HSMAI's New Book Goes from Revenue Management to Revenue Strategy

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November 07, 2019
Revenue Strategy and Metamediaries
Kathleen Cullen, CRME

HSMAI RECENTLY PUBLISHED the third edition of Evolving Dynamics: From Revenue Management to Revenue Strategy – the study guide for the Certified Revenue Management Executive (CRME) certification. While the foundational concepts of hotel revenue optimization largely remain the same since the last edition was published in 2015, new dynamics have come into play and are disrupting the traditional landscape.

                               

In addition to providing detailed education on the fundamentals, this edition gives significant attention to the evolution of – and the new entrants and disruptors impacting –the critical discipline of hotel revenue optimization. Additionally, this edition shifts the focus from traditional room revenue management to a more holistic approach of total asset optimization.

Traditionally, hoteliers have primarily focused on rooms – the costs of distribution, understanding the differing costs by channel and how they play a role in optimizing room revenues. With more and more attention paid to optimizing the total asset, applying revenue optimization techniques outside of guestrooms to other revenue centers is largely what many revenue professionals are working toward, if they aren’t already there. Their focus is shifting toward managing increasing acquisition costs and their impact on profits.

At the same time, hotel revenue management has historically been a highly tactical discipline. The industry’s need has evolved from a tactical focus to a much broader and more strategic approach concentrating on future strategies across all revenue-generating areas.

The revenue professional, and revenue discipline, are universally recognized as key pieces to the puzzle of driving total asset success. Today, all revenue centers can be optimized. Owners and operators expect the highest profitability across all revenue centers.

As revenue optimization techniques are more broadly applied, it becomes appropriate to think in terms of strategic revenue optimization versus traditional revenue management.

These shifts have implications for hotel and hotel company leaders. As demands on revenue grow, leaders need to adjust and evolve according to need. Those supporting and/or working in conjunction with the revenue optimization discipline must also adjust and evolve with this new way of doing business.

The book’s intent is to help revenue professionals, as well as operators and owners, understand the strategic approach to revenue optimization in today’s complicated and ever-changing landscape. We’ll answer important questions, including:
• What are the criteria for defining and implementing a successful revenue strategy?
• What changes must be embraced to succeed in today’s world?

Today’s business environment is far more complicated than in times past. Ensuring a strategic approach to optimizing revenues is a vital piece of the success. Supported by appropriate talent, leadership, business intelligence and technology tools, your revenue strategy can help your hotel achieve its optimal business mix. Evolving Dynamics helps by breaking things into three areas: fundamentals, cross-disciplinary partnerships and the role of strategic revenue optimization and emerging elements that impact revenue strategy.

1. THE FUNDAMENTALS A hotel has a finite number of guestrooms and a finite number of seats in its restaurant. These are perishable items. When a sleeping room isn’t priced right, when the seating configuration in a restaurant isn’t optimal or flexible or when perishable inventory of any type is mismanaged, the property will lose revenue.

Revenue optimization focuses on balancing and managing demand by setting appropriate pricing for each usage pattern by customer segment. Those patterns differ depending on the revenue center.

For guestrooms, it’s the stay pattern. For restaurants, it’s the length of time in the seat or at the table. For golf, it can be the amount of time between tee times. Each revenue center must understand its own inventory options, demand patterns and customer segments in order to set pricing and optimize profitability.

At the same time, many dynamic variables are involved in hospitality revenue optimization. Without an understanding of them, it’s virtually impossible to deploy strategies. In addition to usage patterns, other variables that affect the optimization of revenue and profit decisions include:

                        

Evolving Dynamics explores these variables and more.

2. CROSS-DISCIPLINARY PARTNERSHIPS AND THE ROLE OF STRATEGIC REVENUE OPTIMIZATION
To drive optimal revenue and profitability today, other revenue-impacting elements – beyond the fundamentals covered in the first section of Evolving Dynamics – are often added to the revenue professional’s responsibilities. You can’t talk about revenue optimization or its related strategies without addressing owners, strategic distribution, marketing, data analytics, business intelligence, or information technology (IT).

These specialties are highly interdependent – regardless of how it might seem when looking at a hotel’s or hotel company’s organizational structure. If they aren’t directly added to the revenue professional’s duties, that person is certainly expected to have a solid understanding of them and to collaborate with individuals and teams looking after them.

At the same time, to be more agile and achieve better results, hotels need to break down the silos between revenue-generating disciplines. This means that all functions – sales, marketing, revenue, branding, loyalty and reservations – must collaborate and operate as one team. To achieve this holistic approach will likely require a new perspective on well-established processes and a willingness from all to change.

Traditional marketing and sales roles have been to generate and capture demand. Revenue management tactically executes product distribution, yielding, conversion and optimization of that demand. Today, revenue optimization professionals are intimately entwined with demand drivers, creating even higher expectations.

It isn’t news that better collaboration creates a more profitable and successful enterprise. With this in mind, some hotel companies are moving toward an integrated organizational approach, with one person overseeing all commercial functions (sales, marketing, and revenue optimization). The intent behind this structure is to support proactive business-mix planning and more effective deployment – or realignment as business demand drivers indicate a need – of revenue-generating resources.

3. EMERGING ELEMENTS IMPACTING REVENUE STRATEGY
This section of Evolving Dynamics highlights three emerging areas with a significant impact on the industry that all revenue professionals should pay attention to:

ALTERNATIVE ACCOMMODATIONS
The growing popularity of alternative accommodations (home rentals) shows no sign of slowing and contributes to the complexity of hotel revenue optimization. Alternative accommodations aren’t a new option, but technological advances will continue to influence the space. For years, the alternative accommodations industry mostly existed as a separate space from traditional lodging operators. Today, the lines are blurring. Large hotel chains are showing interest in expanding their offerings. Many luxury and upscale hotel developers now include residences as part of mixed-use developments. In these projects, the developer creates a hotel and for-sale housing that eventually will become part of the hotel’s inventory. This trend has important implications for revenue optimization technology, practices and measures.

RESORT AND URBAN FEES
Most travelers in the United States accept the idea of paying a resort fee when staying at a true resort hotel without question. It generally covers things like beach and pool towels, pool and gym use and some specialty exercise classes like yoga. But the concept of charging a resort fee has extended well beyond resorts. More nonresort hotels are imposing mandatory urban fees or facility fees. Many consumers dislike this approach. They feel they’re being charged for every little item or service versus the previous practice of including general amenities in the room rate. The consumer doesn’t always see the value, especially if the urban fee covers amenities the consumer isn’t using.

THE CONSUMER
It’s no secret that when it comes to shopping for hotel stays, consumers are more educated and savvier than ever before. The transparency of information available makes it much easier for them to find what they’re looking for. It can also make them much more demanding, even before they arrive. Data about the consumer – interests, preferences, and more – is critical to success when it comes to personalization. Understanding the data available through Google Analytics helps show more about search activity, demand and booking patterns, specific consumer needs, and more. It’s a way to dive much deeper than customer segmentation ever allowed.


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