Hotel inventory management basics
Effective inventory management at your hotel is a core aspect of running a successful business.
In any given day, you might deal with your hotel’s latest promotions and marketing messages; the analysis of your sales figures and occupancy rates; the management of guest expectations and online reviews; the supervision of maintenance works and renovations; and that’s before we even mention the effective management of your hotel staff.
All of this hinges on how you’re managing your inventory and with increased competition and transparency in today’s booking landscape, the job is becoming one of higher focus and difficulty.
Effective inventory management for hotels involves both creating and managing demand, and maximising returns. The investment backing a hotel is tied up in its rooms and the returns can only be gained from selling those rooms optimally.
Here are some strategy basics:
By driving prices up during high peak periods and knowing how much to discount prices by to ensure rooms are rented during low peak periods, hotels can maximise their return. Through dynamic pricing, businesses can provide discounts and incentives in a controlled way during different seasons.
Hotels generally advertise their rooms through multiple channels, such as online travel agencies, to optimise reach and promote sales. Distribution management is essential and this involves calculating the minimum numbers of rooms needing to be sold for any given period by each channel. In doing so, you then have the ability to make informed choices regarding reallocation from cancellations or where to list spare rooms to maximise sales.
- Market segmentation
Being aware of your market and the variable preferences, demands and affordability of different demographics are paramount to understanding how to price and distribute your room sales across the various channels. Not only does this help in managing your existing rooms, but it can also allow you to capture more of the market and increase sales and revenue. Flexibility is an important virtue required of hoteliers and being able to understand your clientele and adapt to their needs is vital to building loyalty and guaranteeing profitability.
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Inventory and distribution in the hotel industry
Inventory management is an umbrella concept that involves understanding, overseeing and controlling your hotel’s room inventory.
By analysing your inventory and rates on a regular basis, you can make adjustments in anticipation of peaks and troughs in demand, allowing you to cherry-pick the highest value bookings during peak times, as well as deploy discounts and other customer incentives to drive up demand and increase occupancy during quieter periods. This strategy is what is referred to as dynamic pricing, and the benefits include simplified revenue processes, increased speed and agility of a hotel’s responses to customers, as well as greater rate integrity. Inventory management also enables you to set your prices relative to competitors, which is essential given that OTAs are levelling the playing field for hoteliers through increased pricing transparency.
Hotel operators need to create an efficient and effective distribution strategy to thrive in a competitive global industry.
Here’s how to optimise your hotel’s distribution strategy:
Collect data and utilise it effectively
No matter how good your distribution strategy is, you need to recognise that there’s always room for improvement. The best way to enhance and improve your distribution strategy is to collect data and initiate a better understanding of your guests and distribution partners.
Through data collection, you will be able to understand which channels drive the most revenue, and when. Be sure to run regular reports so that you can make frequent adjustments based on the most relevant, accurate and recent data available.
Consider your target market segment when adding agents to your distribution network
Certain distribution agents will appeal more to different market segments, so it’s important to form partnerships with the right agents for your property. For example, if your hotel appeals to international travellers from China who are searching for luxury experiences, you will want to find OTAs that attract those specific individuals.
Increase opportunities for direct bookings
Many travellers use large distribution agents, such as OTAs, as a starting point for their travel-related research. They’re likely to discover your hotel on OTA search results pages, but they may also head to your website or begin following your social pages in order to learn more about your brand. At these key moments, make sure your potential guests know they can book directly with you.
Make online booking simple on your website, and prominently display your booking button. Include booking capability on your social pages, such as Facebook or Instagram.
Use OTA marketing strategies to your advantage
The fact of the matter is, OTAs have more money to spend on marketing than you do. Use this to your advantage, and let them promote your property for you. Leverage their marketing spending in order to increase bookings at your brand, without increasing your own marketing budget.
Optimising room inventory
It allows you to improve your distribution strategy
Your room inventory strategy should identify the various channels that need to be used to maximise bookings during a specific period of time, and also minimise the costs associated with achieving those bookings.
For example, your room inventory strategy should identify the best times of year to employ OTAs to sell a high number of rooms. While these bookings are more expensive than direct bookings, they may be necessary to book the highest number of rooms possible during a specific time of the year. With an effective room inventory strategy in place, you will be able to better identify which distribution partners and channels to include in your overall distribution strategy.
It allows you to accurately forecast
A comprehensive room inventory strategy will allow you to predict when your rooms will be in higher demand and determine how room rates should fluctuate during those peak times.
