The Path to Total Revenue Management

Author: Patrick Andres

The concept of total hotel revenue management industry has been discussed for years, to the point where some in the revenue management discipline are asking why the topic is still being discussed. It came up earlier this year at a roundtable hosted by Sherri Kimes in Singapore, where a group of RMS professionals and hotel executives spoke to students about the current and future state of revenue management. Total revenue optimization is still the future of our discipline. Here is where we are on the path to achieving the long-heralded concept of total revenue management for hotels.

As an Info-Tech study summarizes: “In today’s market, the focus is less on filling every room each night and maximizing the revenue per available room (RevPAR), it’s about flow through to the bottom line – total profit. Are you prepared to decline a guest an open room on a same-day booking if the system expects a more profitable client to come in later? If not, you should be.”

We all agree that yesterday’s “heads-in-beds” approach is not enough to succeed in today’s competitive market. And we agree that, for example, those business travelers who open their wallet to buy dinner and a fine wine during their stay are more valuable to a hotel than those who limit their spend to room only. Yet, the vast majority of traditional hotels today still manage their pricing and yield inventory with a primary focus on driving and increasing RevPAR.

Several years ago, at the HSMAI Revenue Optimization Conference, Bonnie Buckhiester, president of Buckhiester Management, cited the lack of progress, saying “total revenue management is the future, and we should be doing it now, but we’re just not there yet.”

So where are we as an industry on the path to achieving the gold standard of total revenue management? The answer: it depends on the data.


So What's the Hold Up in Total Revenue Optimization?

Although technology is often the target of the finger-pointing, it is the data on guest spend that is the key link between the current state and achieving the concept of total revenue management that we as an industry have so long discussed. We can complain we don’t have systems that talk to each other, but until that happens, hoteliers need to get creative about finding ways to capture crucial guest data using the systems they do have in place.

For instance, it doesn’t take very sophisticated technology to implement and leverage a loyalty program, and hoteliers can learn a great deal from their gaming counterparts in this area. Since 2001, Total Guest Value has helped boost gaming and non-gaming revenues from 5 to 15 percent at many casino hotels.

Unlike casino hotels, who have an advantage in tracking what guests spend when on property, hotels have a gap in their knowledge of what guests spend where. We know what total revenue is, but we don’t necessarily know who is spending the money resulting in that revenue. A strategic loyalty program is an excellent way to incentivize guests to reveal how much they spend at a hotel. And it enables the hotelier to give access, when room demand is high, to those who typically spend more and restrict those at the low end.

Science-based algorithmic models are vast improvements over what has been used in the gaming/hospitality industry for a long time. These algorithms are useful for identifying Total Guest Value, but an equally important component in guest valuation relies on accurately capturing data.

Total Guest Value strives to capture guest spend across the many different outlets on a property. The data sources are wide-ranging – for example, if a guest uses their credit card rather than charging a purchase to their folio, the hotel might miss those data points. Total guest value is contingent upon whether the hotel can capture the data or not. Generally, any information captured by the PMS or stored in a customer database is accessible by the hotel.

Non-casino hotels can benefit themselves by creating initiatives to capture folio spend by guests while on property. One way to capture the data is through discounts to encourage certain buyer behaviors, which in turn will enable properties to capture guest spend during their stay. Disney is a great example of a company that manages to capture guest habits via an arm band used for all purchases and leverages that data to seamlessly enhance guest experience.

Leveraging third-party vendors to capture data on guest behavior when they are not on your property can also help identify the Total Guest Value. By accessing information on a customer, you can develop a profile, including previous hotel stays and ancillary spend, that can help predict value. Accessing information on guest behavior when visiting your website, such as path to purchase, can aid in the process of predicting guests’ potential behavior when on-property or what types of offers might appeal to them. And intangible guest qualities, such as the value they could bring to your property via their social influence, reviews, and advocacy, are also important to consider when valuing your guests.

Hoteliers with a clear understanding of their guests and competitive differentiators can enhance their guests’ experience while simultaneously increasing ancillary revenue. By mining various data sets at a granular level, including both guest stay and guest spending history anywhere on property, your hotel can offer the best rates and ancillary products to your most valuable guests. The long-discussed future of total revenue management in the hospitality industry can (and will) become the reality as hotels become more savvy about capturing data and using it with the right systems to optimize their profit.

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