Bringing Revenue Management Tools to the Masses
How Technology is Arming the Mid-Market With Effective Revenue Strategy Tools
By Daniel Wise Founder and Chief Product Architect, revcaster | September 18, 2016
Hotel revenue and profit optimization solutions have come a long way since my time as a revenue manager at Best Western several years ago. During those days, I discussed frequently with my co-workers how, while there were clearly benefits to implementing an automated revenue management platform, the technology solutions available at the time were not ideal for the mid-market sector of the industry, let alone independent hoteliers without the power of a flag behind them.
Although recent innovations in revenue management technology had revolutionized the industry, opening it up to increased profitability and efficiency, the systems had been designed primarily with large, full-service upscale properties in mind. These properties differ from mid-market hotels in two important ways. First of all, they can and do typically employ professional revenue managers who have the time and resources to dedicate to the task of optimizing the hotel's profitability. Secondly, these properties often run at high occupancy levels and tend to sell out very frequently. These differences are highly consequential in the development of a hotel's revenue management strategy.
Due to their larger demand – not to mention larger budgets -- the practice of revenue management first took hold primarily in these larger hotels and chains, which meant that the revenue management systems that emerged were focused on solving their problems. The technology solutions on the market at the time were relatively complex and time-consuming to use, which was fine if the hotel could employ a full-time resource to operate the system, but prohibitive otherwise. The systems were also designed to "yield-manage," i.e., restrict discounted rates when the hotel is busy. That is a highly effective lever for some properties – say, a busy, city center hotel. However, mid-market properties have far fewer sold-out nights, meaning that yield management is a less effective revenue management strategy in that sector.
Dare to Compare
So what does work in the mid-market then? Since these hotels typically have multiple competing properties within close proximity in most markets, it is critical to position themselves well against this competition. In addition, mid-market travelers have different priorities and are traditionally more price-sensitive than those in the upscale sector – so setting rates just below competing properties during any given time period can result in much higher bookings. But how do you gain access to this competitive intelligence? Enter rate shopping. The practice of gathering rates from a hotel's competitive set in order to maintain the right price position was made far easier by online booking sites and the availability of rates on the internet. It still takes a great deal of time to do manually, however, and, since rates can change rapidly in some circumstances, it's a continuous process that requires an exorbitant amount of staff time to manage effectively. It is also subject to human error, as most manual processes are. To save time and increase efficiency in the rate shopping process, it was clear to me, as a revenue manager, that an automated technology solution would help to solve these challenges, particularly for those of us in the mid-market.
Breaking Down Barriers to Revenue Optimization