Beyond simply forecasting when demand will rise and fall throughout the travel season, the best hotel inventory strategies also explain the reasoning behind those trends using accurate, relevant data. You should prioritise data collection efforts in order to create a refined room inventory strategy that predicts and forecasts future demands with precision.
Ultimately, forecasting has a direct impact on your ability to balance your room inventory levels with their revenue levels, giving them the opportunity to earn as much revenue as possible with each booking.
It allows you to segment your target markets
Knowing that not every room is right for every traveller, it’s important for you to use a room inventory strategy to better develop segmentations. For instance, the luxury suite at the highest level of your hotel property is not going to be within reach for every market segment you sell to.
It’s critical your room inventory strategy accommodates the various types of people who book your hotel, including their interests, age groups, demographics and budget levels, and matches them accordingly with the right rooms to meet their needs. By using segmentation strategies, you will be able to sell as many rooms as possible across all of your different price points at any given moment.
Hotel room inventory advice for hoteliers
Your hotel’s inventory is its greatest asset and represents a major part of your investment.
That investment is tied up until rooms are sold, making the effective management of inventory a key task. No longer just an idea, hotels that have mastered the art of inventory management are seeing big benefits to their bottom line. It is estimated that Marriott Hotels increased their annual revenue by as much as $200 million when they first introduced their inventory management strategy.
Creating a balanced strategy
It costs time and money to store, track, and promote inventory across multiple booking channels. Because mismanagement of inventory can cause significant financial problems, hotels must be vigilant in tracking their data and implementing findings on a regular basis with an eye to controlling the costs associated with inventory. Technology will help you make the most of your data and create a balanced inventory management strategy, this includes:
- Lead Time
In order to maximise sales, you need to understand how long it takes to sell hotel rooms through each of your key channels. With booking lead times shrinking, creating more forecasting uncertainty, hotels must have a better grasp of what consumer behaviours and trends are driving lead times from the search-to-booking window.
What is the minimum number of rooms you have to sell through each type of booking channel in order to maintain effective sales levels? By understanding the minimum number of rooms to be sold (across day, week, and month) and across specific channels (direct and indirect), you can both reallocate any cancellations, and more importantly, decide how and where to utilise spare rooms for promotional offers and seasonally adjusted rates. For maximum efficiency, your inventory management strategy needs to work hand-in-hand with your sales and marketing strategy.
- Demand Management
Monitoring demand and sales trends via your channel manager or in-house reporting system allows for real-time, effective inventory management, promotion, and reallocation of rooms so that you are aware of your available inventory at any given time. To this end, centralisation of all hotel staff resources is essential so that everyone is on top of your hotel’s current inventory, the prices they should be quoting, and any discounts or promotions they can offer. This centralisation is particularly important for hotels that receive high volumes of phone reservations and walk-in guests, or have call centres or central reservation systems.
A holistic approach
You need to think of inventory management holistically: it doesn’t happen in isolation from your other management, sales, and marketing strategies. With the right technology to help you integrate the different functions, you will be able not only to collect the right data and analyse it in a way that is meaningful, but also use it to drive your marketing campaigns through all your different sales channels and maximise your return on your inventory.
Understanding distressed inventory
Distressed inventory refers to hotel rooms that are not expected to be sold at full price. Inventory can become distressed for a number of reasons, but the most common is cancellations in close proximity to the booking date.
For these rooms, hotels often significantly reduce prices to encourage consumers to book last-minute and to avoid their rooms remaining empty. After all, what is the value of a hotel room if it is empty?
Also, a hotel that is full to capacity is good for business in other ways. It conveys the impression that there is always high demand for rooms, enhancing a hotel’s reputation.
Additionally, when people stay at a hotel, they don’t just pay for the room. Other revenue can be generated from food services, recreational activities and other in-house services. Sometimes, the discounted amount of money on a reduced price room can be made up through the late-coming guests’ extra spending.
Why your hotel needs pooled inventory
A pooled inventory model means you can sell all your rooms on all channels at the same time, as opposed to splitting your inventory and allocating a certain number of rooms to each channel you connect to.
Pooled inventory can be achieved by using a channel manager and will ensure your hotel avoids double bookings and overbookings.
