How to Balance Revenue Management Friction Across Hotel Departments

The hotel industry, like any other service industry, is made up of different functions and roles that often interact in complex and sometimes contradictory ways. Among these roles, revenue management (or Revenue Management) plays a vital role. This discipline, based on forecasting, demand analysis and pricing optimisation, may come into conflict with other areas of the hotel business, such as marketing and loyalty, commercial and sales, reservations, front desk, brand positioning, online reputation, and others. This article aims to explore and mitigate these points of friction, creating a balance that enables the harmonious operation of the business and the optimisation of its revenue.

1. Revenue Management and Marketing and Loyalty

Revenue Management (RM) and Marketing and Loyalty (M&L) may appear to be opposing disciplines within the hotel environment; however, their relationship is fundamental to the success and survival of any hotel in today’s industry. In this section, we will take an in-depth look at the points of friction that may arise between these two functions and how they can be overcome. Revenue Management focuses on maximising revenue through the management of room pricing, inventory, demand and distribution. It draws on the principles of microeconomics and statistics to optimise the hotel’s financial performance. Marketing and Loyalty, on the other hand, aims to attract and retain guests by promoting the hotel brand and experience, often through promotional campaigns and loyalty programmes. The first point of friction may arise in relation to pricing strategies. Revenue Management may seek to set higher prices during periods of high demand in order to maximise revenue, while Marketing and Loyalty may wish to offer discounts to attract more guests. This conflict can be resolved through a data-driven approach and close collaboration between both departments. Data analysis can reveal demand elasticity across different guest segments, enabling a more effective pricing strategy. In addition, Revenue Management and Marketing and Loyalty could work together to design promotional offers that attract new guests without undermining revenue. Another point of friction may arise regarding loyalty programmes. From a Revenue Management perspective, these programmes may appear to represent an immediate loss of revenue, as they offer discounts and benefits to guests. However, from a Marketing and Loyalty perspective, these programmes are essential for retaining guests and building loyalty. One way to overcome this conflict would be to incorporate customer lifetime value (CLV) analysis into the Revenue Management strategy. By taking CLV into account, Revenue Management could recognise the long-term value of loyalty programmes and work with M&L to design them in a way that maximises both guest retention and revenue. Finally, another point of friction may arise in relation to market segmentation. Revenue Management may wish to segment guests according to their willingness to pay, while Marketing and Loyalty may wish to segment them according to their interests and preferences in order to personalise their marketing experience. This conflict can be resolved through data sharing and collaboration between the two departments to develop a more comprehensive market segmentation that takes into account both willingness to pay and guest interests and preferences. In conclusion, although Revenue Management and Marketing and Loyalty may have different approaches and objectives, it is crucial that they work together to maximise the hotel’s success. By recognising and overcoming points of friction, they can develop strategies that attract and retain guests, maximise revenue, and ensure the hotel’s long-term survival and growth.

2. Revenue Management and Commercial and Sales

The relationship between Revenue Management (RM) and the Commercial and Sales department (C&S) can be particularly tense due to the apparent difference in their primary objectives. While Revenue Management focuses on maximising revenue through the strategic management of room pricing and availability, Commercial and Sales focuses on ensuring high occupancy, generally seeking to sell as many rooms as possible.

2.1. Differences in Objectives:

The first and most obvious friction arises from this difference in objectives. Revenue Management may seek to restrict room sales at certain times or price points in order to maximise revenue, which may conflict with Commercial and Sales’ desire to sell as many rooms as possible. This can create tension when, for example, Revenue Management raises prices during periods of high demand, limiting Commercial and Sales’ ability to make sales.

2.2. Different Approaches to Discounts:

Another area of friction is discount policy. Commercial and Sales may view discounts as a valuable tool for attracting guests, particularly during periods of low demand. However, Revenue Management may resist discounts, as they can erode revenue and diminish the perceived value of the hotel’s services.

2.3. Group and Corporate Contract Negotiations:

Negotiations with groups and corporate contracts can also be a source of conflict. Commercial and Sales may be inclined to offer substantial discounts to attract these groups and companies, while Revenue Management may be concerned that such discounts will limit availability for other potentially more profitable guests.

2.4. Lack of Communication and Mutual Understanding:

A lack of communication and mutual understanding can exacerbate these frictions. If Commercial and Sales does not fully understand Revenue Management’s strategies and tactics, misunderstandings and resentment may arise. To resolve these frictions, it is essential that Revenue Management and Commercial and Sales work together collaboratively and communicate effectively. Both departments must understand and respect each other’s objectives and constraints, and seek solutions that meet both sets of objectives. This may involve compromises, such as agreeing on reasonable discount limits or developing flexible pricing policies that can adapt to different demand levels. Furthermore, the use of data and analytics can help support informed and transparent decision-making. If the benefits of Revenue Management strategies can be demonstrated, such as an increase in overall revenue despite lower occupancy, it may be easier for Commercial and Sales to embrace these strategies. Although friction may exist between Revenue Management and Commercial and Sales, these conflicts can be managed and turned into opportunities for mutual learning and business growth. Ultimately, both departments are working towards the same goal: the hotel’s success and prosperity.

