Shadowing Practice: Revenue management in the hotel industry- Basics - Learn English Speaking with Video

In this video we're talking about the basics of revenue management for hotels.

The discipline of revenue management aims to find the optimal price for every room for every night

and in this video we want to cover the basics of this very large field in our industry.

We're looking at the theoretical framework

and we'll focus on the application of revenue management for independent properties

because I still see a lot of hotels out there

that are not driving their revenue and are not applying simple tactics to optimize their prices.

Hello and welcome to another Hotel Techie video.

I'm Alisha from Hotel Spider and if you're looking to get your hotel tech related questions answered you're in the right place.

On this channel we share our know -how about hotel tech with you.

Let's start with a definition that I personally like.

Revenue management is the art

and science of selling the right product to the right customer

at the right time using the right channel at the right

press with the goal of optimizing your profit now let's take this rather complicated definition let's go take it apart

and look at the individual elements

but first let me give you a little bit of history

and context revenue management

or back then mostly referred to as yield management was developed for an industry

that shares a lot of trades with hospitality the airlines.

Deregulation in the airline industry in the United States led to fierce competition mostly driven by prices

which gave rise to revenue management.

The discipline was then picked up by hotel chains that adapted it.

But revenue management can also be applied to many other industries that share some of the following traits.

First perishable good.

Any hotel room that does not get sold tonight can never be sold again.

Unlike a product you cannot just keep them on inventory and sell it tomorrow.

So as we cannot sell a room night again tomorrow the cost of not selling every room

or let's turn it around the willingness to sell the room

for a lower price rather than keeping it empty is very high.

This in turn makes revenue management really impactful.

Second is fixed inventory.

Adding or taking away from hotel rooms isn't really done overnight.

So as supply is relatively fixed in any given destination for hotel rooms

and it only changes really slowly over time we need to

find other ways to manipulate demand to match it to the already existing supply.

A third element needed is time variable demand.

If demand for hotel rooms would be constant all year round

then it would be really easy for supply to just adjust to that level

but that's clearly not the case for hotels we have a

big variety in demand depending on a lot of different factors such as season holidays

but also weather and other events in addition to the already mentioned characteristics there are other traits

that can strongly influence how impactful revenue management can be in

any given industry segmented market make it possible for you to sell the same product to different people

that want it for different reasons and have different motivations.

Somebody booking a last -minute business trip has different factors influencing his purchasing decision than a family booking their annual holiday.

High fixed costs makes it really critical to keep occupancy high

in order to distribute these costs across as many rooms and paying guests as possible.

The disconnect between when you book and when you actually stay at the hotel, or in other words, when you consume the good,

also adds many more levers that you can use in revenue management.

For example, you can work with reservation and cancellation conditions, but also payment conditions and overbooking.

Now that we have some more context, let's get back to our definition from the beginning and let's take it apart.

Revenue management is the art

and science of selling the right product to the right customer

at the right time through the right channel at the right price in order to optimize your profit.

The last part should be quite easy.

We're focusing on getting more profits for your organization, so more money.

In economics, price is a function of supply and demand.

As our supply is basically fixed, we have one element we don't really have to worry about.

We can really focus on the demand side when it comes to setting a price.

We never really know demand until basically it's too late

but what we can do is we can forecast demand into the future and base our pricing on that.

This can be done to really a very wide range of complexity.

You can look at past data

and then forecast demand for every individual room type for every day for the next 365 days or even further out.

And then you can add other factors such as pickup patterns,

competitors, airport arrivals, weather, but also website traffic and many more but you can also make it much simpler.

Knowing that in winter your rooms always sell out on the weekend four weeks in advance, this is a forecast.

Demand generally follows predictable patterns and at whatever level is relevant for your property you can use this information to predict,

to forecast and then to adjust your price.

Different guests show different willingness to pay for your product By segmenting them into groups of consumers with similar needs and wants,

you can reach them and sell to them in a much more targeted and personalized way.

This can be done down to a very granular level

and with a high amount of complexity using AI

and the right new technologies you can go even so far

and start working with micro segments of one completely individualizing

and personalizing the price and the offer

but again here with segmentation it can be done much simpler

and you can for example look at why are they traveling

what's the reason what's the activity they're doing in your destination is it for business Is it for leisure?

You can also look how they're traveling as a family, solo, or as a couple, but also are they traveling by car or by train?

But you can also focus on whom is traveling by looking at the age of your guests, at the demographics or geographic differences.

So really there's a large amount of elements that can use to segment your guests.

But no matter how you decide to segment, one element is really critical.

You have to be able to identify your guests and you have to be able to reach them in a meaningful way.

As every channel has different costs related to it, driving traffic to the most cost -efficient channels can really have a big impact on your profits.

But allocating the right costs to the right channel can be challenging.

With commission models this is fairly easy but

if we're looking at allocating the right amount of labor cost to a phone booking that gets more difficult.

Diversifying your hotel sales channels can really help you to target your segments more accurately

and it also helps to create fences around specific rates.