If a hotel is not using a channel manager, then they have to fracture their inventory splitting between all the online booking channels they are using. As an example, if a hotel has 100 rooms and is working with 10 Online Travel Agencies (OTAs), that hotel must then give 10 rooms to each OTA. That’s in theory. What actually happens, however, is that hotel will provide its best suppliers more rooms, meaning the smaller players get way less than the average 10.
The hotel then has to constantly monitor and shuffle its inventory, with the real risk of missing bookings, as they run out of inventory on the smaller – but still valuable – OTAs.
By giving all of the OTAs all of your inventory at once – which is what pooled inventory supports – most of the OTAs will reward you with better visibility in their ranking algorithm.
By using pooled inventory, there is no barrier to the number of online booking channels you can work with; by broadening your distribution, you increase your opportunity and can target individual markets and segments. This will increase your bookings and then by providing loyalty and re-marketing strategies, marketers can turn these booking clients into direct clients.
Hotel inventory management software
Technology is changing the way people plan, book, and enjoy travel – and it can also be used to combat these changes from a hotel’s perspective. Just as technology empowers travellers and guests to explore their online options and conveniently book their chosen accommodation, intuitive technology can eliminate the manual processes that dominate your daily routine in your hotel.
One great example of how you can use technology to positively impact your hotel’s operations is last-minute bookings.
We know that mobile devices are changing everything. More than half of the world’s population now has a mobile device. That in turn means that more guests are booking your hotel on smartphones and tablets, and crucially, they’re doing it increasingly at the last minute.
This trend represents a huge opportunity for hotels to sell their very final rooms, right up to the last minute. But only hotels with the right channel management technology in place will be able to take advantage.
Ultimately your hotel needs one single connection that can shield you from the madness; a seamless two-way connection to your hotel’s various booking sites is key to ensuring the constant flow of information is reliable.
This allows you to increase your revenue and reduce waste, by ensuring all your inventory is available across all channels – and you can keep all available rooms listed right up to the last minute. When a room is booked, a channel manager automatically updates it across all channels. You can change the room rates across all channels without logging into multiple sites to make updates, and maintain or increase your rates.
There are a lot of systems that help support inventory management:
- Property Management System (PMS)
- Point of Sale System (POS)
- Revenue Management System (RMS)
- Channel Management System (CMS)
- Central Reservation System (CRS) and Hotel Reservation System (HRS)
- Global Distribution System (GDS)
- Internet Booking Engine (IBE)
Choosing the right hotel inventory software
Given a channel manager is the most powerful asset, it’s important to make the right choice since not all of them include the same features.
Choosing the right channel manager will also enable you to:
- Get your hotel booked faster
- Remove manual entry with complete real-time automation
- Have all your rooms online at once to increase revenue
- Understand deep reporting to help analyse trends such as last-minute bookings
Here are some questions to ask potential channel manager providers no matter what size your property is:
- Do they offer full integration with your property management system?
- Do they support global channel connections, integrated with reliable XML connection?
- Is the user interface user friendly?
- Is adequate support and training offered, especially in your native language?
- Do they use a pooled inventory model?
- Is comprehensive reporting part of the system?
- Will they integrate with your online booking engine?
- Do they automate and update in real-time?
- How long does it take to implement the technology?
- Is the software PCI DSS compliant?
- Are there product feedback avenues?
- Can the product support multiple users
- Is there a free trial period?
- Is the pricing model per channel, per reservation, or flat fee?
Hotel inventory management system
A revenue management system is another vital piece of technology that can significantly aid your inventory management strategy.
What an RMS can do
We live in an era of big data. In order to create accurate demand forecasts and update room prices in real-time, you are going to be reliant on technological solutions. At the most basic level, an RMS can mine your reservation, booking and data, producing demand generation forecasts for every type of room for every day of the year. You will be able to see historic booking channels, lengths of stays, prices paid and the yield generated on each room, as well as any patterns in cancellations.
These forecasts work alongside optimisation programs in order to set inventory controls, enabling you to automatically set different rates for room types and lengths of stay up to specified overbooking levels. This approach allows you to cherry pick the highest value bookings (which given differences in underlying costs are not necessarily those with the highest room rate), thereby optimising the yield on your inventory.
Pricing precision and pricing optimisation are the two most important parts of your inventory management strategy and are key drivers of your revenue per available room and profitability. Even a $1 reduction in the ADR (average daily rate) for a 500-room hotel with 70% occupancy would cost that hotel over more than $100,000 in lost revenue per year.
