revparguru - best practices in hotel rev mgt

8/7/2019 RevParGuru - Best Practices in Hotel Rev Mgt

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Best Practices in Hotel

Revenue ManagementCombining the use of traditional hotelmanagement practices with a new waveof technology for optimum results

The Only Real-Time Revenue Management Software

A REVPAR GURU WHITEPAPER


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Hotel Revenue Management

Combining the use of traditional hotel managementpractices with a new wave of technology for optimumresults

The hotel industry, like many businesses is full of uncertainty. Sales can depend on a complexcombination of factors that can be affected by anything from customer service to bad weather.Because of this, it is crucial to the success of a property that its owner and managers remaincompletely attentivenot to mention, strategicwhen it comes to hotel revenue

management practices.

Revenue management, also called yield management, in hotels is a practice that has evolvedsignificantly in its rather short history. The practice was first implemented by hotels in the late1980s, after the airline industry demonstrated great success using inventory, capacity andpricing to manage revenue. Since then, revenue management has become one of the most

essential and identifiable aspects of the hotel operating strategy. However, it is apparent thattodays brand of hotel revenue management differs considerably from that of 20, or even 10years ago.

While strategies such as detailed historical analysis and emphasizing occupancy and ADR mayhave dominated revenue managers focus two decades ago, stock market-influenced

algorithms and changes in the general approach to pricing strategy, channel management,inventory allocation and the use of information as pertains to revenue management have allgreatly evolved.

With the advancement of technology, the best methods for optimizing hotel revenuemanagement now include much more than the traditional practices of hotels in the past. In

fact, in a recent industry survey undertaken by REVPAR GURU, just over 30 % of hoteliersindicated most of their business came from direct/phone reservations and just over 27%reported most of their business came from OTAs and online channels. This shows how theInternet is becoming an increasingly important channel when it comes to hotel bookings,

which was not the case several decades ago. Because of this, using a combination of traditionalhotel revenue strategies combined with practices that involve sophisticated automatedsoftware, allows hoteliers to strategically use up-to-the-minute information to give their

property a competitive edge among other hotels and resorts. Additionally, adopting many stockmarket- based principles allows hoteliers to execute more effective revenue management.Strategic pricing, rate discipline, automation and smart computing are also integral parts of asuccessful hotel revenue management strategy.

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RevPAR

Strategic Pricing

Stock Market Pricing

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In early revenue management practices, occupancy was key. The idea of more heads in bedswas the main focus of hotel owners because it was believed that higher occupancy inevitably

led to more revenue. Like many approaches in revenue management, this idea has changedsignificantly and continues to evolve.

With new metrics of the moment coming up every dayin fact, various analysts and experts

are hyping ADR and even exotic constructions like GOPPAR (gross operating profit per availableroom) as the best yardstick for determining revenue managementRevPAR ultimately remainsthe best measure. RevPAR remains the only revenue management metric that a hotel canliterally take to the bank- and as such keeping RevPAR at the forefront of any revenuemanagement strategy is a best practice in the industry.

There is no doubt that pricing has always played a significant role in driving both occupancyand RevPAR. But in todays economic climate, mainly because of unprecedented pricetransparency, rates have assumed an even greater role. Coming up with the most favorable rateto offer a potential customerone that will stimulate enough demand to stimulate occupancywhile not leaving a too-low ADRhas arguably become the single most important aspect ofrevenue management.

So, how does a hotelier determine what an optimal rate should be at any given time? Years ago,

the answer would have been relatively simple. A hotel would merely look at historical pricingand from there, apply any rate discounts or increases to a predetermined rack rate. Today,particularly because of technology and the ever-growing number of online channels, it hasbecome increasingly difficult for a hotel revenue manager to manually keep up with all sales

channels. How can a hotel revenue manager solve this problem? Currently, the most effectiverevenue management systems actually rely on stock market principles to formulate complexalgorithms that can generate with accuracy the optimal rate. These systems work in real time,fine-tuning rates at concise periods to sustain the best rate over time.

