Revenue Management: An opportunity for Independent Hotels

Revenue Management Chancen

The booming hotel market with increases in overnight stays and RevPAR in recent years attracts investors who want to profit from this trend.  New openings and planned hotel projects continue to ensure strong growth on the supply side in the coming years.  However, competitive pressure has been rising for some time in many markets due to an increasingly changing demand. Current events in particular, concerns about the spread of COVID-19 and large-scale travel restrictions, are having a direct impact on hoteliers worldwide. Hoteliers who make data-driven and thoughtful decisions will have a clear advantage when it comes to meeting business challenges.

Although revenue management has become more complex, it is also increasingly rewarding for smaller and independent hotels. They face the same challenges as hotel chains and have to make decisions about accepting and rejecting uncertain, time-distributed incoming demand with different valences in order to make the most efficient use of the inflexible capacity available in a limited period of time. In short, selling the right product, at the right time, to the right guest, at the right price, through the right channel.

Long-term performance strategy

Often hoteliers focus very much on the daily price changes as well as inventory management and less on the long-term, strategic goals of the hotel. It is important to develop long-term strategies for performance by keeping in mind hoteliers’ goals and objectives in terms of desired target group, image and the hotel’s position in the market.

The right product

A hotel offers various products and services. Often, the guest rooms in small and independent hotels generate the main turnover. A sensible categorisation of rooms based on size, facilities and location enables the hotel to tap into the different target groups, their needs and willingness to pay. It is important that a hotel not only knows its own room categories and offers, but can positively differentiate these against the strengths and weaknesses of its competitors’ products (e.g. room categories).

The right pricing strategy

It is important to choose a pricing strategy that fits the hotel’s portfolio in order to optimise sales and maximise revenue. The hotel’s business model, business mix and the average length of stay of the guests should be taken into consideration. The individual pricing strategies per market segment and distribution channel should be coordinated in order not to cannibalise the business. Smaller hotels have to plan their pricing strategy particularly carefully in order to sell the limited number of rooms optimally.

It is important here that the hotel pursues a transparent pricing policy and takes into account price worthiness, price fairness as well as proportionality when setting prices.

Revenue management helps to find the ideal pricing approach through an analytically derived pricing strategy that takes into account the relationship between demand, price willingness and room inventory.

Revenue management as a team

The supply of qualified and experienced revenue managers in the market is very limited and often “breaks” the salary structure in small and independent hotels. While hotel chains have the possibility to hire a qualified and experienced revenue manager or even a whole team, in small and independent hotels this task is taken over by an already existing employee in personnel union. Usually, this is the reception manager, the reservation manager, the sales manager or even the hotel manager.

Revenue management in a team is an opportunity for these hotels. Although the complexity and agility of revenue management requires specialised knowledge, services relevant to the company’s success are increasingly provided in cross-departmental teams. It creates a revenue management culture and reduces dependence on individuals. With technological support in the individual phases of the revenue management process and/or through professional coaching/outsourcing, the tasks can certainly be carried out or accompanied by the front office manager, reservation manager or owner in a personal union.

Revenue Management Technology

Many small and independent hotels are reluctant to invest in revenue management technology. Others think that with the use of revenue management software, the position of the revenue manager can be saved.

A hotel should therefore invest in technology in a targeted and differentiated way in order to make the systems and complex processes more efficient.

Software-based applications help to provide the large amounts of data in a coherent and structured way as a basis for decision-making.

Likewise, revenue management or pricing systems use different, learning algorithms to enable the demand, price elasticity and competitor prices to be converted promptly and continuously into an optimal pricing strategy per room category and length of stay for the hotel, thereby increasing revenues.

The range of revenue management technology and software-based solutions available to support hotel revenue management is diverse. The technology must be adapted to the requirements, size and organisational structure of the hotel. The effort (investment costs for technology, human resources, know-how, etc.) and benefit (revenue potential) should be in proportion.

Birgit Haake - Expertin Revenue Management

Author: Birgit Haake

Birgit Haake has more than 25 years of practical experience in the hospitality industry and healthcare. With her company Haake Revenue4U, she supports individual hotels and hotel chains in Germany and Europe as an expert in revenue management. Her core competencies are booking management, (MICE) revenue management, pricing and online distribution. Birgit Haake holds a degree in business administration and has completed her training as a hotel manager. She is a certified trainer and has been a university lecturer in international hotel management and tourism management for many years.

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