Revenue Management has become a really big deal in the hospitality industry as owners and directors have come to realize over the years. The airline industry was the first to introduce cheaper seats to ensure a full plane on take off and it has evolved and developed into the most important of all management concepts.
Marriott International was the first hotel group to adapt this new idea of management – and actually coined the name ‘Revenue Management’ – for their own use and they continually upgrade and re-adapt as the Internet world changes. People are using the Internet for just about every facet of their lives from booking hotel rooms, to airlines, hiring cars, booking bus and train tickets and of course, shopping. Telephoning a hotel to inquire into the availability of rooms, the price and then sending a deposit, if it is required, is simply not done anymore.
The Internet is faster, gives quicker results and managing one’s life is less hassle. But in order to do all these things, third-party online travel agents have reared their heads and competition is fierce to offer the best prices to the customer. But does the customer really gain by these price wars?
There is always a fee to be paid as well as the cost of the hotel and air flight. They demand a deposit when one requests a quotation, and if you choose a hotel room, which according to them, has a non-refundable deposit, and if you cancel the booking, you lost your money unless you can contact the hotel directly to instruct them to repay the money. It is a long, arduous and upsetting procedure.
This does a terrible disservice to the hospitality industry as it is their reputation on the line, not that of the online travel agents. They have been called the “invasion of the value snatchers” and they are. They have made revenue management so much more challenging, as the hotels now have to factor in all these outside costs, in order for the customer to have a truly dynamic stay without breaking their bank.
Revenue Management is no longer a stand-alone factor in the accounting process, as a totally holistic management view must be developed. In the old days of retail, such matters as sales and marketing went hand in glove. Loyalty departments were a stand-alone or tagged onto marketing and distribution was a different department altogether. Every facet of gaining revenue has to be worked together with an eye on net revenue. With the customer paying money to these third-party intermediaries in order to purchase sleeping space, gaining a customer has become that much more expensive, almost 40% more expensive.
How do you get customers to book out of season and have the hotels as full as in-season? Such factors as the weather, holidays, the competition’s promotions and so on have to be studied. The hotel has to have promotions at the right time and offer the right price to the right target customer.
Hotels thought it a great idea to partner with online companies such as Tripadvisor, Expedia and Booking.com. They would take a lot of the advertising and promotion out of the hands of the hotels, leaving them to concentrate on the customer. They didn’t realize how much more this was going to cost them, not only in developing Revenue Management systems to counteract the increased costs, but to do damage control with irate customers who wanted their money back, on cancelled bookings.
During the Strategy Forum held in Hong Kong, over 100 of the captains of the hospitality industry, debated on the best way the hotels could create value in a market that was evolving faster than the industry.
They realized that they, the hotels had been standing still, left behind, while these “digital monsters” had taken over their industry. They had very spirited debates on how to take their business back and manage their revenue generating modules effectively and at the same time, give the customer a value-ridden holiday.
Luckily they have seen the light and are developing new strategies. Have they left it too late? They will have to up their game if they are to get ahead of the digital field and claim back their own businesses again.