The contents of this piece were originally published by IDEeaS and republished by Hetras, and written by Sanjay Nagalia. They have been edited by Net Affinity.
Although they represent two different industries, hoteliers and retailers actually have the same business goal – and they both know the value of revenue management.
They’re both trying to maximize revenue for limited, perishable inventory. They’re also working with customers who have variable price sensitivities over a fixed period of time.
For hotels, this means they have a fixed number of rooms to fill and a booking window they need to fill them in. It also means hoteliers have customers that could be buying rooms at significantly different price points. To find out more about this, check out page five of Alex Dietz and Kelly McGuire’s white paper.
Despite the glaring similarities, the science of revenue management is generally considerably more advanced in retail than it is in hospitality. Happily, this means hoteliers have the chance to learn from their retail counterparts. To help hoteliers get the most out of their revenue management strategy, we’ve outlined some of the best lessons from retail below:
Lesson 1: Respect the Practice
There have been countless case studies published showing that businesses that practice holistic revenue management experience increased profitability.
However, unlike the hotel industry, the retail industry quickly recognized that revenue management is key to success. Although they don’t use the title “revenue manager,” every retailer has a “planning organization.” These planners are charged with continually forecasting and analyzing sales for all of their company’s locations, in order to determine inventory levels and prices. This lets them optimize revenue.
These planners work closely with the merchants and buyers. Their goal is to maximize revenue according to trends in consumer behavior. This practice is the same across every retail company. In an ideal department, the planners are one smooth, efficient machine, armed with the technology they need.
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. This can lead to a lack of revenue management personnel, software and processes at their hotels. Although we’re seeing some change in this, hoteliers must recognize that in the fast-paced nature of today’s business, not having a holistic revenue management approach puts a hotel at risk for “leaving money on the table.”
Lesson 2: Know Thy Customer
Retailers spend a considerable amount of time trying to visualize their buyer persona. 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 (that’s a fancier way of saying buyer persona). Doing this lets them price inventory effectively, and make promotions that appeal to their customers’ interests. All this is designed to inspire them to make a purchase.
In the hospitality industry, there’s often a disconnect 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. If your hotel works like this, you might unknowingly be withholding information that can boost your hotel’s revenue.
In order to truly optimize your revenue, hoteliers must adopt and maintain a holistic revenue management strategy. That means analyzing the marketplace, looking at the right KPIs, and understanding consumer demand. By working closely with their marketing teams, revenue managers can better understand their guests. This will let your hotel create price packages that appeal to—for example—weekday travelers ages 55 and older or families with kids. Nice and specific, right?
Lesson #3: Be Quick, Be Flexible
Another concept retailers handle well, in contrast to many hotels, is focusing on inventory that isn’t moving and figuring out ways to move it. Whether it’s making a product more visible 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.
Take a look at your guest personas, and build a package that you think will appeal to your target audience in a low season for your hotel. Try marketing it – run a campaign, put it on your website, maybe even make it into a contest. You might be surprised by the results!
Key Takeaways for Your Revenue Management
The hospitality industry can learn a lot about revenue management from retailers, but here are the key takeaways:
- Recognize the importance of revenue management
- Use holistic revenue management strategies in your hotel
- Understand your current and potential guests
- Understand how to look at your target audience’s buying behavior in order to optimize revenue.
You can pair these practices with revenue management analytics to scientifically determine the price sensitivity of guests. This may sound a little intimidating, but it will drive effective pricing strategies. Make use of all that data and knowledge you’ve got lying around, and fill your hotel even in the off season.