Dispelling Hotel Revenue Management Myths 
By Tracy Dong - Exclusive for 4Hoteliers.com
Monday, 10th June 2019

MICE Revenue articles - hotel newsExclusive Feature: As the volume of business challenges faced by hoteliers increases across the APAC region due to a plethora of issues like increased competition, changing consumer booking behaviours and overwhelming data, so has the amount of viewpoints offered by peers, vendors and self-styled industry experts around the best way to overcome industry pain-points.

However, when not every opinion is created equal or even based on fact, how can you be sure the advice you seek will benefit your business?

Here are five common industry myths prevalent in the regional hotel market that need to be reconsidered today:

Myth: Automation is set to replace revenue managers

In the age of big data, technology is critical. Any revenue manager working without the support of an advanced revenue management solution will find themselves overwhelmed by the sheer volume and complexity of data. Forward-looking predictive analytics, embedded in today's advanced revenue management systems and supported by machine learning, help hoteliers uncover emerging trends and identify more revenue opportunities.

However, while machine-learning technology can aid in the organisation and analysis of vast volumes of data, and sophisticated revenue systems automatically deploy business decisions based on this type of analysis, there is still a need for human interaction. Hoteliers will still need to validate actions and alert the technology to things it cannot anticipate.

Myth: Airbnb and sharing economy accommodation providers will continue to steal market-share from our hotel and the only way we can compete is by reducing prices

When faced with new competition from the sharing economy, the worst thing a hotel can do is offer short-term discounts to gain a competitive edge. These discounts often mean a hotel was forced to accommodate for the price reduction by reducing services that differentiate its property from competitors like Airbnb.

Airbnb grew their business aggressively through effectively targeting family and leisure travellers and is now working hard to sell their offering to business travellers as well. Hotels, on the other hand, have more complex market segments, including not only leisure and business travellers, but also groups. It is vital that hoteliers gain an in-depth understanding of their business mix to deliver value to their target market segments. By understanding their business mix, hoteliers can analyse customer behaviour such as booking pace, length-of-stay and room-type preference so their sales and marketing strategy can be targeted to promote value to different target markets.

If a hotelier is unable to convince customers their product is worth more than an Airbnb property based on ‘soft’ factors beyond price (assuming that location is equivalent), then they've become a commodity. Price then replaces brand, service standards and physical property as the key driver of purchase decisions. To fight the commoditisation brought about by an excessive focus on price, hotels must maintain unparalleled service levels with a strong brand focus. Every guest—new or loyal—who walks through the door needs to understand what makes that property and brand different and unique in the market.

Myth: Overbooking is too complicated and will only see our hotel sending valued guests to competing properties, risking loss of long-term loyalty

While no one likes having to ‘walk’ a guest, hoteliers need to understand overbooking is a long-term strategy that requires constant review. Overbooking strategies should not be feared by hoteliers today. The practice does not mean you have to overbook your hotel and walk your guests on the day of arrival. In fact, overbooking strategies, when practiced properly, analyse a hotel’s cancellation ratio and group-wash further into the future to provide more certainty. By analysing overbooking numbers months in advance, hotels can then compensate expected group wash by high-paying transient guests. Not overbooking can result in lost revenue and missed occupancy at the property’s highest price-point where profits can be maximised.

Overbooking strategies can be set at room type level, too. As an example of the advantages of a properly practiced overbooking strategy, consider a hotel that overbooks their base room type all year long. Assume this hotel has a cold winter, where the location of the property struggles to attract leisure travellers. However, during this period, the hotel remains busy with corporate travel during the week. How can this hotel adjust their overbooking strategy to accommodate for this distinct day-of-week need?

Perhaps their base room type is open for generous overbooking on the weekends, keeping their hotel as competitively priced as possible, but a conservative strategy is employed during the weekdays to encourage bookings into upgraded room types. If the new strategy helps a hotel book just five upgraded room types every weekday at a $50 upcharge, they’ve pulled in an additional $65K in annual revenue by selling the same amount of rooms.

Myth: A revenue management system is too expensive and only used by large global hotel chains

It’s important for any hotelier to operate prudently and not spend beyond their means. As revenue management solutions have been widely adopted by larger hotel chains and properties for success, this can sometimes lead smaller or independent operators to maintain a misconception around the real cost of the technology and the ROI they can expect. Many leading revenue management providers work with budget and midscale hotels in both city and resort locations all over the world.

Additionally, there are also entry level technology platforms for hotels looking to start their revenue management journey, such as pricing system technology that focuses setting and distributing the right rates to the right guest at the right time.

Myth: My hotel is still under construction; I can’t consider revenue management until I have been operating for at least one year

Many new hotels struggle to reach their optimal revenue potential due to poor pre-opening preparation and a lack of clarity around in-depth market positioning analysis and pricing strategies to address varying and often fluctuating market demand and conditions. It is no longer enough to build a great property, ensure the rooms are nicely decorated and have staff in place to service potential guests. An integral component to the pre-opening process should be considering the optimisation of room-type configuration, as well as the implementation and integration of revenue management technologies with the hotel’s IT infrastructure and platforms from the very start.

There are many areas of revenue management that must be considered throughout the pre-opening phase of a hotel—ranging from establishing market segment revenue and sales strategies, undertaking comprehensive competitor evaluation, pricing research, pricing processing and forward planning of market demand cycles. To ensure hotel revenues are maximised from day one, hoteliers need to work with specialists, like IDeaS Advisory Services, that can access in-depth analytics to optimally price a property based on the ideal market positioning and validated segmentation.

It is important that properties follow a structured, standardised approach to pre-opening to ensure consistent and effective results from day one. Hotels under development should conduct a strategic analysis that includes a study of the micro market and overall economic factors that could affect the hotel’s performance. They should also finalise a competitor analysis, including competitor value and benefits positioning.

Hotel pricing structures should be based on market conditions, hotel positioning and should include established channel strategies according to product positioning and market environment to cement ‘product positioning’ (i.e., hotel descriptions, room type descriptions, etc.) through all channels.

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

Tracy Dong is the Lead Advisor, APAC, IDeaS Revenue Solutions / IDeaS.com

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