Revenue Management vs. CRM: Where Hotel Strategies Conflict

The purpose of the Revenue Manager is to maximise revenue and, ultimately, generate profit through improved sales. As such, they must set the right prices to sell the maximum number of rooms at the highest price the guest is willing to pay. This is achieved by increasing operational efficiency and effectively managing three main areas: pricing, inventory control, and customer or market-segment mix.

Service industries with capacity constraints, as is the case in hospitality, face the challenge of allocating their perishable inventory to demand from different market segments in order to maximise revenue.

The least understood aspect of Revenue Management (RevM) appears to be the need to design commercial policies and procedures as a means of gathering the information required to produce accurate forecasts. In addition, the large volume of data that must be processed and the differences in optimisation algorithms from one company to another require extensive use of information systems and specific mathematical skills. As such, few hotel companies have the internal resources to develop effective revenue optimisation systems on their own.

CRM, on the other hand, is a business strategy rooted in sales force automation and largely enabled by advances in technology and falling technology costs. Given the relative newness of CRM, it is difficult to cite a traditional definition. Customer Relationship Management (CRM) is a strategy used to manage a hotel’s interaction with its guests. Its purpose is to identify, attract, win and retain customers, while maintaining a strong relationship with them. If you believe you are doing CRM simply because you send emails to your customers, I am sorry to say that there is considerable room for improvement.

CRM is a customer-centric business strategy that drives the redesign of functional activities, encourages the re-engineering of work processes, and requires the implementation of technology to a greater or lesser extent. At its core, CRM is about enabling customers to have what they want, when they want it and how they want it; it is about identifying, retaining and growing a company’s most valuable customers.

While the concept of CRM may be simple, implementing a comprehensive CRM strategy is not. To begin with, effective CRM requires a complete shift in the strategic orientation of most hotels, moving from a product focus to a customer focus. This generally requires not only investment in technology to enable guest identification and tracking, but also the re-engineering of business processes to enable the delivery of products and services tailored to the needs of specific customers.

The adoption of CRM in the hotel industry has been hampered by a number of factors. These include the industry’s persistently fragmented nature; the disparate, proprietary and relatively immature nature of IT systems, each with its own origins and logic; and the added complexity of managing a perishable product sold through a variety of distribution channels, overwhelmingly OTAs. However, progress is being made more quickly, partly due to ongoing consolidation among hotel companies and hospitality technology providers.

A great deal of marketing research is being conducted in the field of customer relationship management, demonstrating that CRM is primarily focused on managing and developing profitable customer relationships. The implementation of CRM activities delivers better business performance when managers focus on assessing customer value.

Maintaining a good relationship with a valuable customer is another way for hotels to maximise revenue, as they provide services and have a strong incentive to satisfy their guests. This is why it is difficult to imagine how a hotel could generate profit without considering CRM.

Every piece of feedback hotels receive from guests is valuable, whether positive or negative, and whether they agree with it or not. Hoteliers must take the good with the bad and recognise the value of both.

Both revenue management and customer relationship management contribute to profit maximisation, but they operate in different ways and pursue different objectives. Revenue management enables hotels to maximise revenue, but little is known about its effects on customer relationships; or at least, what we do know is that the more we charge for the same service, the greater the risk of losing that customer.

In fact, revenue management can create conflict with customers. For example, they may ask: "Why do people staying in hotel rooms of the same size end up paying different prices?" If the hotel does not establish guidelines for its loyalty programme, loyal guests may discover that others paid less because they booked earlier or later, and they may never book a room at that hotel again. Through Revenue Management, hotels maximise profit and increase revenue in the short term, but they may lose some customers and underperform in the long term if they underestimate the management of customer relationships.

Analysing hotel revenue management and establishing a link with customer relationship management is important in finding solutions that overcome the potential management conflicts that may arise between them. Hotels using a revenue management strategy must consider how reference prices and customer transactions will be affected, and ensure that guests’ perceptions of fairness are not negatively impacted.

There are a variety of scenarios in which revenue is not maximised because short-term revenue gains come at the expense of customer-specific data, or vice versa.

There are commercial and technical issues that must be overcome. Nevertheless, as RevM and CRM become more widely accepted and less costly, traditional RevM concepts will merge with those of CRM, Marketing and Business Intelligence to achieve greater revenue maximisation. The benefits associated with doing all of this must outweigh the costs, especially if the two strategies are combined correctly and in an orderly manner from the outset.