A Growing Realisation

September 10, 2012- 

Ensuring maximum profit from a property in flat as well as boom times is uppermost in hoteliers’ minds. Technology takes some of the guesswork out of the equation.

By Gregg Schroeder

Revenue management (RM) has come a long way in the past few years. Many hoteliers who once poured over spreadsheets trying to identify customer trends, so that they could try to replicate the highs and avoid the lows, now use the latest technology to collect and analyse data through online and cloud-based subscription systems. The number crunching in pricing, competition, demand, customer behaviour and market factors is polished off at mind-boggling speeds, leaving hotel operators time to make better, more strategic decisions.

The sheer volume of data available today makes it impossible to make informed decisions about pricing strategies without the help of technology, according to Grahame Tate, Asia-Pacific managing director at IDeaS Revenue Solutions, a worldwide company that offers pricing and revenue management software, services and consulting to the hospitality and travel industries.

“Using advanced, best practice revenue management systems turns reactive approaches to pricing into proactive knowledge about future price needs,” according to Tate. “The more advanced systems enable hoteliers to make a more informed decision about their pricing strategies.”

It’s not just about doing the same job faster, but changing perspectives entirely in the hotel industry. Growing application of revenue management signals a shift from a focus on occupancy rates. In its place, revenue per available room – RevPAR – has become a measurement of a hotel’s success. Accordingly, tactics have shifted from short to long-term, intensifying the need for increasingly sophisticated RM systems.

Aiming to boost revenue is not always enough for a healthy business. Discounting rooms in the low season to keep occupancy levels high, for example, might have the unintended effect of eroding profit, and without RM in place, the hotelier may not know what effect such a policy is having until the ink is dry at the end of the month.

Cary Umrysh, Pros Revenue Management vice-president of professional services for hotels and cruise lines, points out that not every customer is willing to pay the same amount for the product on offer, and hotels need to match the right customer with the right price at the right time. “For every hotel room, there are tens of thousands of ways to sell it,” Umrysh says, citing packages, wholesalers and other channels.

New developments
“How the systems have improved,” Umrysh says, “is in being able to accurately measure what kind of demand there is coming through the many channels and for what product.” Weekday business travellers, for example, often require business services, but weekend guests may prioritise a room with a good view, and families with children likely want age-appropriate facilities and activities.

RM is well suited to handling this variety of needs from a variety of customers. “For the Asian market, that’s something that can really go over well,” Umrysh says, noting that in the region a great deal of business is conducted in five-star hotels and their restaurants. “There is a lot of opportunity in those properties, a lot of ancillary spending going on. A business person staying at the hotel might mean a meeting for four people happens in the hotel restaurant.”

Different strokes
Just as every hotel property is different – from small business hotels to upscale boutique properties and rambling resorts – the best RM systems are customised to the individual situation.

“Some hotels need high-end revenue management for groups, F&B, meetings, ancillary revenue, rooms [and other revenue sources],” according to Tate. “While other hotels may just need a forecast or some pricing for rooms.”

RM systems are available off the rack and to a certain degree can be customised. However, bigger clients demand custom-tailored systems to analyse more factors, including competitor data, online customer reviews and even something as specific as the impact of an airline adding or reducing flights at the local airport. Usually, Umrysh says, a new client has the data but has not been able to make good use of it. RM providers create systems to utilise that information, which may lead the hotel or chain to providing a unique service to their customers. “In many cases, that’s their ‘secret sauce’,” he says.

Price wars
One of the key challenges for hoteliers across Asia in relation to online booking is that the internet has made it possible for potential customers to quickly and easily find the cheapest prices available. This has resulted in some hoteliers continually trying to match or undercut each other on price. “This can erode profit margins ever further and damage a hotel’s positioning,” Tate notes.

“The longer a hotel discounts its rate, the more likely this lowered rate will become the reference price in the minds of consumers, making it harder for a hotel to lift its rates back to the original price. While it may seem logical that lower hotel prices would stimulate demand for the hotel sector in general, demand for hotels has been found to be relatively inelastic. This means that when prices drop, the increase in demand won’t be enough to offset the decreased rate to maintain revenues. Price wars create a lose-lose situation, therefore price matching and deep discounting should be avoided,” Tate asserts.

But at the same time, he warns against turning a blind eye to competitors’ prices and offerings – something RM systems can be built to accommodate. “It is crucial hoteliers take a long-term, strategic view, including a rational approach to competitor pricing,” Tate believes. “In the long run, this will be far more profitable than impulsive pricing decisions, which only have short-term benefits.”

Booming Asian markets
Umrysh expects revenue management to grow in the Asia-Pacific region. Systems pioneered 30 years ago by the airline industry and adopted by the large international hospitality groups have been in place for some time, he says, but for the smaller businesses, the idea is probably quite new.

Destination resort properties can greatly benefit from RM systems, Umrysh says. They are likely to have unique offerings, depending upon location and amenities, and can capitalise on the specifics of what they are doing – whether it’s access to unspoilt beaches, use of nearby golf courses, organising excursions, providing spa treatments or offering other leisure activities. They can get clear pictures of what guests are willing to pay for, and break that down by country. Properties can then control how many bookings they release to higher paying countries.

“It just has to be done in a way that the customer feels he is getting value,” Umrysh says.

What properties can benefit most? “We tend to look in terms of the revenue of a hotel,” he adds. A typical traveller’s hotel with budget priced rooms is probably too small to benefit. But a small hotel with a variety of rooms – junior to deluxe suites – and other revenue streams such as spa treatments, F&B, gift shop and excursions has more income streams to consider. “Then,” Umrysh says, “there is more to play with.”

Often after hoteliers start using an RM system, they see the possibilities. One sprawling hotel Umrysh worked with realised rooms closer to the lifts were worth US$10 more than rooms that were a longer hike from the lobby. Prior to using an RM system the management hadn’t thought of these types of things.

“For that to work they had to have customers who stayed there before, to say it was a long walk to the lobby.” That information was available, he says, and it was customers who recognised the value.

It’s the small, specific things where RM does its best. RM systems enable hoteliers to find the little opportunities – “5% here, 10% there,” Umrysh says – and that can make the difference between being profitable or not.

People make the difference
Tate and Umrysh agree that one key ingredient in the successful implementation of an RM strategy is people.

“RM is a process that is driven by a combination of people and tools,” according to Tate. “The hotel schools are starting to focus more on RM, but it’s been a slow process and there are nowhere near enough good, qualified revenue managers available these days. It’s now more than an emerging career and the hotel schools should be promoting and teaching both the analytical skills and the soft stills required to be revenue managers. Some hotel groups, such as IHG, Starwood, Accor – mainly the larger groups – have strong programmes to develop RM talent, but I believe the schools could play a bigger part still in seeding the market with revenue managers.”

Umrysh concurs. “Having the solution is one part, but having someone who can use it is another matter.”