On GDS for example it's common practice to limit corporate rates

but you can also use promotions and packages to limit

and attract specific segments to specific offers that you want them to see.

Where and when what offer and price is exactly displayed is critical in revenue management

and is also where it moves into distribution and channel management.

For the right product I really think it's critical to think not just room.

Clearly the room a guest is staying in will strongly influence his experience but it's not the only lever that you have.

Think of the overall value proposition that you're making and what you can use to change and vary that.

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Payment and cancellation conditions for example can be used to offer flexibility

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and promotions can be used to incentivize the same flexible traveler to use different dates.

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If we're looking at packages they can be used to either increase the value without reducing the price

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but it can also be used to create a premium product for your guests.

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If you're looking at minimum lengths of stay, we can fill shoulder days and increase our overall stay revenue without changing a price.

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If you want to take this even further, you can consider attribute -based selling,

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where every aspect of the stay in the room can become an attribute with a price tag.

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This way, the guest can exactly select what adds value to him and what he's willing to pay for.

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Or in other word the first steps to unbundling the hotel

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experience different guest segments can book at different moments in time

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so defining when you start selling and on what channel

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but also when you change your prices

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and conditions can be critical a great tool here is the pickup curve

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that helps to visualize the guests behavioral pattern the pickup curve has lead time on one axis

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and the occupancy of the hotel on the other.

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It can either be created for a specific day in the future

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but it can also be used as an aggregate to understand more global booking behaviors.

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The goal would be to get to 100 % occupancy only on the day of arrival.

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This way you can get a premium price and you don't sell out if there is still demand in the market.

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Art and science.

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This part might be slightly controversial most definitions only focus on the data -driven rigorous analytical aspect of pricing

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and i completely agree that that is the base that's where we have to start

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we have to gather as much data as possible we have to transform it into actionable information and then use that

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as a decision base.

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But I think there is more to great revenue management that is less tangible.

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The art part for me refers to the relationships.

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We work and we host humans in this beautiful industry of ours.

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And I think it's important that we never forget that, not even when calculating prices.

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Even if you could charge five times more for your room during a Taylor Swift concert, should you do that?

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If you purely look at matching supply and demand, optimizing your prices probably should but what's going to be the guest experience

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and also what's going to be the long -term impact on

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your reputation do you really quote the 30 percent higher price this year to a long -time loyal guest just

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because he cannot arrive on sunday

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or do you compromise with him these are just a couple of examples

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but i think it's important to keep them in mind

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and see if we can also allow a little bit of art in this area of the hotel now

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that we've looked at the definition here are three critical indicators for revenue management

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that you should know the occupancy rate looks at how busy your hotel is you take the sold rooms

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and you divide them by the total available rooms in the

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same period the average daily rate looks at on average how

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well you could sell the rooms you take the total revenue

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that you made and you divide it by all of the rooms sold the revenue per available room

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or ref par is really a great basic indicator for your hotel's performance

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and it is created by combining the two elements from before.

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It's calculated by taking all of the room revenue and dividing it by all the available rooms from the same period.

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Last but not least let's talk about technology.

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We can't really talk about revenue management without discussing tech.

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Many of the data heavy rigorous analytical parts can be greatly simplified and even automated with software tools.

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I would separate the tools on the market into two types.

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We have decision -making tools that are here to provide data and visualize it and help the hotelier to set prices.

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This is an absolute must because without data from your organization but also from the market you can't make any decisions.

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The second type are revenue management systems or RMS.

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They differentiate themselves from the first type because they actually make specific price suggestions and even allow for full automation.

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Again here there is a big range of different tools on the market.

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Just like revenue management system as a discipline also the softwares were often developed initially for big hotel chains.

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This is also clearly reflected in the market because there are a lot of very big powerful tools out there.

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They might however not always be easy to use but also manage and pay for for smaller or independent hotel properties.

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Over the past years we've seen a lot of RMS tools come into the market

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that are clearly focusing on a simpler approach to price optimization and that are targeted to smaller hotel organizations.

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One way they do that is by focusing on future and market data.

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In a classic configuration the RMS would be connected to the

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property management system of the hotel where it can get the past and future data and push back the generated prices.

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And then in turn the PMS would forward these prices to the channel manager and on to the online world.

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A different approach

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that is especially interesting for properties is working with legacy PMS

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is to connect the revenue management tool directly to the channel manager.

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This implementation will allow you to be online much quicker and benefit from optimized pricing.

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However, it is limiting the data you're using and also excludes the PMS from the price updates.

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Revenue management is such a large topic and I'm sure any of the points you mentioned today could be its own video.

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So if you're still curious and you want to learn more, go check out our video content and also live stream but I can also highly recommend the introduction course that

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DCT Online Academy offers I'll put the link down below.

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Thank you for watching that's it I appreciate you and I'll see you in the next one.

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Shadowing Practice: Revenue management in the hotel industry- Basics - Learn English Speaking with Video

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