Revenue Management Beyond Hotel Rooms: Five tips to get started
By Kelly McGuire Vice President, Advanced Analytics, Wyndham Destination Network | September 18, 2011
Hotel Revenue Management (RM) is maturing, and more and more hotels have implemented RM programs along with advanced RM software to automate pricing. As the discipline matures, the law of diminishing returns begins to apply. More and more effort is required to squeeze our fewer and fewer dollars from hotel rooms. Smart revenue managers are turning to revenue generating assets outside of the hotel room, like function space(1), restaurants(2), golf courses(3) and spas, as the next potentials(1) for revenue gains. In a world where most hoteliers are already doing more with less, how do you even get started? I suggest the following five tips:
- Understand the theory.
- Follow a formal process.
- Involve the operations.
- Look for low-hanging fruit.
- Publicize your successes.
These five tips are based on RM research, conversations with managers who are implementing non-traditional RM programs, and my own experiences in this area. They will help managers take full advantage of the opportunities to apply RM beyond hotel rooms, while also working within the constraints of the existing operations. All it will take is a little knowledge, a lot of communication, and a few early successes.
Understand the Theory
There are just a few basic concepts you need to understand that will help you to identify the right area to focus on and the opportunity within that area. First, in order to take advantage of RM, an industry must meet the following characteristics(4):
- Relatively fixed capacity: it is difficult or costly to add more capacity.
- Time Perishable Inventory: the capacity cannot be stored and sold later.
- Time-Variable Demand: peak and off peak periods.
- Segmentable markets: the product or service has different value for different customers at different times.
- High Fixed and Low Variable Costs: it costs relatively little to sell one more unit, so any revenue gains can be used to off-set the fixed costs.
To illustrate how this works, let's look at golf. There are a limited number of tee times available, and it is difficult to add more without redesigning the course. If the 7:00am, Tuesday tee time is not sold by 7:01am on Tuesday, you can't sell it later. Most golfers prefer to start in the morning so there is ample time for 18 holes. Weekdays can be slower than weekends. Golfers could be segmented based on their willingness to pay for a desirable tee time, or on their skill level – assuming that more experienced golfers play faster, and therefore one could move more of them through the course in the same amount of time. Finally, compared with the cost of maintaining the course and the clubhouse, the cost of selling one additional tee time is relatively minimal. As you can see, golf is a perfect industry for RM.