Five Revenue Lessons Hotels Can Learn From Wall Street

By Jean Francois Mourier Founder & CEO, RevPar Guru Inc. | March 27, 2011

The hotel business, on the surface, seems full of ambiguities. Its central product, the guest experience, is something that is notoriously hard to quantify. The hotel room night is one of the most perishable items in the world as it is absolutely irredeemable if gone unsold. The largest hotels and resorts- like small cities in their complexity- are rife with variables, while the smaller and more streamlined properties are at the mercy of a myriad of external influences. In any given hotel, different departments have varying aims and objectives, which require multiple plans of action to achieve. And every aspect of a hotel's operations ultimately depends on a consumer's decision to stay there (or not).

There is another industry that routinely confronts uncertainty through the course of normal operations: the financial industry. The variables associated with the stock market, equity and commodity trading, and financial risk management are arguably greater than those associated with the provision of a night's lodging, and yet the financial industry's ascension has been marked by ever-increasing, ever-sophisticated scientific and mathematical processes to predict and govern these variables. Hotels, on the other hand, have traditionally employed ad-hoc strategies to deal with the ambiguity of their business. Yield management in hotels wasn't even a widespread concept until the late 1980s, whereas it had been a mainstay of financial economic theory since time immemorial.

This disparity exists (or existed) despite the similarities shared by core aspects of the financial industry and the hotel industry. Determining, predicting and influencing the behaviors of rational actors in an equities or commodities market-sellers and investors-is not so different from anticipating and persuading a guest to book a room. Likewise, the appropriate management of perishable inventory- and the mathematical models and formulas that govern the management, insurance and distribution of that inventory is the same whether the inventory consists of hotel rooms, preferred stock, or pork bellies.

This is not to imply that all hotels have systematically ignored or avoided sophisticated methodology designed to optimize the practice of revenue management. Many hotels, most notably the large chains, have devoted significant resources to systems and personnel charged with increasing yield and achieving the most profitable balance between occupancy and average daily rate. But the application of stock market principles to hotel revenue management is uncommon at best. In general, hotels have not embraced the complex algorithms and models that produce tangible results on a daily basis for the financial sector.

Of course, there are many lessons that hoteliers and revenue managers can learn from the stock market and the technology that powers it. We have outlined the top five lessons that every property must incorporate into their revenue management strategies today to ensure that their property is able to withstand the unpredictable future that we, as an industry, are currently faced with.

Lesson #1 – Pricing today, Gone tomorrow?

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.