Revenue Management Culture - It is statistically and empirically proven that the correct application of revenue management strategies will result in incremental revenue.

So why is the hospitality industry struggling to realize its full potential? In this article we will explore potential reasons and attempt to offer solutions.

After United States of America President Carter signed the Airline Deregulation Act into law on the 24th October 1978 it took the airlines a few years until American Airlines introduced the Ultimate Super Saver Fares in 1985, a pre-paid fenced rate, which is considered as the historical starting point of revenue management and then the hotel industry took notice and started implementing yield management (the predecessor to revenue management) too.

Jumping to 2024, while every single airline on the planet is pricing their seats applying revenue management techniques, that is unfortunately not the same for the hospitality industry.

Of course global and regional chains have continued rolling out revenue management (I was part of a global task force to set the standards for revenue management for IHG in the early 2000s), but it is the local chains and independent hotels (and we are talking about thousands upon thousands of properties around the globe), that still apply seasonal over dynamic pricing, don’t know what yielding really is and certainly don’t have a revenue manager.

One of the wrong perceptions from hotel owners preventing the hotels from implementing revenue management (that is assuming they have heard of it in the first place) is that “it” is expensive, because owners (and I had my fair share of conversations) might equate revenue management with a system/software.

Well first of all there are many companies nowadays, who offer a very affordable RMS and very attractive ROI (a later article in this series will cover that), but most importantly revenue management is not a system. Revenue Management is a process that works best if a revenue management culture is established.

A revenue management culture is defined as a cross-departmental understanding of the importance of revenue management principles including fact-based data-driven strategies and the impact of discounting on profitability to increase demand.

The starting point is to hire a Director of Revenue Management (and I purposely don’t say Revenue Manager to underline the importance of this role – there is never a question to hire a Director of Sales & Marketing, is there?) and if the hotel cannot find one (because, let’s be honest, there is a serious shortage of qualified revenue management experts out there), then the hotels operator should either out-source Revenue Management or find someone to train the existing team. If the hotel owner/operator would serious about revenue management, they might consider both as local market knowledge should work hand-in-hand with a remote revenue management expert.

But it is not only the local chains and independent hotels holding revenue management acceptance back, there are still a lot of regional chains, who claim to practice revenue management and even have hired revenue managers, but a) have these revenue management experts be properly and professionally trained and b) do they really have the authority to implement their knowledge?

Particularly on the 2nd part I have seen time and time again that due to owner preference revenue managers have been told to go for either occupancy or for rate, ignoring the revenue and profit optimizing metric of RevPAR.

Why? Well, as I said above because of owners preference they like to see their hotel either full or being the most expensive in town. I am particularly talking about individual owners (especially if they are first time hotel owners) as banks or big hotel owning companies very much value RevPAR and RGI growth.

So training of revenue management principles should not only apply to revenue management experts and also not only to colleagues in commercial, operations and finance , but as well to owners, especially if they tend to be very involved in operating the hotels.

But there is one more thing, which is holding the industry back to fully embrace revenue management and this applies also to the big global chains. The inability to implement THRM (Total Hotel Revenue Management) – defined as the optimization of all revenue streams in a hotel using revenue management principles.

Yes, there may be pockets of attempts to try F&B revenue management, Spa revenue management and Event Space revenue management (Well, I implemented them myself on a trial basis at Shangri-La and Jumeirah), but these are the exceptions.

So why don’t we see more success stories on THRM? My take is that the industry has not built a working revenue management culture (definition above). Because a revenue management expert alone (and especially in a centralized environment (another article at a later time)) is simply not able to implement F&B revenue management.

And not only because of lack of training/training material, but because it requires that also the Executive Chef and F&B Director understand revenue management principles. Only then can you start dynamic pricing, effective menu engineering and profit driving promotions in your restaurants.

At Wolf Commercial Consulting it is our passion to build and strengthen the revenue management culture of any organization and elevate the discipline of revenue management. Join the first revenue management foundation training of 2024 in one of 4 locations across Thailand: Bangkok, Pattaya, Phuket or Samui.

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