Revenue Management: Making the Move from Tactical Player to Strategic Artist

By Christian Koestler President & CEO, Lixto, Inc. | January 01, 2012

At its core, revenue management in the lodging industry is simple – at least in theory. It is about selling the right product to the right customer (the guest), at the right price, at the right time, and for the right length of time. Looking at it another way, it is the honed practice of demand management, executed in a strategic manner.

At the other end of the spectrum, says wikipedia, it becomes a bit more complicated: Revenue management is the application of disciplined analytics that predict consumer behavior at the micro-market level, and optimizes product availability and price to maximize revenue growth.

The reality is somewhere in the midst of the definitions, and while every revenue manager will have individual challenges, there is no doubt that the profession has changed greatly – and rapidly – in recent years. Early on, in the industry, "revenue management" was basically a front office manager handling inventory control of rooms. Over a relatively short period of time, the practice has evolved from this type of tactical nuts-and-bolts operation to a profession requiring strategic thinking, analysis and execution. For the hotel industry and its employees, the transition takes on particular importance in the development and implementation of both strategy and tactics.

Birth of Revenue Management

Initial credit for the creation of revenue management goes to the airline industry. BOAC (now British Airways) began experimenting with differentiated fares to help fuel demand for otherwise-empty seats. American Airlines followed suit with what it termed "yield management," focusing on forecasting, inventory control and overbooking management. Its success literally took off with the deregulation of the airline industry in the early 1980s.

The pivotal transition to the hotel industry came when American's then-CEO discussed the yield management methodology with Bill Marriott, CEO of Marriott International. The practice made sense to Marriott, as the hotel chain and airline shared many of the same issues: perishable inventory, advance bookings, low-cost competition and challenges in balancing supply and demand. "Yield" – a term more applicable to the airline industry – became "revenue" in the hotel industry, and "revenue management" was born.

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