Combining Price Offer with a Good Online Reputation
A hotel room is a perishable asset as the number of rooms is limited.
Hotel Revenue Management’s strategy is to balance availability and demand by anticipating price developments in order to maximize profits.
The development and increasing use of the Internet since the early 2000s (which has encouraged the growth of online travel agencies and opinion portals) has added a new dimension to the development of Hotel Revenue Management.
Thus, the complexity of this concept has increased considerably as it now takes into account not only the evolution of prices but also customer satisfaction. With this, customer satisfaction and pricing policies have become the main variables in optimizing hotel revenue and the key points of the new Revenue Management Hotel.
The origins: Revenue Management of the airlines During the 1950s, American Airlines implemented a reservation management system to optimise the revenue generated by its available seats by adapting its fares.
Unfortunately, the technology of the time did not allow for a real-time reaction. In 1958, the no-show passenger technique began to be used, which consisted of selling more tickets than available seats to compensate for passengers who did not show up at the boarding gate and thus ensure that the aircraft was completely full. It wasn’t until 1984 that a Delta Airlines manager named the term Revenue Management as we know it today. With less than $3,000,000,000 in budget, it gathered a team of 50 people and allowed the company to raise $30,000,000 just by managing the airline’s fares according to sales forecasts. It was here that the foundations of this concept were laid
Revenue Management entered the hotel industry a little later, in the early 1990s. Marriott International was one of the first hotel groups to see its revenues increase thanks to the application of this concept in its business strategy. Years later, this discipline has only gained in popularity and importance.
Implementing the Revenue Management Hotel
In order to apply the concept of Hotel Revenue Management, certain factors must first be analysed and evaluated, which can be divided into external and internal factors.
Previous employment rates
General sales (rooms and services)
The market niche
The hotel’s market share
The hotel’s customer satisfaction rate
Previous weather conditions
Holiday periods and public holidays
Events that may affect business results
Previously, all of these factors were evaluated manually by the hotel’s Revenue Management managers, but over time, more and more elaborate systems have been developed to facilitate this analysis process. Thus, the functions of the Revenue Management Hotel have evolved fundamentally over the last 10 years. Models of demand for a room have become increasingly complex and unpredictable and seem to depend in part on user-generated content on the Internet, particularly from reviews of previous guests. Parallel to a good application of Revenue Management, managing these reviews has become necessary.
The era of reviews: the new approach of the Hotel Revenue Management
Revenue Management has thus become a rather complicated area. As mentioned above, the demands of different groups of consumers are increasingly disparate and the shortcomings of an establishment in terms of supply or quality of services can cover much more ground thanks to the Internet. By using professional solutions for the analysis, management and distribution of customer reviews, hotels can easily and quickly improve their online reputation. In addition, guest reviews are an inexhaustible source of information and are indispensable for setting prices, defining product and service offerings or determining market niche. In this way, reviews are the basis for an effective revenue optimisation strategy.
The Statistical Analysis System conducted an online study to determine the behaviors of people seeking and booking hotel rooms online. The results proved that market share and revenues in the hotel industry do not depend solely on price. Internet users clearly rely on peer-generated content, especially guest reviews, before making a reservation. This means that it is no longer enough for a hotel to compare its pricing policy with that of its competitors. Today it is equally necessary to analyse your market position in terms of reputation if you want to book every room in your hotel.
In order to maximize their profits, hotel managers must react quickly and accurately to changes in demand. It is true that this has always been the case, but today’s Revenue Management requires extreme reactivity and great flexibility in relation to its price rates. But above all, the success of good Revenue Management lies in combining a good range of prices with a good online reputation.
Article written in collaboration with Customer Alliance.