Merchandising Mindset: The Future of Hotel Revenue Management

By Jon Higbie Chief Science Officer, Revenue Analytics, Inc. | October 04, 2015

Hotels are no strangers to Revenue Management (RM). They were among the first industries to embrace Revenue Management, albeit by focusing exclusively on yield management. Retailers took notice and decided they, too, should employ Revenue Management, but weren't certain how to do it since they didn't have perishable inventory like hotel rooms. Instead, retailers zeroed in on price elasticity, giving birth to price optimization. However this time it was hotels that took notice. By the early 2000s, they were swiftly adopting price optimization of room rates and again transforming their industry. While this strategy has paid handsome rewards, it's time again for hotels to emulate retailers – and even consumer goods companies – if they want to conquer the next frontier of Revenue Management.

Think Like a Merchant

Adapting an analytical mindset to drive transactional profit and total Customer Lifetime Value is the next frontier of Revenue Management. To be successful in the future, and to quantify the total Customer Lifetime Value of a guest across all potential revenue streams, hotels can learn a lot by changing their business mindset to think more like consumer goods companies and retailers.

You may be asking yourselves, do hotels really need to think like a merchant, and how can they do this? To make this concept real, let's use a grocery store as an example. Shoppers go there for their weekly groceries and navigate their way through sections divided by similar products, making for easy shopping and quick product comparisons. In addition, each end cap is brimming with featured items that might be a fresh take on an existing product, or on sale, or both. However, once at the checkout, the customer faces a new slew of choices, called impulse buys, such as candy bars, gum, and magazines.

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Sam Walton helped pioneer the modern-day checkout aisle out of his astute observation that placing offerings where customers want them, at a price they are willing to pay, could fuel revenue. He also knew that the location outside the store was just as important as inside.

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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.