The primary goal of revenue management (RM) is to ensure that the property sells the right product to the right customer at the right time for the right price on the right channel.
Given that a typical 3-5 star hotel will make roughly five million pricing decisions every year (IDEAS RMS), it is not humanly possible for any human revenue manager to get every decision right, every day, without the support of an automated system.
Revenue management system (RMS) automates the process of using analytics to determine the right price for hotel rooms to maximize revenue and profitability. An RMS ingests historical and market data, combines this with forward-looking demand signals and recommends a rate for each segment and room type at your hotel, specific for each channel on which you are selling.
In the past, revenue managers and RMS used historical data, comp set pricing and market data and combined this with forward-looking demand signals like pacing to recommend the optimum rates.
After the pandemic, historic data has lost its importance. I believe comp set pricing data has also diminished in value – how sure are you that your competitors are smart in their revenue management practices and use the right RM tools and not just plagiarizing each other’s rates in a suicidal downward spiral?
I believe the role of forward-looking demand and Business Intelligence (BI) on future demand have been elevated to unprecedented importance. An AI-powered RMS with real-time market data feeds, travel demand and comp set analytics, website and digital marketing analytics, and online reputation/consumer sentiment data feeds to optimize performance can achieve a near-perfect real-time pricing in response to market dynamics, and significantly enhance GOPAR (Gross Profit per available room).
The benefits of having an RMS are obvious. Yet, less than 10% of independent hotels are using an RMS. Why? It is not the cost – all RMS systems offer flexible PRPM (per room/per month) fees. Now all of the RMS tech is cloud based so there is no expensive hardware or IT personnel to maintain. All software updates are automated so that you don’t need a software engineer to manage the RMS, etc.
So why is it then? The fear of new technology, reluctance to learn new applications, inertia (We have always used an Excel spreadsheet), and good old lack of professionalism.
Now is the time to convince management and ownership that only a cloud AI-powered RMS can help the property maximize revenues and successfully compete in today’s super complex marketplace.
For hotels, new to RM practices, I recommend to a) Implement a cloud RMS with strong forward-looking demand capabilities, typically priced on a per-room/per month (PRPM) basis and low or no upfront costs, b) Subscribe for a forward-looking demand BI like Lighthouse and c) Consider contracting with with a RM consultancy to kickstart your RM practice.
For hotels with established RM practices, I recommend that a) Do not fire your revenue manager – now you need him/her more than ever; b) Evaluate your existing RMS and its forward-looking demand data feeds and capabilities, as well as any irrelevant pre-COVID business rules, and c) Review your revenue management BI subscriptions and give priority to the future demand BI one
Forward looking demand data is all that matters today not only for revenue management, but for digital marketing, sales and operations. Knowing how big is the demand for future arrivals, who are the potential customers, where are they coming from, what are they looking for is crucial to structure an effective pricing, marketing and operational strategy.
Here is a chart of key RMS providers, courtesy of Akexsoft. Missing in the chart is Infor RMS. Designed to accommodate any category, type, and size of hotel or hotel portfolio, its all-in-one pricing system offers the versatility to set prices at both the hotel and room type level.
