Total Hotel Revenue Management

By Sheryl E. Kimes Professor of Operations Management, Cornell University School of Hotel Administration | October 13, 2013

Rooms revenue management ( RM ) has been around for the past 25 years, has been widely adopted and has led to rooms revenue increases of 3 – 5%. Rooms RM systems and practices have increased in sophistication over the years as hotel operators and consulting companies have sought to fine tune the way in which they maximize revenue.

It is not surprising that hotel RM practices started with guest rooms since rooms revenue constitute 70 – 80% of all revenue for full-service hotels. In addition, the high profit margin associated with rooms makes it a strong candidate for RM since maximizing revenue is essentially the same as maximizing profit. But, what about the other 20 – 30% of hotel revenue? Would it be possible to apply RM principles to it?

In a study I did on the future of RM in 2010, I asked respondents a number of questions including what they thought RM would look like in the future and in which other parts of the hotel they thought RM would be applied. Respondents felt that in the future, hotel RM would be more strategic in nature, would be more technology-enabled and that it would encompass all parts of the hotel. The respondents identified function space and restaurants as the most likely candidates for future applications of RM.

The key questions that arise from this are ( 1 ) is this possible to do and ( 2 ) if so, how should hotels go about doing it? The answer to the first question is a resounding YES! RM principles are essentially the same, no matter what the industry. Think about Robert Cross’ classic definition of RM ( “Sell the right space at the right price at the right time to the right customer” so as to maximize revenue ). With guest rooms, we define space as the guest room and define price as the room rates we charge and the pricing strategies we follow. We define time as when people book their reservations and how long they stay and define Customer as the market segment. When applying RM principles to other industries, think about how these definitions would be altered.

For example, while with rooms RM we define space as the guest room, with function space, space would be defined as the number of square feet of meeting space we have to sell and with restaurants, space would defined as the mix of table-sizes and seats.

With time, rooms are typically sold for a night. Function space is usually sold by day-parts. Restaurants are a bit trickier since we don’t normally rent the table by the hour, but we do know about how long customers will stay. Another issue that comes up with time is when ( or if ) customers place their reservation requests.

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Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.