Revenue management: Capturing untapped potential
Industry practitioners and revenue management (RM) educators, meeting recently in Orlando in the U.S., are in agreement: there is a great shortage of well-qualified revenue managers. Competent revenue managers should be not only able to use data analytics to predict customer behavior and proactively formulate RM and pricing strategy, but they should also possess the necessary communication, decision-making and leadership skills required to help companies to maximize revenue.
The list of corporates taking part in the Orlando RevMe workshop was impressive: Disney; SeaWorld Parks; IDeaS Revenue Solutions; Delaware North; STR; and Hard Rock International. Among the items on the agenda: dynamic pricing; bridging the gap between technology and people; and education, skills and behavioral traits that make great revenue managers.
Today's RM practice is evolving from the traditional rooms-revenue model towards a total revenue management approach. Under the traditional model, hotel revenue management has focused largely on rooms. However, revenue management principles can be applied to operational areas beyond just rooms. At its core, total hotel revenue management brings together and optimizes all revenue streams, as opposed to thinking of each department separately. Thus, a more holistic approach to revenue management is needed to identify revenue-generating opportunities, and optimize revenue and profit generation.
The move to total revenue management involves a shift from a tactical, short-term focus to a more strategic, long-term view. Total revenue management relates to capturing mostly untapped revenue and profit potential, associated with hotels' non-room revenue-generating centers. Some hotel chains are already expanding revenue management practices to F&B outlets and/or the function rooms.
As for 'integrated' hotel resorts, the casino industry also offers specialized hotel room rates, based on the guests' 'value', by analyzing their gaming and spending behavior.
While the evolution of revenue management presents many opportunities for today's revenue leaders, it will also bring many challenges. Industry practitioners recognize the importance of utilizing a total revenue management approach and conclude that talented personnel, combined with the right technology are the keys to success for total revenue management strategies.
Technology providers have also begun to deliver solutions that address these areas as well, from robust F&B reports that transform point-of-sale or POS data into actionable insights, or into forecasting and optimization solutions for alternative revenue sources such as meeting space.
However, technology is still one of the key barriers to practicing total revenue management. The data and technology required to support the successful implementation of total revenue management is not readily available to most companies. When different departments collaborate, they typically operate on multiple software applications. Companies, however, more often than not acquire different systems at different times from different vendors, but the systems need to be interconnected. Therefore, it is a challenge for companies to interlink their different systems, so that they can work together and allow for the seamless transfer of data.
For total revenue management to become a reality, the revenue manager should be able to manage demand and profitability for every revenue stream in the hotel. One of the core components of a total revenue management program is increased involvement by the revenue manager in optimizing all revenue streams, and so have both tactical and strategic influence on other revenue centers.
In addition, one of the keys to successful total revenue management is to have it embedded in the organization's culture and an integrated approach is needed to analyze the decisions of sales departments so that they can be aligned with the revenue and profit objectives of all the revenue centers.
Therefore, a key quality of effective revenue leaders is that they must not only be good with analytics, they must also be effective influencers in sales, marketing and operations. With automated revenue management systems in place, revenue managers can reduce their workload in terms of 'number-crunching' and spend more time on analyzing data and making better and more strategic decisions for the hotel.
Revenue managers should be corporate leaders who guide sales and marketing teams in the most effective positioning of their selling strategies and campaigns, and lead the overall strategic direction of a property.
Future revenue managers will have to develop far beyond the current, stereotypical number-crunching, often believed to the revenue management role, as the key competency of revenue maximization is becoming more strategic.
Every decision a revenue manager makes affects a company's profitability and, because of this, the role requires a professional competent in their abilities to manage both people as well as revenue. Top revenue managers should be visionaries and corporate change agents who rely on innovative thinking to develop and build a total revenue strategy to increase a company's profitability for both the short and long term.
Revenue managers in future should not only be tactical, but also have the right skill sets to be the strategic revenue leaders that companies need.
Dr. Cindy (Yoonjoung) Heo is an assistant professor in revenue management at EHL. Dr. Heo will be one of the team of professors on the school's new MBA in Hospitality program which is scheduled to start in September 2017.
Discover EHL's online module Driving Hotel Revenues.
