Hotel Revenue Management After COVID: Beyond Pricing

Albert BarraAugust 4, 2022 · 4 min read

THE IDEA

The hospitality industry has responded to new challenges with resilience and creativity. But have we focused too heavily on price, rather than the product, the guest and the right moment? Hotel revenue management must evolve by using better data to assess demand, adopt profitable strategies and focus on each property’s value proposition. As digitalisation accelerates, closer collaboration between sales, marketing and revenue management is essential.

The industry has been pushed to new limits and has responded with courage and creativity. We have also seen changes in revenue management and technology adoption, with many brands accelerating their uptake of technology in preparation for a return to more normal trading conditions. A significant part of the revenue discipline focuses on pricing. Revenue management is about selling the right product to the right guest, at the right price, at the right time. In the current climate, are we focusing too much on the right price and not enough on the product, the guest and the timing? Historically, hotels have struggled with limited access to data, which has hampered their ability to truly assess demand. Revenue teams have been tied to rigid pricing models and an over-reliance on constrained forecasting. Revenue Managers had virtually only pricing to test the waters and gauge price response as an indicator of demand. As a result, in zero-demand situations, price wars could easily develop. The industry has accumulated enormous technology debt. This systematic underinvestment has had a detrimental impact on the industry and, in particular, on revenue management. However, access to better data enables us to assess hotel demand, embrace revenue strategy and adopt a multichannel approach driven by open pricing, giving Revenue Managers greater flexibility to adapt to different demand levels across different segments. Over the past 18 months, even in markets severely affected by COVID, we have seen winners and losers. The performance gap between hotels within destinations has widened. There are, of course, many reasons for this:

Location
Product
Market Mix
etc.

2021 was a turning point, when we caught up with techniques and technology, but customers also became more digitally savvy. We need to think beyond pricing and consider the value proposition of our properties. For 2022 and beyond, Revenue teams need to embrace a total, multichannel revenue management approach focused on profitability. Hotels have been forced to think beyond pricing and rethink their value proposition to ensure that customers felt comfortable travelling, were willing to pay and felt they were getting value for the money they were spending. Commercial teams have refocused on the fundamentals of sales and marketing, where price is important but only one element of the formula. Here, collaboration between Sales and Marketing and Revenue Management has been more important than ever. We are seeing the disciplines of digital marketing and revenue management finally converge, which, incidentally, is long overdue. Digitalisation has accelerated because of COVID, both among hotels and their customers. Hospitality has become commoditised, but we must also constantly consider the guest experience. We need to continue working to create both perceived and real value for customers. This is what will give us a competitive advantage. Among many things, we need to consider:

Brand differentiation
Clarity and strength of the value proposition
The type of experience guests will have at your property

From there, consider new revenue-generating activities to drive a truly multichannel strategy:

Direct business vs OTAs
Corporate programmes
Dynamic pricing for corporate programmes
Sustainability
Mobile booking experience
Other revenue streams

and last, but certainly not least, build loyalty. Today, it is 15–20 times more expensive to acquire a new customer than to retain existing ones. Building brand loyalty has never been more important for hotels and guests. Trust is a key differentiator in the purchase journey. Guests who feel comfortable with your brand and product will continue booking time and again. And, hopefully, they are booking direct because that direct relationship makes them feel secure. This is a relationship you are building. It is not just about price. Hotel commercial teams can and should consider every revenue stream: spa, restaurants, early check-in, late check-out... It is truly about marketing the total hotel experience. It is about delivering good old-fashioned personal service. And those who continue to do so will have a significant competitive advantage.

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