Going Back to the Basics of Revenue Management

Successful hoteliers know that focusing on hotel revenue management is the key to success. It is the single most important factor that contributes to bottom-line profits. In most cases, yield management concentrates on deriving the most value from rooms but it can be applied in other areas of the hotel as well. Hotels are a business and therefore, it is critical to boost profits and increase hotel revenue.
There are several core ideas that should be recognized in revenue management. Among these are:

• Replacing cost-based pricing with a competitive-based pricing
• Selling to niche markets rather than mass markets
• Saving the product (in this case inventory) for the most valuable clients
• Focusing on price rather than cost
• Decision-making is based on facts rather than guesswork
• Exploiting opportunities in the product’s value cycle (peak season vs. lean season)
• Evaluation revenue opportunities on a consistent basis

Though revenue management traces its roots back to hotels, it is actually applicable in many types of businesses. For example, airlines are now using this type of strategy in order to maximize their revenue. Previously, they didn’t until they became deregulated. Aside from those in the travel industry, the concepts of revenue management can also be used in other industries.

For example, service businesses like food or salons can give discounts during weak points of the week in order to attract customers. If a particular market wants to avoid the Saturday crowd in a salon, they will be encouraged to go during the day the discount is offered to benefit. They don’t need to deal with a long waiting list and they get a discount to boot.

While this may be an effective strategy, it is not always advised to provide cuts on prices though. Going back to hotel, the industry is probably the first to implement revenue management. Thus, it sets a precedent that other industries can follow.

Wise hotel revenue managers know that it is not always essential to focus on price. Combining perceived value with a positive real to the stay in the hotel is the key to increase RevPAR, increase sales, and improve profitability. For any other industry that is struggling with their yield management, the example of successful hotels may be the one that should be followed.