In order to take advantage of dynamic pricing, you need a system that can respond to information in real-time, allowing you to stay on top of any emerging trends or shifts in customer behaviour.
Integrating your RMS with your channel manager
By integrating your Revenue Management System with your channel manager, you can quickly distribute real-time rate recommendations from your RMS, making sure your rooms are selling for the right price. An important piece of the inventory management puzzle, your channel manager ensures that rates and availability are automatically adjusted in real-time across all booking channels in order to reduce the time it takes to update room prices and increase revenue. By monitoring demand and sales trends via your RMS, channel manager, and in-house reporting you can effectively manage, promote, and reallocate your rooms.
Leverage technology for more powerful inventory management
Technology can not only help inform human decision making, but also show the impact of those decisions in real-time, enabling you to streamline your marketing strategies and capitalise on emerging trends. And by bringing your technological and human resources together, you can help maximise your inventory yield through more targeted marketing opportunities.
The theory behind a good hotel inventory system
Every principle and strategy has best practice, which allows you to achieve the best possible results. Inventory management is no exception.
Here are four ways to streamline inventory management to maximise revenue opportunities:
1. Integrate your channel manager
Integrated systems are now necessary to improve the overall performance of your property. A channel manager solution should interface, seamlessly connect, and share data, in a real-time manner with both the PMS and revenue management systems. With an integrated system comes real-time inventory management, making it easier for hotels to manage room bookings, rates, and distribution of inventory across multiple channels and properties in a single click. Channels that are not updated properly encounter reservation errors, overbooking and missed booking opportunities. Integration ensures that room rates and inventory availability update simultaneously and accurately across all booking channels and provides operators with the flexibility needed to optimize inventory for maximum occupancy and revenue.
2. Make data-based decisions
When it comes to rate setting and inventory allocation decisions, data, not instinct, should drive marketing moves. With seamless integration, hoteliers can monitor performance metrics such as RevPAR, ADR, occupancy, booking source etc. and not only determine their best-performing channels and price points that are best fit for their target market but also gauge the impact of their decisions. Similarly, hoteliers can combine and analyze various data sets simultaneously such as customer segmentation, seasonality, special events, booking trends, competition rate setting etc. allowing hoteliers to forecast demand and create appropriate pricing and promotional strategies aimed at different customer segments. Armed with the relevant data and utilised effectively, owners and managers can then make more timely, informed and sophisticated rate and distribution decisions, maximizing revenue opportunities and hotel performance.
3. Leveraging mobile technology
Real-time visibility is important in making timely informed decisions. With a cloud-based mobile PMS managers’ can view live performance, monitor operations, access key reports etc. remotely, on the go, anytime, anywhere, even if they are not physically on site. Likewise, revenue managers can access the PMS and make strategic decisions about rates and inventory and can react to hotel and market conditions in real time and make inventory adjustments. Information that can be accessed instantly from almost anywhere helps to further streamline inventory management; employees are better informed, can make more accurate, faster decisions, deliver the right inventory to the right people at the right time, maximising revenue opportunities.
4. Push your book direct channels
We all know that it is far cheaper to encourage a repeat visit than it is to find a new customer. And while that is all well and good since we have become tethered to our digital devices in recent years, our booking habits have moved online and as a result, the fight for online bookings between hoteliers and third parties has grown. The issue is also compounded by a number of factors, such as the unwavering contracts that exist between the OTAs and hoteliers, the commission paid by the hoteliers – anywhere from 15-25% of top-line revenue in commissions (painful!), the strong online presence OTAs have (supported by unbelievable marketing budgets) along with the consumers belief, and have been trained to believe, that the best prices can be found on third-party sites.
With the right technology in place, maximising return on your inventory and increasing the hotel’s revenue is much more achievable.
- Inventory management is an umbrella concept that involves understanding, overseeing and controlling your hotel’s room inventory
- Effective inventory management for hotels involves both creating and managing demand, and maximising returns
- A comprehensive inventory strategy should encompass accurate forecasting and smart segmenting
- Distressed inventory refers to hotel rooms that are not expected to be sold at full price
- Inventory can become distressed for a number of reasons, but the most common is cancellations in close proximity to the booking date
- A pooled inventory model means you can sell all your rooms on all channels at the same time, as opposed to splitting your inventory and allocating a certain number of rooms to each channel you connect to
- There are many technology systems that can help you manage your inventory
- A channel manager and revenue management system are two of the most powerful assets