Guest post by Sanjay Nagalia, Chief Operating Officer, IDeaS, a SAS Company
Revenue managers dedicate a big part of their day to managing hotel rates and driving profit. They are constantly analyzing data and various influencing factors to find that coveted sweet spot—an ideal room price that attracts guests and boosts their organization’s bottom line. But what makes accomplishing this task so complex is that each hotel is unique, and therefore, its revenue strategy must be too. It’s essential that hoteliers thoroughly evaluate options to determine what’s best for their business and guests.
To get started, hoteliers should ask themselves these five questions to develop the right total revenue strategy:
1. What do guests want?
Since guests are often the ones paying the bills, it’s important to consider what type of rates they prefer. Beyond preference, some regions or audiences may be accustomed to a certain process and changing it may result in dissatisfaction or lost clientele. For example, some guests prefer to know how their cost of stay breaks down by day. In this case, daily pricing or daily continuous pricing strategies would be ideal. Other guests, however, may prefer the simplicity provided by one rate lasting for their entire stay. In these cases, consider length-of-stay (LOS) pricing strategies.
2. What pricing approach best complements my strategy?
To properly optimize revenue, it’s important to select a strategy that fits the hotel’s portfolio of business. Since transient and groups make up the biggest piece of the pie, a hotel focused on airport transient guests with an average one-night stay will be a better fit for daily pricing strategies. Alternatively, luxury destination hotels that cater to high-end vacation audiences will have longer lengths of stay and stay patterns that are more consistent with 3, 4 or 7 nights. As a result, a flexible or LOS pricing strategy would be a better fit.
As for group business, it is imperative sales and revenue team members align on making the best, most profitable decisions about groups, quickly. A profit-centric group strategy should consider:
- Displaced revenue and profitability
- Group forecast by segment and room type
- Impact on ancillary revenues
- Alternative dates for optimal revenue
- Ways to increase response rate and operational efficiency [Available now, unique two-way data exchange between Amadeus Sales & Event Management – Advanced and IDeaS Group Pricing or IDeaS Function Space Revenue Management ]
3. Since price is only a part of revenue strategy, how do I make the most of my inventory?
Not all business challenges can be solved by pricing. Take loyalty pricing, as an example, where guests with an established value are offered an incentive to book direct. If this incentive involves a discount off the published rate, hotels might find themselves struggling to manage these discounts over periods of high demand. By only managing price, their options become far more limited. They can reduce the discount to 0%, but then their loyal guest sees their “personalized price” is the same as the published rate—without understanding it’s because they are booking on a high-demand night, creating a sub-optimal guest experience. Or perhaps the hotel still offers a discount but, as a result, ends up sacrificing revenue to their bottom line. Both options offer less than ideal results.
The good news is there is a third option. Technology can be used to provide automated strategic overbooking and inventory controls such as a hurdle rate (commonly referred to as a last room value or LRV), to establish a threshold so the hotel captures the maximum amount of revenue over a guest’s entire stay. For example, the LRV requires the loyalty rate to meet or exceed its value to be bookable, so this inventory control automatically restricts the loyalty discount for the guest staying one night, but still offers it to the guest booking three nights. This maximizes revenue for the hotel and provides a better shopping experience for the guest.
4. What market data should I factor into my revenue strategy?
Hotels need to be thoughtful about the data used within their technology and business strategies. While we live in a world where “more” equates itself with “better,” that’s not always the case when it comes to data. To drive the optimal revenue strategy, a hotel should consider historical data as well as the following types of market data:
- Competitive Rate Shopping – Price is important to your hotel’s demand, and it plays a primary role in your own revenue strategy. When it comes to eagle-eying how your comp set prices themselves, it’s a competitive practice well worth the effort.
- Reputation – Every good or bad hotel review can be found in multiple locations online – reaching countless prospective consumers. This sparks a rising importance of guest reviews and how your hotel reputation can be factored into different areas of your revenue strategy.
- Forward-Looking Demand – Forward-looking market reservation metrics and competitive share by segment and channel, available in Demand360®, make for a more certain demand forecast and allow hotels to identify booking trends further out.
5. Wait, what about my other major revenue stream?
A holistic total revenue strategy would not be complete without including meetings and events (M&E) business. M&E business in hotels is undergoing a powerful transformation, and hoteliers have finally recognized function space as more than just a guest-room filler. Now is the time to change your mind—and your organizational culture—to think outside the guest room. To guide you along the path toward maximizing M&E revenue, here are five steps you can take:
- Assess data quality and establish baseline M&E centric KPIs
- Build team capabilities and incentives tied to KPIs
- Understand demand for each meeting space
- Implement demand-based pricing by meeting space
- Optimize pricing for profit utilizing technology that seamlessly fits with your sales and catering system
IDeaS Revenue Solutions, a SAS Company, is the leading provider of pricing and revenue management software, services and consulting. IDeaS enables global organizations such as hotel, travel and transportation companies to understand, anticipate and react to consumer behavior in order to optimize revenue and profits.