Total Revenue Management: The Next Big Step In Hotel Revenue Management

By Jaavid Bharucha Corporate Director of Revenue Management, Arbor Lodging Management | October 08, 2017

Revenue management is widely defined as the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of revenue management is selling the right product to the right customer at the right time for the right price. The essence of this discipline is in understanding customers' perception of product value and accurately aligning product prices, placement and availability with each customer segment.

The Evolution of Dynamic Pricing

While the term certainly continues to be a buzz word within the hospitality industry, revenue management has existed in different variations for several decades; in its first iteration, revenue management first gained traction in the airline industry, with airlines matching supply and demand and cross referencing market conditions to anticipate consumer travel patterns. At this time, the discipline was referred to as "dynamic pricing," which took it to the next level in terms of frequency. It became increasingly common for price changes to occur on a daily - or even hourly - basis, depending on the market. This was an enormous shift from the longer form fluctuations that would be seen across the board. In high volume markets, dynamic pricing allowed hoteliers to flex the rates as needed, which was a significant departure from any system they had previously employed.

This practice enabled hotels to create a nimble pricing and performance strategy, one which would go on to dictate the future of the industry. Even beyond this, on demand rate shop reporting was an added bonus, making it easier for the revenue managers to review competitor rates and make adjustments at a fast clip. In contrast to the previous practice of having to call competitor hotels periodically or manually visit their websites, the ability to access "dynamic pricing" would forever change the name of the game in the hotel world.

Growing the Business of Revenue Management

Beyond dynamic pricing, the business of revenue management was only just beginning to grow. Over the past five to seven years, revenue management has evolved to incorporate ecommerce and distribution as key components of the function of revenue management. Several hotel management companies continue to hire revenue management positions separate from the ecommerce and distribution. In fact, revenue managers tend to have an ongoing relationship with ecommerce partners to their benefit, selling rooms on various distribution platforms, featuring namely hotel websites (branded or independent), GDS (Global Distribution System) such as Sabre and Worldspan, and OTA's (Online Travel Agencies) including Expedia and Booking.com.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.