Unboxing revenue management, from revenue systems to revenue strategy

Every crisis eventually presents an opportunity in itself. It has the potential to bring about innovation and adaptation to changing environments. Organizations that embrace the changing environment are quicker to recover and develop a sustainable strategy around their operations.

The effects of COVID has been felt across all business divisions and functions in hotels. Many companies have reacted to the presence of revenue management function in different ways. Some still see it as a numerically driven function that is highly technical. Such companies view revenue management as a function with use in periods of robust demand. These companies are “system-centric,” where the functional driver is managing a system.

And some organizations deploy revenue management as one of the primary drivers of business management. It is well entrenched in the ecosystem of their commercial operations. Here it is used to deploy strategies to create and manage demand. Such companies are “revenue strategy-centric.”

The construct – revenue systems

The birth of revenue management and its subsequent adoption has been known for many years. It all started with the airline industry and soon became part of the mainstream hospitality industry when Bill Marriott embraced the subject.

The science behind the technology is similar across systems, but systems have become more sophisticated and advanced in their applications. Some of the revenue management systems these days are highly automated and can spew forecasts with varying degrees of probabilistic computations. New technologies around pricing are automated and intuitive and consider dynamism in the environment, including lack of comparable data due to COVID-19.

The system’s adoption may not be true across the diverse hotel industry, but it has been one of the first criteria to set up revenue management in hotels. The majority still holds it as a technical function. Get a system or run Excel spreadsheets – and revenue management is being practiced.

The journey – revenue strategy

With the advent of online distribution for travel agents in the early 2000s, the landscape of distribution changed dramatically, and online sales took to the forefront. There was a need for a comprehensive review of the function of revenue systems management. The function responsible for looking at trends and demand pockets across geographies, segments and channels was transforming into a highly strategic function.

Many organizations started to invest in talent and recruited the right pedigree to manage their million-dollar hotel investments. The transformation of revenue systems management to revenue strategy may not have been an easy road. Now revenue strategy is viewed as guiding businesses and other commercial functions so that customers can be targeted at the right time for the right business opportunity.

The strategic nature of revenue management alienates it from being only a systems-driven function and brings strategy into the spotlight. Revenue strategy can be deployed to build a strategic roadmap that helps a business operation to thrive by discovering opportunities and becoming more profitable in the long run. It helps commercial teams to focus on the most profitable customer through the right channel of distribution. It is what the hotel owners want at the end of the day – a highly profitable hotel with all revenue streams optimized.

The choice – road ahead

Is it not time for hotel companies to build revenue management infrastructures around their operations that also reflect their strategy?

Outsource it

Hotels that believe that the revenue manager is primarily responsible for systems and reports management must seriously consider the deployment of resources.

  • Does the talent need to reside in-house? Can it be outsourced for greater efficiency?
  • Do they need to invest in technology, or should they be outsourcing to established revenue management system providers?
  • How will franchise operations want to handle it?

Enhance it

Hotels that have held on to their in-house revenue expertise and are deploying them at the forefront of their commercial turnarounds must continue to further the engagement. These organizations are better equipped and culturally rich to deploy resources appropriately.

  • Enhance total revenues management
  • Make it all about profitability

The choices are clear. A “revenue strategy-centric” organization can only further its strategic choice and explore ways to solidify total revenues and profitability. A “systems-centric” organization can further its performance by outsourcing revenue management and redistributing its resources to pursue other strategic choices that create differentiation.

About the author…

Sharad Kapur is a former head of revenue strategy at Hyatt Hotels & Resorts and an active commercial strategy consultant.

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