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Revenue Management: a management philosophy for hotels

Revenue Management: a management philosophy for hotels

Revenue Management (RM) is one of the key points in the revenue strategy of hotels. It is considered as a form of business management, a set of techniques based on analytics and information, in which the main objective is to optimise profits. RM is the fundamental basis of all hotel marketing and refers to many […]

Revenue Management (RM) is one of the key points in the revenue strategy of hotels. It is considered as a form of business management, a set of techniques based on analytics and information, in which the main objective is to optimise profits.

RM is the fundamental basis of all hotel marketing and refers to many areas of management itself:

  • Segmentation: Which customers do I target and how do I target them? There are segments that we may not have targeted and we may have more business opportunities if we do so.
  • Demand forecasting: Try to anticipate what is going to happen in order to optimise income thanks to the Forecast.
  • Product: What kind of product do we have?
  • Distribution: How do we use distribution channels such as Booking, Expedia… including the rest of metasearch engines.
  • Competition: Market data and average price, among other variables.
  • Price: What price do we put on our product?

In short, the correct management of these five areas is how Revenue Management really makes sense.

Revenue Management Systems

Revenue Management systems are automated systems that handle a large amount of data related to hotels: reservations, customer profile, revenue, and demand. Nowadays, online reputation helps us to get the necessary feedback about the services provided by the users who visit the hotel. There are already products that monitor our reputation and direct competition, and therefore help us to know what our positioning is in the mind of the consumer.

The dynamic pricing system shows us how market trends are evolving and what their forecasts are. The more information we have about the customer, the more personalised the experience will be and the greater our expectations will be, as well as the so-called “Business Intelligence” that allows us to access all the information in a detailed, updated and error-free manner.

All this information is transferred to the distribution channels, where its importance in hotel chains has gained ground in recent years. Direct distribution accounts for 30%, and the rest goes to intermediation. On the other hand, the so-called “Channel Manager” is a tool that allows us to update all the distribution channels at the same time, in order to ensure that the same price is being offered in all of them.

Goals of Revenue Management Systems

We live in a complex environment, where we deal with a wide variety of technology types, and where it is essential to be able to integrate all of the above information to predict demand behaviour, and to optimise room inventory and pricing to maximise profit growth and improve accommodation management.

Hotel demand forecasting encompasses historical data, external factors and recent trends. Macroeconomic forecasts, weather forecasts, competitor pricing, web behaviour, and traveller movement are all factors that are impossible to calculate manually, which is where automated management systems are created, and those that lead us to create sales strategies to achieve success in hotel marketing.

Internal operating phases of an MRI system

First, a Forecast is carried out, that is, all the data is taken to make a demand forecast, and once the system knows what is going to happen, it optimizes, that is, it chooses which are the most profitable segments and that provide the greatest value to the hotel in the long and short term, then inventory controls, pricing decisions, overbooking recommendations, and minimum stay restrictions are established. These are the ways the system filters demand and decides which customer finally arrives at the hotel. The last step is to monitor the results, that is, evaluate the impact measurement, since it will have a certain influence on the following analysis.

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