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A history lesson in revenue management and the top challenge facing today’s hotels

  Posted in Resources  Last updated 16/05/2024

With every passing year, revenue management is playing a more central role at hotels as they navigate a landscape now locked in a permanent state of change. 

Particularly in recent years, when hotels have at times been forced to confront a reality without cash flow, revenue management has been thrust to the forefront of every hotelier’s mind. Revenue managers, as a result, have been tasked with the critical role of delivering effective pricing and distribution strategies amid evolving trends and market demands, no matter the economic climate.

But while revenue management as a discipline has transformed since it found its way into hotels, there appears to be a widening gap between the heightened demands of the practice and the shrunken pool of talent within the industry. Below is a chart that illustrates this trend.

The gap, observed and experienced by many, suggests that the industry has far from realised the full potential that the practice holds for today’s accommodation businesses.

For us to understand the current state of hotel revenue management, we spoke with three prominent hotel industry professionals to share how the practice has transformed over time, as well as the challenges and opportunities that have emerged from this transformation.

A brief history of hotel revenue management

Trevor Stuart-Hill, the co-author of the first college textbook on revenue management for hotels, and founder and president of global revenue strategy firm Revenue Matters, explains that the hotel industry’s adoption of revenue management began with the introduction of computer systems for demand forecasting, following the airline industry’s successful implementation of the practice.

“The exact genesis of yield management (now revenue management) in the hospitality sector is hotly debated,” says Stuart-Hill. “However, Marriott was one of the pioneers in the hospitality industry to develop computer models designed to support revenue decision-making, so it is primarily cited as the first.”

Stuart-Hill points out that revenue management initially fell into the hands of the reservation manager, particularly in the early 1990s, when reservation managers took on the special task of explaining the emerging idea of dynamic pricing to consumers.

It was then that reservation-turned-revenue managers began assuming the responsibility of distribution, as the arrival of online travel agencies (OTAs like ushered in a transformative approach to hotel distribution. Eventually, revenue management transformed into a more proactive discipline in the 2000s, prompted by the global economic crises that defined the decade.  

“The bubble burst in 2000, the housing bubble burst in 2007 and companies like Lehman Brothers collapsed. These events are important to the evolutionary history of revenue management, as revenue managers were tasked with helping find additional revenue sources for their properties,” explains Stuart-Hill. 

Yet, despite the importance of their role, it wasn’t until the mid-2010s that revenue managers began stepping into executive leadership positions at hotels. In 2016, a study by Dr. Laila Rach titled Portrait of Revenue Management Leadership found 65% of revenue practitioners had titles such as ‘vice president’ or ‘senior vice president’.

Fast forward to 2020, the “Great Reset” prompted by the pandemic rapidly changed how consumers and businesses embraced technology. As the pandemic brought travel to a standstill and gave rise to “quarantine hotels”, revenue managers had to rethink their strategies, starting with technology, in order to sustain their businesses.

Holistic revenue management

Today, hotel revenue management has transformed into a holistic discipline, no longer confined to achieving rate parity or adjusting room rates. Derek Martin, CEO and Founder of data analytics company TrevPAR World Group, considers revenue management as integral to a hotel’s commercial success today.

“Revenue management has actually become the lifeline and the heartbeat of a hotel,” says Martin. “When you look at revenue management holistically, it’s no longer just about the rooms. It is about the entire business; its costs, performance and profitability. It’s become much more of a commercial function than just a revenue management function.”

Martin attributes this change not only to the widespread adoption of the Internet, which has turned hotel commerce into a 24/7 operation, but also to the rise of big data. He adds that with advancements in hotel technology, revenue managers now have the opportunity to be even more strategic with their practice.

“We’ve got so many data touchpoints when it comes to hotel technology and systems that a single reservation can be accessed, processed and leveraged on up to ten occasions before the guest even checks in. But we also need to remember that while technology is great, we must make sure the right technologies align for the right property. The alignment of the operational and the strategic elements is what I call modern-day revenue management.”

