A philosophy I've long applied to yield (I tend to use “revenue”) management I lifted from medicine's Hippocratic oath: “First, do no harm.”  Done well, revenue management is perhaps the most efficient means of converting a property's supply and demand characteristics into optimal revenue and profitability results.  Done poorly, it can cripple monetary success and alienate guests in the process.

Let me begin by stating something probably obvious to many readers: revenue management is necessarily a practice every hotelier engages in either by deliberate or passive action. When a reservation agent accepts a booking at a price, or turns away an opportunity to book, revenue management, as a practical matter, is at work. So the question becomes are deliberate management strategies and tactics guiding such decisions, or are they based on somebody's gut instincts as days and weeks unfold? Gut instincts, incidentally, are often informed by a kind of historical folklore that may or may not have been historically accurate and may or may not be valuable decision making criteria today.

A case in point to illustrate. I once undertook an intensive consulting project with a luxury hotel company that had me begin by working with one of the company's flagship properties. In the course of interviewing property executives including the general manager, director of sales and rooms division manager, I learned that the property sold out infallibly every weekend.  I was given access to actual occupancy and average rate data for analysis and to everybody's surprise, found that the axiomatic truth of 100 percent weekend occupancies was not quite true. In actuality, weekends were reliably busy, but using a statistical test to examine weekend dates with occupancies between 95 percent and 98 percent, I uncovered an impressive volume of unoccupied rooms. Applying actual average rates to those available rooms, and assuming only 3/4 of them could realistically have been converted to sales, produced a potential unrealized revenue number that got the very serious attention of everyone that previously felt entirely comfortable with their "every weekend sells out" assumption. This was not the only finding, but it was the greatest attention getter because of the potential revenue involved and because all that would be necessary to capture a good bit of additional value would be to abandon the presumption of sold out weekends and begin looking more carefully at unfolding weekend supply and demand. 

When I presented my findings to the executive committee, the general manager, an obviously thoughtful and experienced hotelier, mused, "Thank you, we hadn't thought to look at things that way, but you're exactly right." Precisely my point.

Which brings me to another point worth calling out. Over the years as I've spoken with hospitality decision makers I've heard reference time and again to peak periods, such as major recurring conventions, Final Four, Super Bowl, etc. In point of fact, peak periods, though important, can be less needful of focused, disciplined revenue management than days thought to be routine. If management doesn't see major peaks coming a mile away, a career change might be wise. 
In revenue management, it isn't the peak periods (elephants) that get you; it's the daily, often subtle, fluctuations of market dynamics (mosquitos) that, properly attended to, yield maximum returns over the long term.

An apt analogy in my opinion is between revenue management and the perils of a jungle safari.  In the jungle, it isn't the elephants that get you, it's the mosquitos. In revenue management, it isn't the peak periods (elephants) that get you; it's the daily, often subtle, fluctuations of market dynamics (mosquitos) that, properly attended to, yield maximum returns over the long term.

A core element of sound revenue management is forecasting. An element of uncertainty is inherent in forecasting, which in less dressed up terms means forecasts are always wrong to an extent. But by regularly revisiting and revising, as appropriate, forecasts for future dates the extent of error can be minimized, especially for the near term. Given that in many or most cases non-group demand occurs within days and weeks of arrival, minimizing error over the near term is non-trivially important. Understanding which market segments seem to be lagging and which might be surging, and how those segments tend to book should inform tactical decisions about inventory and price point allocation.

An important, albeit expensive, source of business is the ever growing variety of OTAs. Every hotel I’ve done business with accepts that the benefits of doing business with OTAs outweighs the expense downside. Still, for every point of occupancy shifted from OTAs to direct bookings, the dollar benefits can be significant. For better or worse, hotels’ OTA agreements strictly limit a property’s ability to accept OTA rooms or not. Parity terms also make it necessary to offer the same publically available prices via OTAs as via the hotel’s own channels. So are there viable ways to shift demand?

There are! First of all, make sure the hotel’s reservations agents are well trained.  When consulting I routinely call hotels’ reservations office (and/or CRO) to ask about prices, both to test selling skills and to compare direct pricing with OTA’s. One time when I pushed back over rate, the hotel’s agent suggested I look at Expedia, which might have lower rates (a true story).  Besides agent training, make certain that OTAs are not out of parity in reverse – offering lower rates than the property’s direct channels.

Use loyalty program (or other) data to send special, targeted offers bookable only through direct channels. Also, give people browsing the Internet a good reason to book directly, including navigability and booking ease. Offer a complimentary breakfast, room upgrade (a real one), or any number of other low to no cost value adds that only are available to guests booking over direct channels. Make certain as well that revenue management tactics support, rather than undermine, loyalty program commitments. Additionally, an important nexus between group sales and revenue management exists. 

A longtime friend and acquaintance of mine is VP of sales with a well-known hotel company.  Only half jokingly, he often refers to his company’s revenue management team as the “sales prevention department.” But, like it or not, revenue management ought to review group sales opportunities and, equally, should be involved in marketing plan development. Group sales shouldn’t occur simply because an opportunity to book group business presents itself. Rather, revenue management’s forecasting process should inform the times, volumes and prices at which group sales will most benefit the hotel, which means forecast expectations can and should be an important factor in setting group sales objectives. It is also true that, especially where “in the year, for the year” opportunities are concerned; revenue management is best positioned to perform displacement analysis. 

Many readers are surely familiar with displacement analysis, but for the sake of thoroughness here’s how it works:

Using an analytical tool (it could be a revenue management software package, but a spreadsheet works well too) overlay forecast occupancy (including forecast non-group business and any group business already on the books) over the prospective group dates. If the group is accepted, will other expected business have to be declined? If so, how much? And which basket of business will likely deliver the greatest revenue/profit to the hotel? Consistent with the “first, do no harm” maxim, the closer the call the more a group opportunity should be given the benefit of the doubt.

Too often, diligent attention to revenue management is only occasionally attended to and becomes top of mind due to an impending crisis. By making the process rigorously consistent, the benefits will flow handsomely.