Although they represent two different industries, hoteliers and retailers actually have the same business goal. They’re both trying to maximize revenue for limited, perishable inventory – and they’re doing so for customers with variable price sensitivities over a fixed period of time. A more detailed depiction of this can be found in the chart on page five of Alex Dietz and Kelly McGuire’s white paper.
Yet despite the glaring similarity, the science of revenue management is considerably more advanced in retail than within hospitality, leaving hoteliers a lot to be learned from their retail counterparts. To help hoteliers adjust their strategies for future profit, a few of these lessons are outlined below.
Lesson #1: Respect the Practice
There have been countless case studies published showing that businesses who practice revenue management experience increased profitability.
However, unlike the hotel industry, the retail industry quickly recognized that revenue management is intrinsic to success. Although they do not employ the title “revenue manager,” every retailer has a “planning organization” charged with continually forecasting and analyzing sales for all of their company’s locations in order to determine inventory levels, prices and to optimize revenue. These planners work closely with the merchants and buyers in order to maximize revenue according to trends in consumer behavior. This practice is the same across every retail company.
In contrast, the practice of revenue management is much more fragmented in hospitality. Not every hotelier or general manager recognizes the importance of revenue management, sometimes resulting in a lack of revenue management personnel, software and processes at their hotels. Although this is changing, hoteliers must recognize that amid the fast-paced nature of today’s business, not having a revenue management discipline puts a hotel at risk for leaving “money on the table.”
Lesson #2: Understand Thy Customer
Retailers spend a considerable amount of time trying to visualize, for example, the woman who enters their store. Is she shopping for a party, for the office, for lunch with her mother-in-law? And for all of those occasions, what does she want to wear and how are we fulfilling that need? Retailers maintain in-depth and refined customer demographics and even psychographics. Doing so allows them to effectively price inventory and promotions that appeal to their customers’ interests and inspires them to make a purchase.
In the hospitality industry, a lot of disconnect exists between marketers and those who determine pricing for the hotel. While these departments are closely aligned at the local level in retail; in hospitality, the two often work independently of one another, unknowingly withholding information that can enhance profitability at the hotel.
In order to truly optimize revenue, hoteliers must adopt and maintain a comprehensive revenue management strategy that includes analyzing marketplace dynamics as well as understanding consumer demand. By working closely with their marketing teams, revenue managers can better understand their guests and price packages that appeal to—for example—weekday travelers ages 55 and older or families with kids.
Lesson #3: Be Quick, Be Flexible
Another concept retailers do well, in comparison to their hotel counterparts, is focusing on inventory that is not moving and figuring out ways to move it. Whether it’s increasing the visibility of a product by moving it from shelf to an end-cap or adding colorful signage, retailers are constantly brainstorming ways to spike sales on inventory that isn’t selling.
Hoteliers, on the other hand, tend to spend most of their time reviewing booking patterns, forecasting occupancy and analyzing competitors’ rates instead of focusing on strategies that sell empty rooms. Although it is important to assess and analyze market data, it’s even more important to keep a pulse on consumer behavior in order to influence it.
The hospitality industry can learn a lot about revenue management from retailers, but a few key takeaways include recognizing the importance of revenue management and implementing it throughout the company, understanding current and prospective customers, and understanding how to quantify and analyze consumer buying behavior in order to optimize revenue. These practices can then be paired with revenue management analytics in order to scientifically determine the price sensitivity of guests and more fully drive effective pricing strategies.
Sanjay Nagalia holds over 20 years of experience in product development experience. As the head of development and operations for fast-growing global organizations, he has provided executive leadership on all aspects of product development, implementation and support. Sanjay co-founded IDeaS with Dr. Mehrotra in 1989, serving as the Vice President of Products and Services until 2001. He then co-founded and held the position of Chief Operating Officer for Apex Decisions, a retail revenue management company.
How to increase hotel revenue – A case study by hetras and AHM