Picking a Revenue Management Solution Should Not Be a Roll of the Dice

Picking a revenue management solution should not be the roll of the dice at the hotel's casino.

By Jeff Zabin, Managing Editor

When it comes to upgrading their revenue management capabilities, hoteliers want to know: Which solution is the right solution? The answer, of course, is: It depends. By asking the right questions, hoteliers can rule out some options while narrowing down others.

Generally speaking, hoteliers want solutions that allow visibility. The more transparency the better. Revenue managers would not want a black box solution. Rather, they want to be able to look under the hood and dive into price sensitivity data and observe at a detailed level what inputs are behind the pricing recommendations that are being made and how adjustments to the pricing model would change revenue outcomes. They do not want to wait for actual booking numbers to come in to understand the impact of their overrides and determine whether they made the right “re-optimization” decisions.

Revenue managers need to be comfortable that any new technology solution under consideration will enable them to drive continuous revenue improvement. The following are just two of the questions that decision makers and influencers may wish to explore with solution providers to ensure that, once implemented, the revenue management solution will enable them to achieve their desired business outcomes.

To be effective, revenue managers require tools that will enable them to answer all of their day-to-day pricing questions. Such questions might include: By how much should we increase or decrease our rates for a given type of room? How many customer groups, and what size groups, should we accept on a given day? How much should we charge walk-in guests? What should be the floor and ceiling for our rate range? Are the changes in demand and bookings likely to represent a short-term or long-term pattern – and, if the latter, what actions should we take in response?

Also: To what extent should we discount negotiated rates? What should our rack rates be for the coming year? What discounts and promotions, and to what target customer segments, are likely to perform well right now and in the near-future? What discounts would likely dilute profits and should we therefore avoid? To what extent should we mark up our premium rooms, based on the current and near-term demand patterns? What competitors’ price moves would likely affect these demand patterns and how should we respond if those moves become reality? How can we counteract cancellations and no-shows, group wash, extensions and early departures to capture optimal profitability?

Revenue management is a quantitative puzzle with ever-changing numbers, patterns and results and a need for continuous refinement. Delving into the data, testing different if/then scenarios, and collating actual results requires a high degree of flexibility. Not all data queries can be anticipated. A significant percentage of pricing questions may, in fact, need to be investigated on an ad hoc basis. Out-of-the-box functionality may satisfy the needs of beginners or small properties with relatively simple needs. But it is likely to be insufficient for more sophisticated revenue managers and larger properties with multiple room types, customer segments and ancillary revenue streams.

A solution should provide for flexibility, which is important when it comes to setting pricing rules, flagging special events, adjusting segmentation schemes, etc.

A solution should make it easy to accommodate virtually any need, including the need to monitor and measure individual property, portfolio, and departmental performance, the need to create customizable hierarchies for different geo-markets, channels, room types, time periods, loyalty programs, and the need to do manual overrides of the automated rates suggestions for OTA channels. Important questions might include: Once problem areas are identified, can the solution guide users on how to take appropriate action? Can tactical decisions, including the overall impact, be tested live? Can the dashboards provide exception reporting, identifying areas needing the most attention?

Picking a revenue management solution should not be the roll of the dice at the hotel’s casino. Hoteliers may have a hundred different questions, criteria and parameters to consider. The hotel’s revenue manager(s) should be involved throughout the evaluation process. As sophisticated business professionals with deep analytical skills, revenue managers naturally have a good sense for which solutions best fit their needs and the needs of the property.

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