An overview of Revenue Management

Revenue Management is a concept being applied to the hotel industry since the late 1980s, start with the Mariott hotel. However, in Vietnam, Revenue Management has just been applied recently when the travel industry develops and more international hotel brands join the market. This article provides an overview of Revenue Management to help you understand the role of it and how to apply it to your hotel business.

What is Revenue Management?

The most use definition is:

“Revenue management is selling the right room to the right client at the right moment at the right price on the right distribution channel with the best commission efficiency.” – Patrick Landman, Xotels

To make it happen, revenue management includes predict customers’ need by information and data from the market, and decide which price and product would be in sale to maximize the revenue with the same cost.

Some theories from revenue management can be applied to many different industries but not for all. Each industry has its own factor to be focused on when managing. Some industries that have characters listed below can earn benefit from applying revenue management:

  • Perishable product/product cannot be stored
  • Limit capability
  • High fixed cost, low variable cost
  • Demand from time to time is different but can be predict
  • Can categorize the demand, and the willingness to pay of each segment is different

In conclusion, the hotel is just one of the industry benefit from revenue management, other industries can be restaurants, airlines, cinema, sports services, beauty services, etc.

What are Revenue Management tasks?

To meet the target of right room, right client, right price, right moment, right distribution channel, Revenue Management need to manage 4 main activities includes:

  1. Market Segmentation
    Different from market segmentation in business strategy, in Revenue Management the hotels can segment by distribution channel (direct, travel agent, online travel agent, etc.); segment by traveling purpose such as business trip, family trip, leisure, etc.; segment by price like Best Available Rate, wholesale price, promotion price, etc. Depending on the needs, each hotel can build the market segmentation base on business strategy, market, and hotel type.
  2. Forecasting
    Forecasting the upcoming need help the Revenue Manager set up a price strategy to bring a higher revenue, and help the hotel plan for operation and marketing. Forecasting can base on the data from previous years, or from the big events in the future, or the weather forecast in the area of the hotel. For example, international marathon events are getting popular in Da Nang, Quy Nhon would change the accommodation need of customers, and change the market at that time.
  3. Pricing and Inventory Management
    Base on the results from segmentation and demand forecasting, the Revenue Manager can decide the selling price for each period to each different customer. Large hotels will create their own price strategy with a matrix of price, segmentation, customers, channels. Some popular price tactics are discount with conditions, discount with a minimum stay, discount or added services for some bot-busy time of a day, raise the price to the customers willing to pay more, packages selling, etc.
  4. Distribution
    After setting up the product, the Revenue Manager needs to choose the right distribution channels to maximize the profit. Although the target is getting more bookings from the direct channel, other different channels have their own customer that your hotel cannot reach. Therefore, besides attracting customers to book directly, the hotels need to choose and follow suitable channels in consider of room booking over the channel and the cost of it.

Photo by Austin Distel on Unsplash.

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