The Evolution of Revenue Management

Revenue management has come a long way in the last few years. It has developed from a function that was seen as the “No” team and focused solely on rates, pricing and occupancy levels to a business-critical department. Revenue management teams now work cross-functionally with sales, marketing and the senior management team in line with business strategies.

Evolution

Revenue management historically took a short-term view (pricing and occupancy) which developed into a medium-term view (retaining customers and understanding customer requirements) and now additionally focuses on the long term plans – this is the strategy. If strategy is the plan for the business to reach a specific goal then tactics are the actions to get you there, i.e. a plan to increase your proportion of direct bookings is the strategy with the tactics to do this being the revamping of your website or developing your sales team.

You need both of these in order to produce effective outcomes but the future of the function is that the proportion of time spent on tactics will decrease with more time moving to strategy. Historically, this evolution of the function has been fairly easy to predict with revenue managers originating from reservations and front desks and their influence increasing as their value to the business increased (through improved forecasting abilities, improved ADR performance etc.) Not only this but their focus developed from initially only looking at room pricing to including ancillary revenues (F&B, MICE, spa, golf, parking) and, as technology developed, so did their ability to analyse and understand available data to optimise rates and provide better reporting for business performance.

Now we are in the realm of machine learning and AI – this is the next step of the evolution curve for revenue management. Many people from outside the industry have predicted this will be the end of the revenue manager job but that won’t be the case. The machines will take over (nearly) all the tactical revenue management work but it will be the humans who understand and work to the strategies of the business.

The function continues to push further down this route but what does that mean for the role of a revenue manager and the department as a whole? History tells us that many of these evolutionary steps have taken more significant advances during or in response to global issues – 9/11 or the 2008 recession – when the hospitality sector is needing to recover and 2020 is certainly producing one of those.

Strategic Revenue Management

No matter how good technology becomes, the tactical side of revenue management will always be part of the revenue manager’s job in some form, however more time will be focused on strategy in the future. For years, every business has had its own strategy set by the senior management team – this isn’t a new concept – and this allows everyone in that business to understand the direction and goals that are being worked towards internally. This isn’t going to change so revenue managers are not going to have to become the next George S. Patton or Napoleon Bonaparte as world leading strategists.

No, their role will be to understand these goals for the business, use the technology and data available to create the revenue management strategic plans in line with these goals and drive revenue optimisation in line with this. This is where the last few months have changed how this article needs to read. At the time of writing, Covid-19 is wreaking havoc across the world and there is not an industry that has been hit as hard as the hospitality sector. There is not a territory, location or industry that has not been affected by this pandemic – one that has claimed countless lives.

Once we can all return to life after lockdown, we’ll have to review and outline a “new normal”. It is hard/impossible to predict what this will look like but what will be certain is strategy and direction will have to be resilient and dynamic to ensure businesses have the ability to maximise every commercial opportunity.

With these demands in mind, revenue management will be a key department to help drive the resurgence of the hospitality industry both through maximising every opportunity presented to it as well as having to create the demand in the first place. This will be critical. The foundations of strategic revenue management are fundamentally the same pre or post.

Some considerations for your team:

Set the revenue management strategy

• Understand your market – seasonality, demand peaks and troughs, customer segments and business mix, length of stay, booking patterns, competition, sales and marketing plans, distribution channels, fulfilment of customers’ needs

• This is a huge piece of work in itself and needs will be different for each business, different regions and sites

Get all people in the business onboard and understanding of the strategy

• Everyone needs to buy in and trust the decisions of the RM team – especially the senior management team

Develop relationships cross-functionally

• You need operational staff to help you to improve ancillary revenues (F&B, MICE, Spa etc.)

• Departments understanding why inputting data correctly is so important will improve analysis and forecasting in the future

Technology (PMS, RMS, Channel Management, Reservations, BI/Reporting)

• Maximising its potential and promoting internal efficiency – automate the tactical actions

• Use the data to improve future strategic decisions

• Invest in new technology where needed ensuring a return on investment (ROI) is positive