leisure and corporate we are already discriminating for spending capacity.
Each segment’s overnight generates room revenue, but also the so called extra or ancillary revenues that come from spending other than rooms. When we attribute value to the segments, it is important to quantify the total contribution of each one of them: Total RevPAR (total revenue generated (rooms + extra) / rooms available).
Revenue Management is not just about rooms.
To wrap up: I highlighted just five among the many factors that are essential to successful revenue management. It is important to think outside the pricing box and look a little bit far beyond what is visible and focus a little bit more on what is measurable.
Article edited with permission from Silvia Cantarella , who has 14 years of experience in revenue management of luxury and chain hotels. Founder of Revenue Acrobats, her vision is to offer flexible and agile solutions to hotels by working in tailored project groups. Find out more at www.revenueacrobats.com
Source : www.staah.com