What Is Revenue Management?

Revenue Management, is the art of selling:

• The right product;
• To the right customer;
• At the right price;
• At the right moment.

Nowadays Revenue Management is often seen just as “opening & closing” rates and moving prices “up & down“.

We see several sponsored posts over the web enhancing the ability to higher the revenue by the “usual suspects” that promise percentage of increase, that try to enchant with secret potions that will make you the richest person you have ever dreamed of.

Actually, Revenue Management is not at all this;

Revenue Management is much more than this.

Revenue Management is actually a discipline that must be totally pursued by all Human Resources of the hotel, from the owner to the entire staff.

All Human Resources of the company are needed to be part of the Revenue Management process.

Let’s analyze the Revenue Management statement:

The right product

Very often the product itself is difficultly something to think about:

“you know we have rooms, we have bathrooms, we serve breakfast, that’s it!”

Have you ever asked yourself, which is the character of your product, can you describe it? What is the meaning of your product, what would you like to propose to the market? Are you always updated with the latest solutions that may generate a better product, that will be transformed in higher revenue?

To the right customer

Talking about segmentation, sometimes shows the same reaction that a cow has when a train passes by.

A lot of hoteliers to which I had the chance to talk to, does not have any clue on what a real segmentation means. Sometimes we could be lucky if we find two clusters: business and leisure!

Actually, if you created a product (It does not matter if it is a classical product or a high-tech product, if it is for young travelers, for families or for adults only), you should have thought about a “potential” customer to which your product could fit. Then start from here and define which are the right customers for your property and put them together in clusters with the same willingness to pay and buying habits.

At the right price

The most common mistake is generating a price based on what my next-door competitor does.

A pricing strategy is not based on the kind of clientele that goes to the hotel next door, but it is generated based on the product you have created referred to the cluster of customers to which you refer to.

To make this easier, a 5-star hotel refers to a different type of clientele versus a 1-star property, therefore the pricing strategy refers to the willingness to pay and to the buying habits your target clientele has in a particular moment.

And here it comes:

At the right moment

Bearing in mind the entire process: we have created a product for a specific target clientele that has a willingness to pay and a buying habit that is not 365 at the same level, therefore our studies over the guests must not ignore that habits may vary during different moments, as well as the needs of the target clientele may vary along the year.

To make Revenue Management easier to the new bees:

Revenue Management is not a matter of changing prices constantly, Revenue Management is discriminating the demand when this one is high, and not discriminating demand when this one is low. Based on demand that is generated by your target clientele.

Having understood the above, we do need tools that may help the entire process of discriminating demand, those tools are called Revenue Management Systems.

The question may come easily: why should we need to have systems?

The answer comes even more easily:

Rewind this page and start reading the article again!

We do strongly need tools because the needs of our “to the right customer”, may change and we do need to know these changes within the less time possible in order to act immediately and accommodate the new needs. We need the tools because of our “at the right price” we are in need of identifying any single signal that may vary the willingness to pay or the buying habits. We need the tools because of our “at the right moment” in order to capture the exact moment in which we can get the highest output from our product, from our customer and from the price they are willing to pay.

Remember that the speed a computer has to calculate an output may never be reached by a human brain, as well as the versatility and the capability of a human brain to perceive infinitesimal signals may never be reached by a computer.

So, now you have learned the difference between “doing” revenue management and “apply the discipline” of the Revenue Management.

Any question? please contact me at Riccardo@FORMAThospitality.com

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