Revenue Management is Dead
There I said it, that felt good to say out loud. For centuries, the concept of pricing and inventory management can be tracked back to simple demand forecasting based on intuition and experience for farmers and merchants. More modern adaptations post the industrial revolution have helped to catapult manufacturing and retail into the 20th century, but hotels owe their modern revenue management practices to the airline industry.
I started my adventure in revenue management in 2005, relying on gut instinct and archaic Excel files to guide my decisions. It was an art, a game of trial and error. On the best days you guessed until you got it wrong then you changed direction and went as far the other way until you got it wrong again. It was a glorious game of bumper cars. In 2007, I started my first job as a multi-branded, multi-hotel revenue manager. I honed those skills and turned it into a dance of inventory and pricing. As great as it was and as good as I could be that is all it ever was: pricing and inventory. No one focused on distribution channels, marketing funds or ancillary spend. What could you do if pricing and inventory was automated?
10 years ago, the industry experienced a game-changing shift with the automation of demand forecasting and pricing. So why are we here, 10 years later still taking about $10 rate changes? Massive investments in training have not yielded the expected results. We have become so focused on the tools that we've lost sight of the bigger picture. This is where we missed the mark. We allowed revenue management as it existed 10 years ago to keep living. When you take something away and do not give something new in return, we can only default back to what we knew but never move forward. Enter the idea of commercial strategy on stage right.
Commercial strategy in the hotel space is about the three headed monster of revenue, sales, and digital working together as one to make data-based decisions for topline revenue. Ultimately, this drives results between marketing spend, sales goals, and demand forecasting to drive profitable revenues at a hotel. That key word, profitable being the biggest distinction. Here is the problem with this statement, there is still a three headed beast. Albeit they are now working together towards a common goal they are still individual contributors to that goal. Since I am already toeing the line of controversy, I might as well say that we are on the precipice of getting this wrong too.
I have a smaller hotel in a beach market. The demand in my market is all leisure tourist, mostly retail and discount business with a splash of wholesale. I run an occupancy of 70% but my competitors are closer to 85%; and we have big occupancy gaps on the weekends. I have a decent budget for sales labor and have a Director of Sales, and two sales managers; both are focused on groups because I believe in my gut that we need more group to fill this gap. Assuming the two sales managers’ salaries with PTEB cost me $120,000 a year; to get a 10:1 return on my investment; I would need to make at least $1.2M in group revenue annually. What is wrong with this statement? Let us just let that hang there for a moment.
Join me on this journey as I explore the great ideals of commercial strategy and how to shift your mindset from revenue management into something so much greater than where we are today. I will explore alternatives to today’s transactional mindset and help you shift into true strategic thinking. How to take what you know today and build on that, not just thinking outside of the box, recycling it and challenging the way we do business.
