Cheryl Hawskworth

How RM systems benefit small group and independent hotels

23rd November 2009, 11:25am

Revenue management is an approach used in the hospitality industry to increase rates and occupancy. But what makes it so beneficial to hotels for example? Cheryl Hawskworth, IDeaS Revenue Management Solutions & Services Sales Manager, UK & Ireland, reports.

With a track record of significant revenue improvement, automated Revenue Management (RM) systems present for small groups, chains and independent boutique hotels, an opportunity to increase their market position, bind together the organisation with a deeper understanding of organisational goals, become more knowledgeable of market trends in the industry and ultimately improve their bottom line.

Rather than simply a managerial or informational procedure, revenue management is a decision-making technique, which takes into account room rates as well as the business's overall profitability. A well-designed RM system provides accurate daily forecasting for the hotel for periods up to 24 months as well taking into consideration the local or regional market and competitive set of hotels.

The benefits of revenue management exist on both an operational and financial level. While providing enhanced statistical intelligence, and accurate forecasting on all market segmentation, revenue management guarantees an overall increase in efficiency, allowing more time for revenue managers to be strategic and stay ahead of competition.

Return on investment can also be expected to yield a 4 to 12% net increase on room revenues. There is a typical payback time of three to nine months, providing the characteristics of the hotel allow for revenue management and the appropriate level of market demand exists. 

"Having historical information, and an up-to-date forecast, at the click of a button is so important. Being able to adjust your pricing, in an effective and timely manner to maximise opportunities, and distributing our rates and availability is paramount as we strive to grow our market share and target different segments," said Joyce Galvao, Revenue Director, Como Hotels.

Implementing revenue management practices in a small group or independent hotel environment requires a full evaluation of the hotel, both from an operations and technology standpoint. A crucial first step is to gain a deeper understanding of the competitive landscape in which the hotel operates, and accurately define its positioning and target market. Also, the hotel must correctly segment clients to best comprehend booking trends.

In addition to this, it is equally important for the hotel to evaluate its existing technology, including the Property Management System (PMS), Central Reservations System (CRS), Customer Relationship Management (CRM) and Channel Management Systems (CMS). Seamless integration with these systems is a key component to choosing the appropriate revenue management system.

Hotels should understand which restrictions can be applied to the PMS, CRS and other transaction/reservation systems, for example XTranets, and any sales channels through which rooms are sold. A RM system that can create these restrictions needs to be considered, in conjunction with existing technology, and hotels should be confident that the necessary data that serves as a foundation for revenue management can be extracted in a meaningful way.

The hotel staff play a paramount role in establishing a well-rooted revenue management culture. Hotels should effectively educate employees regarding the basic function of revenue management and the impact it has on the hotel's overall success. As with all initiatives, direction should come from the top, with the hotel's leadership exhibiting a commitment to a new RM-focused environment. Failure to obtain this sort of sea change in the employees' attitudes about revenue management will undermine any investment in a RM system.

"The training sessions that came with IDeaS has been invaluable because it really helped to build the culture and practice of revenue management up through the organization," explained Markku Mäkipää, Revenue and Sales Development Manager, Sokos Hotels.

Once hotels have accurately defined themselves in the market, assessed their technology and established a well-trained staff which fully understands the mission-critical nature of revenue management, they will be able to manually manage revenue effectively.

Manual revenue management is a process which involves four aspects:

1. Data pulling – Hoteliers gather data and extract it in a meaningful way

2. Forecasting – Hotelier accurately analyse distribution channels and competitive landscape to anticipate trends and behaviours

3. Optimization – Hoteliers define their pricing strategy and decide where to apply special pricing.

4. Monitoring – Hoteliers establish the key numbers for their properties, i.e. average daily rate and occupancy which, combined, will deliver the RevPAR (Revenue per Available Room), currently the most important figure in the hospitality industry to indicate the hotels performance.

Once an effective manual system is in place, the hotel may be ready for the next step: the implementation of an automated RM system. This will allow the revenue manager more time to be strategic by spending less time on data entry and achieve higher accuracy and efficiency.

When choosing an automated RM system, a hotel should look for software providers that offer a high level of customer service and support to ensure a smooth transition, through proper procedures, and continued education throughout the use of the system. Though this is the most difficult aspect to evaluate, it is critical for a hotel to choose a company that can easily explain its science, evaluating the level of detail in the forecasting capabilities. The better the science, the more data the system can use and the better forecasting and optimization engines will work.

When focusing on technology, application service providers (ASPs) delivering Software as a Service (SaaS) solutions are highly recommended since they enable hotels to more quickly and cost-efficiently harness technology to achieve their revenue goals. 

In addition to that, the system's user interface should be user friendly in order to facilitate the revenue manager's work and should also have two-way functionality, allowing not only extracting data, but uploading restrictions and pricing recommendations, especially Best Available Rates (BAR), into the PMS, CRS and channel management systems in use by a hotel.

The recent introduction of the V5i Forecasting solution provides many small groups, chains and independent boutique hotels with the access to analytical data, allowing them to have a clear insight into anticipatory data without a full-scale RM system. As a result revenue managers can make better pricing decisions as the solution provides hotels a quick and easy-to-implement solution for automating a specific portion of their revenue management process. 

This allows independent hotels to begin realizing the benefits of an automated system prior to committing to a full deployment. Through the accurate and consistent forecasting and reporting process hotels will also see improvements in revenues. The V5i Forecasting solution is the perfect first step into the larger revenue management investment, particularly in these tough economic situations.

"Investing in new technologies that provide efficiencies is an important aspect of our strategy, especially in times of economic crisis. A key part of this is optimal revenue management. Through the partnership with our revenue management systems provider, Travelodge have benefited from immediate and expedient forecasting and analysis," said Farabi Syed, Revenue Management Decision Support & Analysis Manager, Travelodge.

Finally, when assessing a system, hoteliers should always look for features and capabilities that "future proof" their investment. Revenue management is not simply for improving revenue in the area of room bookings. Forward-thinking hotels have moved beyond RevPAR to focus on RevPAG (revenue per available guest) which looks at guests' spending from arrival to departure including profits generated by dining, catering, meetings, and recreational and resort activity purchases.

An increasing numbers of hoteliers are now embracing a complete revenue management culture, having understood that seeking out and using the tools, principles and systems that can increase revenue is a fundamental step in running a successful hotel.

Syed added: "The relationship we have with our revenue management systems provider has always been very profitable and proved fundamental in maximizing out revenues. To benefit from accurate forecasts, automated controls, and complete group-wide reporting upon opening is quite a competitive advantage."

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