What is the next step for hotel revenue managers?
Over the years, many discussions have been about how revenue management would evolve over the next decade. In surveys, revenue managers answered that total revenue management and profit management were high on the list, apart from fixing the constant problem of integrating systems and keeping up data quality. However, the discussion about total revenue and profit optimization has been going on for at least ten years. Revenue managers cannot do everything simultaneously, so what is the next step?
Start with the highest impact
Impact of total revenue management
- Integrate data: Optimizing each revenue source in siloed systems is possible, but integrating data across systems would provide a more comprehensive and holistic view of demand and revenue. An overview can lead to more informed and effective decision-making and help hotels identify opportunities to optimize each revenue source and maximize overall revenue and profit. For example, suppose the hotel manages room and meeting space revenue in separate systems. In that case, it may be difficult to identify opportunities to cross-sell meeting space to room guests or to offer packages that bundle both room and meeting space. Integrating data from these systems would provide a complete picture of demand and revenue and allow hotels to identify and act on these cross-selling opportunities. In addition, integrating data can help to reduce data quality issues, ensure data security, and reduce the need for technical expertise to access and use data.
- Apply demand-driven pricing: Use demand-driven pricing strategies to optimize pricing for each revenue source based on demand, competition, seasonality, and other factors. In a siloed approach, demand-driven pricing can be applied to each revenue source separately, using data specific to that revenue source. For example, the revenue manager can use room revenue data to adjust room pricing, while meeting space data can be used to adjust meeting space pricing. This approach can effectively optimize each revenue source but may not consider the interplay between revenue sources, such as cross-selling opportunities. For example, the revenue manager can adjust food and beverage pricing based on demand, seasonality, and competition. For instance, the hotel can adjust breakfast, lunch, and dinner pricing based on demand and offer special promotions and packages to increase guest spending.
- Respond to customer feedback: Seek and respond to customer feedback to understand guests' needs and preferences and to make improvements to products and services that will increase revenue from each source. In a siloed approach, a hotel can respond to customer needs for each revenue source by using data specific to that revenue source. For example, understanding guests' food and beverage preferences can help hotels offer menus and promotions tailored to their particular needs. A hotel can provide special menus for dietary restrictions or promote specific menu items that are popular with guests. Responding to customer feedback in a siloed approach can effectively optimize each revenue source but may not consider the interplay between revenue sources, such as cross-selling opportunities.
- Collecting and analyzing data: Collecting and analyzing data about guest spending is essential to take action to optimize guest spending and maximize revenue. Hotels can comprehensively understand guest behavior by collecting and analyzing data about guest spending, including spending patterns, preferences, and pain points. The insights can then inform pricing and product strategies and improve guest experiences to increase guest spending further. For example, by analyzing data about guest spending, hotels may identify opportunities to upsell or cross-sell products and services, such as room upgrades, meals, and activities. In addition, hotels can use this data to develop targeted sales and marketing campaigns that drive demand and increase guest spend.
- Personalize experiences during the guest journey: Offer personalized experiences and services based on guests' preferences and needs. Offer packages and promotions that target specific guest segments, such as weekend getaways, romantic packages, and family packages. In addition, train front-line staff to upsell and cross-sell products and services, such as room upgrades, meals, activities, and transportation. During the stay, enhance guest experiences by offering high-quality amenities, such as spas, gyms, and meeting spaces, and providing exceptional service. For the revenue manager to succeed with the holistic approach, many departments must be involved and contribute to the overall guest experience.
- Respond to customer feedback: Seek and respond to customer feedback from a holistic perspective to understand guests' needs and preferences and to make improvements to products and services that will increase guest spend. Continuously evaluate and optimize guest experiences and offerings to ensure that the hotel maximizes guest spending.
Impact of profit optimization
The way toward profit optimization
- Track requests that hotels deny: The hotel can collect valuable information for future decisions by registering all denied requests. Without knowledge about denials, hotels can never analyze displacement correctly. Therefore, revenue managers should set up a process that accurately collects the data.
- Prioritize displacement analysis: The revenue manager should prioritize displacement analysis to minimize the loss of revenue from displacement. Revenue managers need to take a deeper look at displacement to get insights so they take the right actions to reduce the loss of revenue.
- A good understanding of guests' willingness to pay: Revenue managers should understand guests' willingness to pay, as this can significantly impact profits. Willingness to pay is difficult to research and understand. Revenue managers should collaborate with marketing that tends to be more knowledgeable in understanding guest needs and which additional values guests appreciate. When the revenue manager has more insight into the willingness to pay, it is easier to set room rates.
- Offer package deals and promotions: Offering package deals and promotions can help attract guests and reduce the risk of displacement. In addition, willingness to pay directly relates to the offered products and services, so improving the value proposition would increase the willingness to pay and allow the hotel to capture a larger share of the guests' wallets.
- Monitor competitors' rate changes: Instead of blindly following competitors' rate changes, revenue managers should focus on their hotel's attractiveness and close the gap between the guest's willingness to pay and the selling rate.
Customer Acquisition Cost (CAC)
- Collecting data is a crucial first step in understanding customer acquisition costs. Without accurate and comprehensive data, it can be difficult to fully understand the costs associated with acquiring guests and customers. In addition, once the data is collected, the hotel can analyze it to gain insights into the most cost-effective strategies for acquiring guests and customers.
- Fully understand and manage customer acquisition costs: The hotel should fully understand and manage customer acquisition costs, including commissions paid to OTAs, travel agents, and others, transaction costs, loyalty costs, and all other costs such as labor costs for direct bookings, costs for salespeople, and marketing. It is not just about looking at the commission invoice because some hidden commissions that guests pay are not in the hotel's accounting system.
- Analyze customer acquisition cost: The revenue manager should analyze the customer acquisition cost to understand the most profitable guest- and customer segments. The revenue manager needs to look at feeder markets, channels, length of stay, etc., to find the most profitable micro-segments with the highest potential return on marketing spend. The revenue manager must regularly monitor and adjust marketing spend based on how much business marketing campaigns produce to ensure that the hotel uses its budget effectively.
- Shift the channel mix to a more favorable mix from a profit perspective: Based on the analysis of customer acquisition costs, the revenue manager can shift the channel mix to a more favorable mix from a profit perspective. Regularly evaluating the channel mix can help ensure that the hotel uses the most cost-effective channels.
- Use digital marketing: Digital marketing can be a cost-effective way to reach potential guests and customers to drive bookings. Encouraging guests to book directly through the hotel's website can reduce the cost of customer acquisition. Still, the revenue manager might not know the actual cost for direct bookings if the hotel does not manage and track customer acquisition costs correctly.