Revenue Management: Things to Know to Really Maximize Revenues

By Brenda Fields Founder, Fields & Company | February 05, 2012

The concept of revenue management has been around for quite awhile, with the airline industry first formalizing it with its computerized Yield Management system. The hotel industry, although late in the game, has now made a "revenue management" position as part of its standard staffing. This position was primarily developed as a way to capture revenues generated by the increasing demand over the past decade. Revenue Managers were in the enviable position of doing business in a sellers' marketplace. Now that business is significantly down, many properties are at a loss as to how to generate business and how to ensure that each room is sold at the right rate to the right market. This article will provide some tips on ensuring that you manage your rates from a position of strength for both a short term and long term pay off.

Revenue Management, Marketing, and Direct Sales:

Revenue Mangers more often than not, move to this position from a reservations or front office background and also, typically, have the final say in what business is booked and at what rate. But, the successful revenue manager has the ability to manage revenues from a broad perspective and has an understanding of and an appreciation for how business is driven to the property(s) even without a sales background. That understanding leads to decisions which are based on factors other than what will produce the highest amount of revenue for the day. For example, a company or a guest who has demonstrated loyalty to your property, especially during "need" periods and receives favorable rates and better availability during peak periods will most likely remain loyal to you regardless of market conditions. A collaborative relationship among Revenue Management, Marketing, and Sales will result in a loyal guest/company following which produces the best ROI over the year. Short term strategies may produce impressive short term results, but many times the long term pay off is jeopardized.

Market Position:

A key component to revenue management is identifying, understanding and maintaining the proper market position on a consistent basis. Most managers will agree with that statement, but when business drops, more often than not, all bets are off and rates drop like a lead balloon. It may pay off in the short term, but when demand increases, how do you then justify your rate increases and more importantly, will the guest accept them? Rates are a reflection of market demand and the cost of the room to rent. Higher real estate value, labor costs, services, and quality of furniture, fixtures, and equipment (FF & E) all contribute to your established rate. A prominent luxury brand like Cartier would have no credibility if their prices fluctuated greatly for the same diamond necklace, based solely on economic conditions. The same is true for hotels. The Revenue Manager is better served if he/she understands the economics of the rate structure and the property's stated market position. The Revenue Manager is therefore in a better position to adjust rates wisely and from a position of strength.

Market Segmentation:

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Guest Service: Empowering People

Excellent customer service is vitally important in all businesses but it is especially important for hotels where customer service is the lifeblood of the business. Outstanding customer service is essential in creating new customers, retaining existing customers, and cultivating referrals for future customers. Employees who meet and exceed guest expectations are critical to a hotel's success, and it begins with the hiring process. It is imperative for HR personnel to screen for and hire people who inherently possess customer-friendly traits - empathy, warmth and conscientiousness - which allow them to serve guests naturally and authentically. Trait-based hiring means considering more than just a candidate's technical skills and background; it means looking for and selecting employees who naturally desire to take care of people, who derive satisfaction and pleasure from fulfilling guests' needs, and who don't consider customer service to be a chore. Without the presence of these specific traits and attributes, it is difficult for an employee to provide genuine hospitality. Once that kind of employee has been hired, it is necessary to empower them. Some forward-thinking hotels empower their employees to proactively fix customer problems without having to wait for management approval. This employee empowerment—the permission to be creative, and even having the authority to spend money on a customer's behalf - is a resourceful way to resolve guest problems quickly and efficiently. When management places their faith in an employee's good judgment, it inspires a sense of trust and provides a sense of higher purpose beyond a simple paycheck. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.