5 obstacles to revenue management’s evolution
 
5 obstacles to revenue management’s evolution
20 JUNE 2019 8:32 AM

The process of evolving the revenue-management discipline to focus more on strategy for hotels is an ongoing effort, but there are a few key areas in need of improvement.

MINNEAPOLIS—It’s often mentioned at industry events that hotel revenue managers need to evolve their work beyond day-to-day rate management to long-term strategic thinking, but one former revenue manager has five ways hoteliers need to help ease that transition.

Speaking during the keynote address at the 2019 HSMAI Revenue Optimization Conference, Dave Roberts, a professor at Virginia Tech University and former SVP of consumer insight and revenue strategy for Marriott International, said revenue managers need to remember that the future of the discipline is not set in stone, but it’ll likely be some mix of man and machine, hopefully to man’s benefit.

“The tactics (of revenue management) are increasingly done by technology, which means the strategy is done by people, by all of you and your teams,” he said.

He said it’s important to remember exactly what a strategy is, noting it’s not a “flowery mission statement or vision statement.” Instead it’s a “path to differentiated performance.”

“It’s literally a recipe for success,” he said.

Here’s a look at the some of the hurdles Roberts said stand in the way of the transition to strategy.

Forecasting
Roberts said the hotel industry still struggles mightily when it comes to forecasts, both in overall accuracy and knowing when to best use them.

“If I’m forecasting demand to be 50% of capacity but it turns out to be 40%, that’s a horrible forecasting error, but it also doesn’t matter because it doesn’t change how you price your inventory,” he said.

He said keying in on ways to better forecast high-demand times will pay dividends across the industry.

“Anybody here who works in hotels can probably recite their hotel’s RevPAR index, and probably ADR and occupancy index,” he said. “And you can probably recite how they changed year over year. But in the future, we’ll be talking about forecasting (error) in the same way.”

He said this is specifically important forecasting around meetings and events.

Pricing science
There have been a lot of innovations in automated pricing in the hotel industry in recent years, but Roberts said humans are often apt to override their systems' pricing suggestions as a matter of habit.

“At a minimum, you have to know the impact of those overrides,” he said. “If I’m a revenue manager for a hotel, and my recommendation engine says $199 and I put in $159, I need to know the impact of that change and really understand that.”

The science and tools are currently only available in certain portions of the hotel business, so being able to use them across departments with different revenue streams will be a boon to hoteliers, Roberts said. The benefits will include price elasticity and price-response modeling for things like negotiated rates, wholesalers and member rates.

He said it’s important to remember the goal of this science isn’t always to maximize profitability from day to day and moment to moment.

Total hotel revenue
Roberts said that while there has been some talk about revenue beyond rooms, often there’s an overemphasis on the impact of food and beverage. He said revenue managers should pay more attention to all revenue streams.

“Some companies are better at this, but I’m saying as an industry we need to get better at it,” he said. “There’s a ton of money at stake here.”

Working with distribution and marketing
Revenue management has always been tied to sales and marketing teams at hotels, and it has had a “seat at the table,” Roberts said, but that’s no longer enough, as revenue managers collectively need to become more strategic leaders.

This means revenue managers moving away from focusing just on the top line and not falling into thinking or operating in silos.

“We got a little smarter over the years, and we figured out that different revenue streams have different profit implications, so now we make pricing and inventory decisions to maximize profit,” he said. “Where we’ve evolved is we don’t actually do that anymore. We make pricing decisions to maximize the overall, long-term benefit to the hotel and to the organization.”

He said member rates for premium rooms are specifically priced in a way that doesn’t maximize profit.

Talent development
Roberts said tackling those hurdles won’t matter if the industry isn’t able to continuously develop new generations of revenue experts, which requires both luring people from other industries and disciplines as well as educating and supporting existing employees with an aptitude for the discipline. He said this will be the result of developing a “culture of lifelong learning” in the hotel industry.

He said the industry will benefit from having more leaders with that sort of background.

“My dream is everyone in a leadership position is someone with a revenue-management background,” he said.

1 Comment

  • Stefanie Wood June 20, 2019 10:29 AM Reply

    Interesting article and always appreciate Dave Roberts' insights, but as an alumni of the university he is now teaching at, I felt compelled to share that it's "Virginia Tech", not "Virginia Tech University". Thanks!

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