For many hotels, the principle of optimum pricing is an unfamiliar concept, but there is no

reason this should be so. Optimum pricing ideologies have been used by financial experts,particularly those who work with commodities, for a long time. High-performing hotels havemore recently used these principles in developing strategies that mirror systems in place atfinancial companies. These hotels utilize a comprehensive ...

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revenue management system that sets prices based on both historical considerations andcurrent market conditions, giving it a wider range than that of more traditional pricingstrategies.

Just as most financial price-setting formulas use two decision makers for the highest level of

effectivenesswith one system correcting and accounting for the othersophisticated hotelrevenue management programs do the same thing by offering a main program and asecondary program. The main program generates rates based on historical data, payingattention to account page positioning on online sales channels, competitors rates, inventoryavailability, as well as other variables, and then implements them across sales channels. Thesecond program, meanwhile, monitors the first program in terms of effectiveness, and makesadjustments to its processes accordingly.

Because the two programs work off of one another, the entire system becomes adaptive,enabling these types of revenue management systems to time and again surpass traditionalrevenue management techniques, truly demonstrating the advantage of applying stock marketprinciples to hotel revenue management.

The innovative nature of algorithmic and computational systems would be wasted without asignificant measure of automation. Automation is the best practice that often makes or breaksa pricing strategy or the pricing aspect of a revenue management system. It is also perhaps themost visible advantage revenue management systems hold over the traditional approach torevenue management, yet few systems leverage automation to its fullest potential.

Most RMSs leave such time consuming tasks, like rate adjustments, to be performed manually,

under the justification that they are too important not to be managed under the completecontrol of a human being. This is flawed reasoning because it actually requires a great deal ofspeed and response in order to achieve optimal results, an ability that any one person cannotattain simply because of their inability to work 24/7/365 days a year without breaks.

Automation is imperative to making up-to-the-minute, demand-based adjustments in pricing.

An automated system can distinguish when demand for a room is too low for a particular priceand drop the rate to encourage more buyers. Automated systems can also raise prices at the

right time, recognizing high demand and therefore an acceptance for a higher rate. And thebest part is that it can happen overnight and on weekends, even when the revenue manager istaking their well-deserved breaks. Automation allows a hotel to avoid leaving money on thetable in the form of a room sold at a rate lower than a guest would ultimately be willing to pay.

It can be that one factor that can take a hotel from 60% occupancy to 90% occupancy,sometimes even overnight.

AutomationBest Practice #4

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Determining which channel is selling inventory fastest is most often a minute-to-minutejudgment, and that decision is best left to an automated system, which can make thosedecisions with less information than a human revenue manager. And although many systemsclaim that they are automated, most RMS usually only adjust once a day. A truly automatedsystem will make many adjustments an hour, across multiple sales channels. An automated,

algorithm-based computer program system of the appropriate sophistication, can recognize, byquickly combing data and by analyzing trends with a little less raw input, which channel isperforming best, assigning inventory there at the appropriate price to generate the mostbookings and the most money for each booking.

In todays operating environment, one of the most visible aspects of revenue management israte discipline. Two decades ago, rate discipline and its effects on brand identity and future

room sales was barely considered, and still, the concept is subject to wide interpretation andcan sometimes be at odds with other revenue management aims. So what exactly is ratediscipline? This concept often comes up in reference to discounting or across-the-board ratecuts; it includes the theory that implementing deep discounts to boost occupancy or stimulatedemanda common practice during the recessioncan actually depreciate the hotels brandimage.

While sometimes hotels will have to lower rates based on demandor, shall we say lackofrate can run contrary to other important aims because sacrificing occupancy to maintainstrict rate discipline can be as financially irresponsible as deep discounting. In fact, a ratediscount negatively affects a hotels brand (unless, of course your hotel defines their brand by

bargain prices). So how does a hotelier practice strategic rate discipline? It is by dynamicallyadjusting rates based on demand, without going too far in either direction.

