Michael McCartan, Managing Director, EMEA, Duetto, takes us through the principles of revenue strategy, including segmentation, forecasting, open pricing and distribution, and explains why Middle East hotels need to get strategic with pricing.
The way people shop for hotel rooms has changed dramatically in the last 20 years. Hotel revenue management teams need to adapt or get left behind. Revenue management practices that worked in the 1990s are no longer relevant to today’s market of online shoppers.
In the Middle East, where destinations such as Dubai and Abu Dhabi have seen demand plateau, it is more important that ever to price right and maximise on every opportunity to convert a booking. With new inventory constantly hitting the market, RevPAR and ADR have stagnated.
Now, hotels need to get strategic with their revenue management. They need to know their customers better, crunch the numbers to understand what worked (and what didn’t) in the past in order to build out a forecast, adopt an Open Pricing policy and determine which distribution channels prove the most profitable.
Segmentation
The starting point of any revenue strategy – defining, developing and managing your segmentations is crucial. These may be customer groups that behave similarly, or distribution channels that have similar costs.
You may segment leisure customers, corporate guests, group bookings, DMC bookings and/or promotions. What is important is to define your segments in order to get better accountability of which lines of business are generating the most bookings or the highest revenue – the two may not be one in the same.
Forecasting
Hotel revenue strategists have to understand that they are dealing in perishable goods. Their product – the room – has a shelf life of only one day.
A demand forecast is the first step to creating a pricing strategy that will maximise on revenue and profitability.
By forecasting future demand, revenue managers can build out a pricing strategy based on performance goals, such as occupancy, rate and revenue. It can help you maximise on revenue in high demand periods, but also help you map out a lower pricing strategy on days with lower demand.
However, always remember that a forecast is a guide at best. Be honest about your forecasting, and remember, no one can accurately predict the future – not even hotel revenue managers.
Open Pricing
Gone are the days of a Best Available Rate (BAR) strategy that provides variations on rate for various segmentations.
Adopting an Open Pricing strategy enables you to price each and every room with a unique price to maximise net revenue.
The permutations are endless, as you can price room types, channels and dates independently, 365 days a year. This enables you to find the right price for the right room for the right customer at the right time. Get it right and your revenue will rise.
Distribution
Today’s guest will spend time searching for the best deal online; they may book, cancel and – in some instances – book again. Because of the rise in online travel agents (OTAs), the cost of distribution has seen a sharper increase than room revenues.
It’s easy to see OTAs as the enemy – but that is far from the truth. They are a part of the marketing jigsaw now, and hoteliers need to budget, measure and analyse their sales and marketing activities with OTAs in mind.
Once you’re up and running with a revenue strategy it doesn’t stop there. Look again at your segmentations and get more granular to identify new opportunities. Forecast not on an annual basis, but on a monthly, weekly or daily basis. Re-evaluate what distribution channels provide the best returns, maximise on brand.com opportunities and invest in your own property.com channel. And get brave with your Open Pricing policy. Fortune favours the brave, and that includes hotel revenue strategists.