The struggle for talent

Despite the abundant need and desire for revenue management expertise, the hotel industry currently faces several challenges when it comes to building the talent required for today’s practice.

“I am rather concerned about the standard of experience currently on display in the industry,” says Tamie Matthews, CEO and Founder of RevenYou, a consultancy for independent hotels. She points to the scarcity in holistic experience among revenue managers at a time when the practice has taken an equally holistic approach.

“While we now have people who can move a price up or down, use a revenue management system and analyse data, they lack the experience in driving production, creating a profitable distribution strategy and operating the multitude of systems we use daily to create revenue,” Matthews explains.

The ongoing shortage of revenue managers in hotels, exacerbated by the recent pandemic which prompted a brain drain of revenue practitioners, also remains a pressing concern. With their transferable skills in data analytics, hotel revenue managers have been drawn to pursue opportunities outside the accommodation industry where they feel more fairly compensated for their high-in-demand skills.

Furthermore, a lack of executive support has often led to innovative revenue ideas being overlooked, particularly those from the younger revenue managers. Martin attributes this dynamic to the disparities existing between senior hotel leadership and the nature of today’s practice.

“Old-school leaders may not fully understand revenue management, but it’s not their fault. Many have been general managers for decades, while today’s approach to revenue management is relatively new,” Martin explains. “As revenue management gets explored more, the talent shortfall will get worse. We will not be able to generate talent quick enough.”

Bridging the gap towards a true revenue culture

Amid these challenges that hamper revenue management’s potential, both revenue managers and the hotel industry at large must be proactive in order to drive the practice forward.

For Matthews, a revenue manager’s openness and inquisitive mindset are necessary to raise the level of revenue experience in the industry.

“A revenue manager who thinks they are indispensable because they can change pricing daily is a revenue manager living in the past. To ensure revenue management continues to grow and evolve, revenue managers need to expand their knowledge base. They must adopt a growth mindset and a desire to learn,” she explains.

This need to broaden a revenue manager’s role beyond pricing is echoed by Martin, who sees distribution as an important skill for any revenue practitioner.

“We’re looking for a revenue manager that has a full understanding of operations, cost control and, more importantly, the distribution landscape. Distribution is 80% of revenue management right now. We can come up with brilliant ideas, but if we don’t know how to distribute those ideas to the greater world or the Internet, no one’s going to book and find us,” he explains.

In addition to the technical skills required to keep pace with today’s revenue management, soft skills are equally important. Stuart-Hill emphasises that communication and collaboration are essential for revenue managers to achieve their revenue goals.

“Those with a strong foundation in revenue management, who also excel in active listening, communication and persuasion, find themselves defining and driving commercial strategy within their organisations,” he shares.

From a broader lens, structural and cultural changes within the industry are also vital in driving revenue management forward. For one, Martin suggests establishing a dedicated role for a revenue manager rather than diluting their responsibilities across different functions.

“A data geek that can speak is the ultimate revenue manager because they can tell the story about your data. If you’re crossing over their responsibilities with sales, marketing or front office reservations, where 20% goes to revenue and 80% goes to the operational side of the business, the hotel falls over. You need to have specialists. Revenue management is not a ‘ten-minutes-a-day’ job,” he explains.

He also advocates for fair compensation, highlighting the current discrepancy between the valuable contribution of revenue managers and their relatively low salaries.

“Revenue managers have one of the lowest payrolls in the hospitality space. The way that we think about the salaries of revenue managers is actually an insult to smart people. We need intelligent geeks that can speak and know their worth,” he adds.

In the end, Martin believes that fostering a culture that rallies behind revenue managers and their ideas is key to further advancing the current practice of revenue management.

“A true revenue culture is achieved when you have buy-in from the top to the bottom, with everyone sharing a common goal to achieve targets and meet stakeholder expectations. So, if we truly want to make revenue management the forefront of our industry, we need to give our revenue managers an opportunity. Let them speak, listen to them and buy into their ideas. Just because we’ve been doing things the same way doesn’t mean we have to continue doing so. Why can’t we adopt another ‘Great Reset’ mentality?”


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