Brands have immense value. Indeed, according to a 2002 Interbrand study, brand valueaccounts for approximately 38% of the value of the companies that own them. If discounting isdamaging to a hotels brand, and maintaining one static rate is equally detrimental to RevPARand occupancy, then the solution lies in variable rate, modified in real-time to best matchdemand conditions. Variable rates eliminate the predicament of whether or not to engage in

across-the board discounting. Instead, the highest rate likely to generate a sale is presented tothe right customer at the right time. This is feasible through the use of a sophisticated revenue

management system, one that also manages multiple sales channels, administers roominventory, and optimizes page position on OTAs. To maximize occupancy and rate, however,we must go back to the practice of automation, where rates are modified subtly, in real-time, toavoid the pitfalls of wide-scale discounting.

In the end, just because a hotel offers a particular rate doesnt necessarily mean a consumer willtake that rate. Rate discipline through dynamic pricing provides a workable solution to thistruism, and helps a hotel increase occupancy and RevPAR even in tough times.

Rate DisciplineBest Practice #5

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Using Real-Time Information

Price Prediction

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As previously mentioned, the hotel industry has vastly changed over the course of a short time.And like everything else, it has entered the information age. Decades ago, a hotelier trusted a

few dedicated individuals to keep track of competitors rates (call around), demand levels andbooking pace. Certainly things have changed since then. The reason this valuable information isnow widely available is due to the arrival of internet sales. Now, every hotel posts rates onlinethrough various sales portals and those rates can be monitored. Now, because of the staggering

percentage of room sales made through the online channels, demand levels can be assessedminute to minute. And because hotels have unfettered access to this information through theWeb, they can act on it in a quick and decisive manner. Unfortunately though, most hotels failto adequately access this information, or if they do, they fail to leverage it effectively.

To keep track of this information effectively, especially as it is constantly changing, hotels need

the right tools, which are most often found in a comprehensive, automated revenuemanagement systems that can, among other things, accurately predict movements in hotelroom price. Advanced revenue management system are not only capable of constantlyconsulting demand levels and monitoring competing hotels rates, they can also makeadjustments to the rate being offered based on this real-time information.

Any hotelier can tell you that revenue management involves a certain measure of prediction.For this simple reason, it follows that any revenue management system will draw from other

industries where prediction is at the core of their business. For instance, some revenuemanagement systems use financial instruments to make predictions, or leverage emergingtechniques like crowdsourcing or artificial markets. Meanwhile, others integrate option pricingprinciples to help generate optimal room rates. At any rate, the backwards-looking techniques

currently in place at many hotels is fast becoming obsolete.

Predicting the direction of future prices may be a bit foreign to hotels, which often take asupply-side approach to rate setting. However, the most strategic approach to price predictiongoes back to borrowing basic stock market concepts principles, which focus almost entirely onpredicting what price the market will bear for a particular good in the near future. The hotel

room, as a (relatively) uniform, highly perishable product, is as much a commodity as a barrel ofapples. But as financial markets have methods to determine the optimal price of a particulargood or service (futures markets, etc.), hotels tend to subjectively assign a rack rate, and modifythe rate from there. A comprehensive revenue management system for hotels can set pricesbased on both historical considerations and current market conditions, giving it twice the rangeof more traditional pricing strategies.

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Channel Management

Adapting For a New Era

Best Practice #8Channel management is an increasingly important practice as OTAs and third-party bookingsites continue to thrive. In a sales environment that features more online channels than ever,

the ability to manage rates across all OTAs is vital. When it comes to the hotel industry, there iscurrently a wide array of channel management systems available on the market and these aregreat tools to save time for revenue managers. However, each one of these systems lacks on keyfunctionnone are automated or integrated into a propertys pricing; they still require manual

input, manual intervention and manual pricing decision to operate.

