Revenue management is essential for any hotel today. Without it, hotels simply forfeit the ability to boost their bookings, revenue and profit; offer competitive rates and promotions; and forecast the upcoming booking season.
Whether it be metasearch price manipulation, mobile pricing strategies, or even brand protection, revenue managers have a tough gig. A consistent topic of conversation, the ‘future of revenue management’ is an intriguing one for SiteMinder’s product team.
In part 1 of this blog, we’ll look at some of the developments, complexities and challenges today’s hoteliers face in the bid to optimise their revenue and returns.
Revenue management – it’s easy right?
Revenue management has long been a relatively straightforward practice, although most revenue managers will argue that it doesn’t mean it’s simple. In recent years we’ve seen a proliferation of advanced revenue management technologies such as the likes of IDeaS, PriceMatch and Duetto Research, all of which have placed considerable power in the hands of today’s hoteliers.
With the growth of big data, it’s now easier than ever for hoteliers to understand their market. Information like the hotel’s competitor set, historic prices, regional price trends, and much more are now available on demand. Advances in revenue management technology have also seen the introduction of more sophisticated measures of a hotel’s performance.
That said, one has to ask: why are so many hotels’ margins still being eroded away by OTAs? It would seem that more advanced revenue practices should lead to greater profitability for the hotel, but that has not necessarily been the case.
The growth of meta search
While it’s difficult to pinpoint a specific reason for this erosion of margins, we can identify some contributing factors. Firstly, the growth of metasearch, initially touted as a way for hotels to win more direct business from OTAs, has generally proved more lucrative for OTAs than hoteliers. CPC-style (cost-per-click) metasearch channels are often difficult for independent hotels to use optimally, whereas OTAs can dedicate resources specifically to global CPC management. This means that it is generally easier for OTAs to bid optimally, and hotels will either overspend or under perform.
Secondly, there has been relatively slow uptake of new RMS technologies by OTAs. Only a handful of OTAs, for example, can fully support full-pattern length of stay (FPLOS) pricing, a lynchpin of revenue management in systems like IDeaS. As long as most OTAs in the market are using cached pricing, hotels will continue to be unable to leverage more advanced, demand-driven pricing strategies uniformly across their OTAs and other sales channels.
Finally, rate parity continues to be an obstacle for hotels seeking to have more control over their pricing structures. Most OTAs – in particular, those with global reach – have automated tools which regularly check to ensure that hotels are compliant with rate parity. This means it’s nearly impossible for hotels to offer special prices or other deals without drawing the ire of the OTAs not receiving them – usually the only way is to circumvent the system by setting up packages and private sales which parity checks might overlook.
In the second and final part of this blog, we will explore three recommendations for hotels to regain some of their lost margin and learn how to maximise the impact of their revenue management techniques.