Technological advancements have given rise to a powerful trend throughout society. The increased speed and processing power available now allows for almost instantaneous collection and analysis of data. This science of analytics has been embraced by businesses in every sector of society, including the hospitality industry. Hotel revenue management emerged as the key prism with which to view the operation of hotels worldwide.
Hotel Revenue Management Defined
Hotel revenue management is a process by which data is collected and analyzed to set room and amenity prices and target advertising. It can be extremely effective because in the hotel industry customers use different methods to find hotel rooms and the customer base has proven willing to pay different prices for the same rooms. It also involves maximizing other revenue streams such as food and beverage sales and even retail sales. Revenue management began in the airline industry, another sector with multiple sources to purchase the service and customers who will pay more or less for the same level of service.
Revenue management lets hotels set room pricing based on hard data instead of trial and error. Hotels incur many fixed costs, such as employee salaries, that must be paid regardless of how many rooms are left empty at any one time. Hotel room pricing is very fluid, and the price of a room may be changed on almost a daily basis. Using immediately accessible data from the past, a hotel can set its room prices based on proven past trends. For example, certain holiday seasons may have more demand for top-line rooms than others. Knowing this, a hotel can maximize its profit by raising prices on those in-demand rooms, while potentially lowering prices on other rooms to entice more customers to stay during that time.
Revenue management can help to identify the most popular ways guests book their rooms online, what particular amenities are most requested, and so on. The entire operation of the hotel can be tailored to the customer base to provide them what they want at a price that brings the best profits without overpricing and losing customers.
Revenue Management in a Post-COVID World
The COVID-19 pandemic hit the hotel industry extremely hard. Unfortunately, this was one situation that could not be predicted or foreseen by data analysis. With the pandemic now receding, however, data analysis of the past two years has been able to identify trends in guest preferences that are driving how hotels are doing business today.
Revenue management lets hotels direct their advertising to emphasize exactly what the current traveler wants from a hotel stay. The pandemic accelerated the trend toward automation in all areas of life, with an emphasis on contact-free options and easy access from phones and other mobile devices. Customers want to be able to do just about everything remotely or contact-free on their hotel experience, from the initial booking to the check-in, to opening their room door with their phone instead of a physical key.
Hotels now make a point of informing potential guests of these amenities.
Market Segmentation An Emerging Trend
Market segmentation is emerging as another major trend in revenue management. This is the process of sorting customers by various criteria, such as reasons for stay, method of booking the rooms, age, etc. into groups. The data collected on these groups’ habits can then be analyzed to find out how to maximize revenue for each particular group. Certain groups might have very low cancellation rates, while others cancel their reservations at a much higher clip. By using this information, a hotel can direct its marketing and advertising efforts to appeal more to groups that provide the most revenue with the least drawbacks.
Hotels that use effective revenue management can gain an advantage over their direct competitors. Data collection and analysis can be used to target the groups most likely to stay at the hotel and emphasize what they want most out of their experience. This can be the difference in enticing guests to one hotel rather than a competitor. With the massive revenue drop caused by the pandemic, the need to fill rooms and return to normal is greater than ever.
Travelers are more educated and tech-savvy now than ever before, so they not only know what they want, but where and how to look for it. Recognizing these needs and acting upon them before the competition can only effectively be done through good revenue management. Resources put into data collection and analysis will pay off tremendously in more guests and greater revenue. The hotel that ignores this important trend does so at its own risk.