This article will discuss Revenue Management in the context of social media; there are numerous revenue management tools in the marketplace today.
Some of these tools are proprietary solutions developed in-house by the major hospitality companies. Others are provided by leading third-party vendors with established expertise in optimizing a hotel’s rates and revenue.
Some solutions rely highly on human intuition believing that revenue management is an art, while others are highly technical automated solutions viewing revenue management as a science.
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In either case, the predominant methodology used by a revenue management tool considers the variables of availability, historical transactions, and pricing data.
This approach assumes that price and availability are the primary drivers of purchase – an approach that fits well with commoditized offerings such as airplane seats. However, hotels that are truly differentiated do not sell a commoditized offering.
Rather, the guest experience is unique in the marketplace, which means that Revenue Managers can charge a higher rate for their hotel.
How consumers perceive value can be difficult to ascertain because each consumer’s value perception is subject to many personal and market-driven variables.
Given these complexities, this posting and the next one proposes a simple starting framework for revenue managers to incorporate social media data into their existing processes. Given its dynamic nature, social media may not revolutionize the revenue management process — at least not immediately, as price and availability will continue to be the primary drivers of purchase.
But we have seen very effective, early best practices where hotels use social media data as a supplemental layer on top of their existing revenue management data. This section introduces these best practices with specific focuses on pricing and distribution.
A Great Hotel is Not a Commodity: Organic Food
Let’s begin by considering the example of organic food, and specifically organic vegetables. Organic vegetables command a higher premium than mass produced vegetables because of how they are grown. Local farming practices that eliminate pesticides and focus on natural processes make organic vegetables unique.
Although many people can’t taste the difference between organic vegetables versus mass-produced vegetables, or notice significant health benefits from eating them, organic vegetables are priced higher and attract consumers who are willing to pay a higher price. Hotel Revenue Managers should take note here. What are your hotel’s differentiators and how is your team pricing them to people who seek that particular differentiation?
Taking it Further: Correlation
Once you’ve identified your hotel’s differentiators, it’s possible to take this one step further by actually putting your rates to the test. Chart the favorability perception of your property’s differentiators in social media, and correlate their scores to your online bookings, overall reservations, and RevPAR over the same time period. In this process, a Revenue Manager should be looking for the following: of the differentiators that a hotel has, which ones actually impact the property’s bookings? For example, “efficient check-in” may be a differentiator but it may not show any impact on bookings, whereas “best spa” and “free wi-fi” may have positive correlations with bookings.
The differentiators that show positive correlations can then be considered as possible Purchase Drivers. In other words, there appear to be parallel movements between perception shifts in these drivers and your hotel’s bookings. In this scenario, when there are positive reviews about your hotel’s purchase drivers, the number of reservations increases. Conversely, when there are negative reviews about your hotel’s purchase drivers, the number of reservations decreases. This analysis becomes very useful in informing pricing changes. It is also useful in helping a hotel decide whether or not it should respond to a negative review on a social media site.
Negative reviews about a hotel’s purchase drivers warrant a management response; those complaining about other drivers (not shown to historically impact purchase) often do not.
Summary
In summary, Revenue Managers can now use social media as an additional data source in setting their rates and distribution. For example, if a hotel is performing well versus its competitors in most drivers, including the purchase drivers, then it can afford to increase its rate. This is true because it has a differentiated offering within public perception, and the hotel can therefore command a premium for its product. There are other practices for Revenue Managers to consider that are beyond the scope of this whitepaper. Many require an understanding of the specific pratices and star-class of the hotel.