The ability to change rates and inventory allocation to various third-party booking sitesindividually is crucial, as each sales channel may exhibit different demand levels. The problemlies in the idea, which is still shared by many hoteliers, that a task such as channel managementis far too important to delegate to a system or software. But the truth is, the only way to

optimally manage the overwhelming number of sales channels is with the help of acomprehensive revenue management system that is capable of identifying demand levels onany one of hundreds of online portals where a hotel has inventory posted, then adjusting thatrate or inventory allocation to maximize the revenue earned. Without automated channelmanagement, this would be virtually impossible for even a talented team of personnel. Yetsurprisingly, REVPAR GURUs recent industry survey found an astounding 74.5% of hoteliers stillrely solely on a human being to manage all aspects of their revenue management tasks, even in

todays fast paced industry, where information is changing every second.

As changes in approach to revenue management have flourished in the past few years, thoseapproaches that work best have distinguished themselves as a special sort of best practices.These strategies integrate in real-time the automated distribution, allocation, pricing andyielding, while benchmarking against all competing hotels in a destination. These practices

become achievable by a real-time RMS system that has fully-integrated channel managementcapabilities.

The best approaches to revenue management in general are those that use RevPAR as thedominant metric, and those that emphasize the usage of revenue management systems toenhance revenue managers efficacy, rather than making revenue managers take control of the

minutiae of the never-ending calculations and pricing updates. In hotels displaying revenuemanagement best practices, revenue managers think proactively, not reactively and focus moreon optimizing processes and working with internal sales/marketing teams to develop andimplement long-term pricing strategies that will complement the pricing updates handled bythe RMS.

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Survey SidebarBy conducting an industry survey over the past few months, REVPAR GURU set to find out howhoteliers are handling their revenue management, how they are being affected by todays

technological advances, and their thoughts on new generation automated hotel revenue

management systems. Here are some of the results.

1. Which business source(s) is most effective for yourproperty?

SALES



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2. How does your property handle revenuemanagement?

REVENUE MANAGEMENT



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3. If you don't use an external RMS company, whatconcerns you most about implementing anautomated RMS?

EXTERNAL RMS CONCERNS



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4. Which metric do you feel is the most relevant tomeasure your RM efficacy?

RM EFFICACY

According to the survey results, the majority of hoteliers - 67% to be exact - have expressed thatthe most important factor of their revenue management efficacy, is maintaining RevPAR, yet

only 11% of hoteliers are even using external revenue management systems in their dailyoperations. With Internet sales on the rise34% reported the Internet as their most effectivesales channelit is more vital than ever to have an effective revenue management strategy tomaintain business. Now is the time for hotels to become pioneers in the new age of theindustry by implementing the use of a sophisticated, automated system that can perform all thebest hotel revenue management strategies, leaving revenue managers time to do what they do

best develop strategy and oversee the system's operations.


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Did you know that the REVPAR GURU system is the only

technology solution available in the market that fulfills all of thesevery important best practices. So whether a bull or a bear market,the REVPAR GURU software solution (and the stock marketprinciples upon which it was based) just makes good (dollars and)sense.

REVPAR GURU provides hotels around the world with an alternative revenue managementsoftware solution, designed to deliver maximum bookings and profits. As REVPAR GURU's

custom-designed Yield Dynamic Price Engine is the only real-time revenue managementsoftware available on the market, it meets the rapidly changing needs of hotels in a verydemanding business environment. REVPAR GURUs solution offers dynamic rate optimization,real-time pricing, integrated internet and extranet yield channel management and GDS salesdistribution, to increase a hotel's RevPAR intelligently and effectively, while maintaining rateintegrity and automated rate parity. Since 2004, REVPAR GURUs software solution has been

used by hotels worldwide to increase occupancy and RevPAR.

Headquartered in Miami, Florida, additional information can be found at

or by calling +1.786.478.3500.

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