The Process of Optimization in a TRM System
By Nicholas Tsabourakis Founder & Managing Director, Bespoke Revenue Management | July 22, 2018
In this series of articles on Total Revenue Management (TRM) we started by identifying five core elements namely, Revenue Culture, Market segmentation, Seamless technology, Forecasting by Revenue stream and Optimization by Revenue stream, that consist the fundamentals for efficiently and effectively embracing such a business practice.
While the first three pave the way for successfully adopting and implementing TRM as a commercial philosophy, the last two involve the day-to-day ongoing operational activities for managing revenues and profits. This article will focus on Optimization as a necessary tool for a successful total revenue management plan.
What is Optimization?
Optimization, a cornerstone of Revenue Management operations, is the action of making the best or most effective use of a hotel's inventory while guiding the simultaneous action of revenue and profit growth. It ensures the best and most effective use of strategies and tactics in order to balance supply and demand and deliver the optimal business mix. Optimization relies on intelligence gathered during forecasting, a process that indicates changes or variations in booking pace of a segment or segments, in order to deliver an updated action plan. It then moves on to investigate external factors that influence demand providing thus with a complete view and understanding of all dynamics.
Optimization drives the ongoing process of controlling product availability and price to ensure revenue and profit growth. In a constantly changing market place, having a thorough understanding of booking patterns, lead times and cost of distribution will enable managing demand not only by price but also by cost of acquisition & contribution by revenue stream or center.
With demand fluctuating, optimization aims to highlight deviations from the strategies in place and suggests corrective measures. It takes into consideration the profit elements that influence performance in all revenue streams in order to decide potential reformulation of adopted strategies. Having the right revenue culture makes optimization easier to implement as there will be times where a sacrifice in price will need to be made for a product in one department in order to secure a piece of business that has significant profit value in another.