Revenue Management is around the corner of its biggest evolution in 30 years
Way back in the bygone era of the 1990’s I chose to do my thesis on Revenue Management as it was a relatively new concept in hospitality and I thought I might get away with a ‘light touch’!
As a part of the process, I undertook some ‘first-party research’ which consisted of face-to-face interviews with General Managers to ascertain their understanding of Revenue Management, how it was being implemented, who’s responsibility it was and what results had been achieved.
At that time there were no Revenue Management Systems or even Revenue Managers, no real data benchmarking and the term ‘aggregator’ was not yet a dirty word.
Broadly the extent of Revenue Management was a top line understanding that business travellers, leisure travellers and groups could be segmented using rate codes that offered different rates with different restrictions.
The Advent of the Internet Changed Everything
Suddenly hotel rates were appearing on websites you have never heard of and previously opaque rates were suddenly fully transparent and open for all
Hotels were caught flat footed and scrambled to try and get some control back of their precious inventory, Reservation Managers suddenly became Reservations & Yield Managers as they were closest to the mess and with little training tried to understand what was going on and put some structure to their precious inventory.
Things have come a long way since then.
In my view Revenue Managers are now the rock stars of the industry, have the greatest opportunity to determine a hotels commercial success and their relationship of constructive conflict with the hotels Director of Sales is crucial.
Most hotels are now offering dynamic rates where distinct rate buckets are created and then opened or closed to offer the optimum rate at any one time depending on the customer, market trends and competitor pricing. Additional benefits are then added to the base rate to create tailored packages similar to this structure:
Rate type Formula Non Refundable X Non Refundable rate with Breakfast X + €20 Fully Flexible rate X + €30 Fully Flexible rate with Breakfast X + €20 + €30
There are additional supplements for upgraded rooms with the same static charge for ancillary items such as dinner, parking, F&B credit, on site activities etc… i.e. the room rates are dynamic based on demand but the ad on’s are typically not.
This dynamic pricing model has served the hotel world well but it is time to evolve.
In a previous article on Jargon in the hotel industry I highlighted that one of the biggest opportunities for hotels increase revenue and profitability was to move from being RevPar centric to a total revenue culture.
This bodes true for the use of pricing in revenue management …… just as we have dynamic pricing for rooms we should also have dynamic pricing for ancillary items and just as we have continuous movement in demand we should react to this with a continuous pricing model.
A move to continuous pricing is where hotels move from rate buckets to infinite price points allowing them offer an incredibly granular pricing structure that can adapt to supply and demand at each moment in time, satisfying the entire demand curve.
The natural step from continuous pricing is to continuous bundling where offers are created dynamically which include room and ancillary, and the bundled offer price is based on the existing internal and external revenue management contexts. A step further would be to utilise conversational commerce such as chat bots where the more information that is shared between the parties the better the offers can be personalised but let’s walk before we run.
Conceptually a move from Revenue Management to Continuous Revenue Offers sounds great (in my view anyway!) but there are some challenging elements in continuous pricing with regard to its implementation and getting it to work within the sometimes very rigid architecture of hotel Revenue Management Systems, GDS and aggregators.
There is also the higher incremental volume of data, the higher data depth and the higher frequency of delivery and the number of systems and sources from which it is aggregated from that will all cause problems for integrations.
It is beyond the scope of this article but one way the airlines are looking to adapt to this complexity is the IATA rolled out New Distribution Capability (NDC) protocol. It’s an XML-based data transmission standard created to enhance the capability of communications between airlines and travel agents.
Whilst it is still early days this standardisation has allowed airlines to regain ownership and control over their customers in indirect channels by offering consistent offers via different channels, whether it be metasearch, OTAs or dotcoms. HOTELS – WATCH THIS SPACE!
There has been a tremendous evolution in the use of pricing in the industry but I believe that this massive evolution is just around the corner.
The true vision of continuous pricing can only materialise with dynamically priced rooms and dynamically priced ancillary services being bungled together into one unique and personalised offer.
This obviously brings in the whole question of data with the frequency of price selection and the number of data points used for dynamic pricing will grow creating a massively data rich environment … but let’s leave that for another day.
Specialising in Hospitality and Retail, Full Circle Data is a creative data agency that drives revenue optimisation through data intelligence and predictive modelling.
We use data to help you understand your customers better and predict their behaviour to increase your revenue. At Full Circle Data we believe that, used properly, data can bring amazing insight to your business, and more importantly inform your sales & marketing strategy to give a greater return.
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