3. Revenue Management and the Reservations and Front Desk Department

The Reservations and Front Desk departments are often tasked with implementing the pricing and occupancy policies established by the Revenue Management team, which may at times appear inconsistent or difficult to justify to guests. These policies can change rapidly in response to fluctuations in demand and other market variables, which can create confusion for both hotel staff and guests. A common point of friction between Revenue Management and Reservations may arise due to discrepancies between occupancy forecasts and actual demand. For example, the Revenue Management team may forecast low demand for a particular date and therefore reduce prices to encourage bookings. However, if demand proves to be higher than forecast, the Reservations Department may find itself selling rooms at reduced rates when higher revenue could have been achieved. Conversely, if the demand forecast is overly optimistic, the hotel may be left with an excess of empty rooms. To mitigate this issue, it is important for Revenue Management to use accurate forecasting methods and communicate regularly with the Reservations Department in order to adjust forecasts and pricing strategies in real time. The front desk, as the direct point of contact with guests, may also experience friction with Revenue Management. One example is the management of “overbooking” policies. Although “overbooking” can be an effective strategy for maximising revenue, taking inevitable last-minute cancellations into account, it can cause problems if managed incorrectly. Guests facing an “overbooking” situation may be dissatisfied, which can damage the hotel’s reputation and the overall guest experience. To avoid these issues, Revenue Management must work closely with the Front Desk to implement “overbooking” policies correctly, including a clear plan for handling situations in which guests need to be relocated. Another potential point of conflict may arise around room rates and ancillary services. Revenue Management may set dynamic rates that fluctuate according to demand, seasonality and other factors. However, guests may find these fluctuating rates confusing and feel they are being treated unfairly. In addition, conflicts may arise if guests feel pressured to purchase ancillary services they do not want or need in order to increase revenue. In such cases, Front Desk training and sensitivity are crucial to communicating and justifying pricing policies in a way that makes guests feel valued and understood. Collaboration, communication and training are key to mitigating points of friction between Revenue Management and the Reservations and Front Desk Department. Revenue Management decisions must be based on accurate data and detailed analysis, but they must also take into account the experience and perceptions of employees who interact directly with guests. In addition, Reservations and Front Desk staff must be well trained to understand and communicate pricing policies to guests. With a well-considered strategy and effective communication, it is possible to maximise revenue while delivering an excellent guest experience.

4. Revenue Management, Brand Positioning and Online Reputation

Revenue Management and Brand Positioning may seem like entirely separate areas of hotel management, but they are in fact deeply interconnected, and their relationship can create certain points of friction. Brand positioning refers to the perception of a brand in the consumer’s mind: how it differentiates itself from competitors and what value it offers. Revenue Management, on the other hand, is responsible for optimising revenue through the management of pricing, occupancy and capacity. A potential source of friction between these two areas may arise when Revenue Management’s pricing strategy is not aligned with the brand’s positioning. For example, a luxury hotel positioned as a premium brand may undermine its own brand image if it adopts a low-price strategy to increase occupancy. Similarly, an economy hotel that suddenly raises its prices may cause confusion and dissatisfaction among its target audience, which expects low and affordable prices. Here, friction arises from the lack of consistency between the pricing strategy and the brand promise. In addition, Revenue Management can influence a hotel’s online reputation, another crucial aspect of marketing in the digital era. Revenue management decisions, such as varying prices according to demand, can generate negative reactions among guests, especially if they are not communicated or implemented correctly. A guest who discovers that they have paid more for their room than another guest in similar circumstances may feel misled and express their dissatisfaction on social media or online review platforms. This can damage the hotel’s online reputation and affect its brand positioning. To avoid these frictions, it is essential for Revenue Management and the marketing team to work together to ensure that revenue management decisions are aligned with brand positioning and to proactively manage potential repercussions for online reputation. This may involve transparent communication of pricing policies to guests, monitoring social media and review platforms to identify and manage guest complaints, and constantly adapting pricing and marketing strategies to changing guest expectations and behaviours. Ultimately, Revenue Management, brand positioning and online reputation share the common goal of increasing the hotel’s profitability and long-term success. By recognising and actively managing the points of friction between these areas, hotels can create a more consistent and satisfying guest experience, thereby strengthening their position in an increasingly competitive hotel market.

5. Managing Risk and Maintaining Harmony

As noted, these internal conflicts can be detrimental to a hotel’s success, but they can also provide opportunities for innovation and continuous improvement. Proactively managing these points of friction, fostering collaboration and communication, and using data analysis to make informed decisions are essential to long-term success. In addition, it is important not to forget that all hotel functions work towards the same goal: delivering an excellent guest experience. Ultimately, this is what generates loyalty, enhances reputation and maximises revenue.

Conclusion

Points of friction in the hotel sector between Revenue Management and other aspects of the business are inevitable, but manageable. By understanding these conflicts and working proactively to resolve them, hotels can create a collaborative, guest-focused working environment that will result in a better guest experience and higher revenue for the hotel. Ultimately, success in the hotel industry is based on balancing and harmonising the needs and objectives of all hotel functions, from Revenue Management to marketing, sales, reservations and beyond. At LeadHospitality, I can contribute to the proactive management of points of friction in the hotel sector through the implementation of advanced Revenue Management and data analytics tools and technologies. These tools enable hotels to make informed, strategic decisions to maximise revenue and minimise conflicts between the different business functions. In addition, I provide personalised advice and guidance to help hotels optimise their revenue strategy and improve collaboration and communication between different departments. Ultimately, hotels can achieve greater harmony and balance in their operations, resulting in a better guest experience and higher revenue for the hotel. This is, ultimately, the philosophy of Customer-Centric Revenue Management.