Revenue management - automating to stay competitive

Cheryl Hawksworth By Cheryl Hawksworth
Uploaded 02 May 2013

Five years ago, the role of a hotel's revenue manager consisted of collecting and compiling data into Excel spreadsheets, analysing the data to identify trends and making a decision about hotel rates. Now it's an incredibly complex process that involves online travel agencies (OTAs), mobile marketing, hyper-interactive consumers, and direct competitors who consistently undercut their prices.

The revenue management industry is rapidly evolving, and revenue managers that are strategic, forward-thinking and entrepreneurially-minded can take the science and art of revenue management to new heights within their organisations. In addition, equipped with the right tools and data, revenue managers can serve as strategic partners to their organisations - driving up the bottom line through enhanced customer intelligence processes and a greater culture of revenue management.

With the added pressures placed upon revenue management today, hotel management is finding it necessary to invest in technologies that increase their chances of capitalising on consumer behaviour in order to optimise revenue and be competitive.  One solution is revenue management software, which automatically calculates, monitors, and analyses market data, freeing up a revenue manager's time to contribute to smarter, more strategic revenue decisions for the hotel.

But while many hotels realise significant return on investments upon deploying revenue management systems, others are not comfortable with the idea of letting a computer run their financial operations. Many hoteliers don't fully trust technology and believe they can accomplish equally sound revenue management practices by attracting and retaining intelligent and strategic revenue management professionals.  However, if hoteliers want to remain competitive amid today's fast-paced, inter-connected environment, it's vital to automate the revenue management process. Although seasoned revenue management professionals are-and will remain-valuable assets to a hotel, they simply cannot emit the high-speed, complex algorithms of revenue management software.

Increased Efficiency
Historically, revenue management has been defined as using a hotel's booking history and current activity levels to forecast demand as accurately as possible. During periods of high demand, revenue managers increase rates. When demand is low, they discount them, thereby maximising revenue under both scenarios. However, forecasting and pricing decisions are rarely this simple.

Amid heavy reliance on OTAs, flash sales and mobile marketing, it's almost impossible to look at a hotel's booking history and identify trends because the booking patterns are changing constantly -  making it hard for revenue managers to recognise changes in demand and react in time to make a profit.  In such a high-speed environment, manually collecting, evaluating and calculating data via Excel spreadsheets is not only a tedious process, it's slow and highly susceptible to error and missed opportunities.

For example, a revenue manager of a London hotel could forget a zero and type in a £18 rate instead of £180, resulting in a significant loss of revenue for the hotel.  This is where revenue management software can make a huge difference. Through a series of complex, specialised algorithms and countless calculations, revenue management systems automatically assess hotel performance on a daily, weekly, monthly, and annual basis, allowing revenue managers to quickly compare rooms sold and revenue against data at the market segment and total hotel level.

The system provides updated reports every evening; some systems can even pull data every hour. This gives revenue managers and hoteliers a clear vision of their data, bringing more accuracy and consistency - versus gut instinct - to the forecasting and reporting process. The increased business intelligence makes it easier for revenue managers to determine correct pricing, optimise demand, and increase revenue across their property or portfolio of properties.

Less "Number Crunching"- More Strategising
The sheer amount of time it takes a revenue manager to collect and evaluate data via Excel
spreadsheets is enormous - easily four to five hours a day. With a revenue management
system in place, revenue managers can cut their workload in half, freeing up their time to analyse data and make better, more strategic decisions for the hotel. By automatically producing reports and recommendations in real-time, the system ensures that revenue managers remain in control - able to act proactively, instead of reactively, to changes in the market.

For example, in a manual environment, revenue managers generally identify a booking pattern and then take action, such as raising the price of rooms. Under this scenario, hoteliers often cannot identify patterns and opportunities until nearly 80 per cent of their business is on the books. They end up only yielding the last 20 per cent. But with an automated revenue management system in place, hoteliers can invert that. Imagine if trends and revenue opportunities were seen with only 20 per cent of the business on the books. The hotel is now yielding 80 per cent of the business. Because the system enables revenue managers to see trends much more quickly than they would otherwise, they can yield a much larger share of the business that's yet to come.

Greater Culture of Revenue Management
Perhaps one of the most significant benefits hotels have reported seeing as a result of having an automated system is a more defined and enhanced culture of revenue management. No longer faced with a mountain of work on Excel spreadsheets, revenue managers have time to conduct more in-depth analysis of the data now readily available to them. Rather than labour over creating reports and constantly changing prices, revenue managers can focus on exceptions to the forecast, such as a special event in town that may fall outside of the system's parameters.

In addition, the reduced workload frees up revenue managers' time to meet with the sales and marketing teams to align strategies and ensure that the overall marketing direction is consistent with the hotel's goals and objectives. Because revenue managers are experts in pricing, they can give marketers the pricing information they need to create offers and promotions that generate revenue.

In return, marketers can clue revenue managers in about when they place offers into the marketplace so that revenue managers can create better, more accurate forecasts in relation to demand.

However, these aren't the only teams who benefit as a result of a revenue management system. As the forecast becomes more accurate and consistent, senior executives in other departments - such as catering, front office, reservations, food and beverage, and housekeeping - will become more confident in the reports and more familiar with the language and basic principles of revenue management, which serves to maximise revenue from several different angles.

Improved Bottom Line
Ultimately, hotels with an automated revenue management system in place will be far more competitive than properties without an automated system. The sheer time it saves  revenue managers alone can escalate their role from "number crunchers" to strategic partners - serious contenders for a position in the upper management level. By automating a huge chunk of their workload, revenue managers can more easily keep up with today's fast-moving and rapidly evolving nature of business to anticipate and capitalise upon consumer behaviour. In addition, by working more closely with other departments, particularly sales and marketing, revenue managers can instil their discipline throughout the organisation, resulting in increased business and revenue for the hotel.

Above all, if there is one thing a hotel can do to impact the bottom line, it is to improve room pricing and make sure those rates are being distributed. In recognition of this, IDeaS has introduced IDeaS Pricing System™ (PS), which enables hotel staff to more accurately forecast occupancy, quickly set daily room rates, and ultimately make more competitive pricing decisions for their hotels. These revenue management advantages are usually the preserve of big, city-centre hotels with the budget and manpower to have a dedicated Revenue Management team and system. However, IDeaS PS combines a simplified approach, intuitive design and powerful functionality in an affordable package to minimise the amount of training and investment needed to operate and benefit from a system.

To find out more go to the IDeaS website

Cheryl will be a panellist on the revenue management session at Boutique Hotel Summit 2013 in London on May 22 and 23 2013.

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