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REVENUE MANAGEMENT FOR HOTELS MADE EASY  by Michele Bettazza

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Among the activities related to Revenue Management, the definition of pricing is a very important aspect, but what is the right price exactly? 

I do not think there is a “right price”. The rate of a hotel room could be 99 or 299 Euro: everything varies according to the perception of the customer who is buyingFinding the best price to offer means understanding how much the market is willing to pay for my product at that precise moment. To achieve good room occupancy and production results, a hotel must know the market and understand the needs and requirements of its potential customers.The goal of a hotel is therefore to adjust prices according to market needs. 

This does not seem to be a simple job: how are hotels managing prices today? 

Revenue management for hotels: how should prices be managed?

The panorama of Italian hotels is truly vast. Highly trained Revenue Managers and consultants are available, but some hotels still use seasonal price lists (fortunately, their number is decreasing). There are many, many price management variations in this range, including hotels that check on competitors on a daily basis, hotels with automatic rate modification based on room occupancy percentage and hotels that rely on complex spreadsheets. 

Each strategy can undoubtedly deliver some results, but I believe it is now established that the application of correct Revenue Management strategies can improve hotel profits.Managing these processes manually can be intimidating, which is perhaps why some still prefer the security provided by a price list. However, in recent years the market has changed considerably, competition has increased and so have costs. I believe no hotel can afford to neglect any possible source of revenue, as these profits could be used to improve facilities or implement services for an increasingly demanding clientele.  

Checking competitors

Even checking competitors can be better than nothing, but we cannot rely only on this parameter to assess our rates. Are we really sure competitor rates are correct? Are we certain that a competitor hotel is changing its rates for a reason that also affects our hotel? A detailed analysis of competitors takes a long time, can we really invest so many resources in this activity? 

CRS management systems for calculating rates

Some management systems or CRS offer mechanisms for modifying rates based on the percentage of room occupancy. If well configured, these tools can lead to improvements, but they still require a lot of work to evaluate the starting rate and the correct rules for adjusting prices on each individual date. These rules can be a bit limiting, as reaching 90% occupancy 3 months in advance or 24 hours before a specific date cannot lead to the same price increase.

In addition to this, in recent years we have had to deal with a very dynamic market: since demand and booking behaviour have differed from previous years, excessively static planning can compromise the final results.  

Setting rates with spreadsheets

Let’s talk about spreadsheets. I have seen really complex and sophisticated tools, but they require entering data manually every day. Collecting pickup data daily, with its production, events, competitor prices… how long does it take? How many mistakes are we likely to make?  

Revenue Management System for calculating prices in the tourism sector

Fortunately, many hotels have decided to acquire a Revenue Management System: I believe that good technological support is essential nowadays, and systems that use artificial intelligence can make the difference in this regard.

We often talk about Big Data and, in the Hospitality sector, there is a lot of data available to hotels, both inside and outside the facilities. Relying only on a person looking at data could lead to loss of profits: a computer’s analysis and calculation capacities are way above a human’s.  

The essential data for RMS software

An RMS is data-driven software to help hotels maximise profits – what data are truly essential? 

As mentioned earlier, to define a price, it is very important to know what is happening in the market and how the hotel is doing. So a Revenue Management System must also know what our competitors are doing, how demand is moving within our destination.

Knowing how we are perceived by a customer who is considering reserving a room in our hotel is also important and this information is obtained via Brand Reputation monitoring. Events, holidays, trade fairs and concerts can influence demand, so we need to monitor this information as well.

A deep interface with the hotel’s Property Management System is also essential, to collect all the data available in the management system and allow us to understand the booking behaviour of the various market segments. The Revenue Management System must dig deep into our data and allow us to always see how we are doing compared to previous years, the impact of the various room reservation channels, where our guests are from and also the most popular types of rooms.  

Artificial intelligence: a key element of Revenue Management systems

Artificial intelligence is now part of our daily lives, but Revenue Management Systems are among the first software in the hospitality sector to be equipped with this technology. Why is that? 

Companies are increasingly taking a data-driven approach and their strategies – especially when it comes to pricing – are based on figures. The data, however, are constantly increasing, and the need to simplify processes, to avoid errors, to reduce the time required by activities that can instead be automated has done the rest: the reason the use of artificial intelligence is becoming so common in this sector is precisely as a response to the enormous amount of data that we have to consider, every day, to evaluate a rate.  

Revenue Management System software can bring real benefits to hotel management thanks to automated systems that recommend the best rate and predict demand trends. 

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