Home Revenue Management Pricing Revenue Management: How to Price Your Rooms Correctly Every Time

Revenue Management: How to Price Your Rooms Correctly Every Time

Jun 24, 2014  By 

In today’s highly competitive travel industry, implementing effective real-time pricing strategies has become an operational imperative for all hotels, no matter their size, type or star rating. While revenue management has been a hotel buzzword for years, many hoteliers seem to have conflicting understandings about what exactly constitutes revenue management. So, I’m here to remind you of the fundamental principles of revenue management and why revenue management technology is so important for hotels.

Let’s start with the basics. What is revenue management?

The dictionary defines it as “the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth”.[i] Confusing, right? So what is revenue management at its core?

Effective revenue management will analyze consumer behavior and perception of product value, while simultaneously (and accurately) aligning product prices, market placement and availability with each customer. For hotels, that means finding at the right room rate and making it available to the right customer, at the right time.

Historically, hoteliers have relied on a disjointed patchwork of manual processes to manage rates, which is usually labor-intensive and which can be very prone to human error – a problem that can be very costly for a hotel. Today, revenue management software has solved these critical business challenges by automating the complexities of data collection, pricing and channel management into a system of integrated applications will work 24 hours a day, 7 days a week to ensure that a property always has the correct rate, at the correct time, on the correct channel.

Data Collection
Hotels use data from many sources to price their rooms, including current market data, room rates of other properties in and out of their comp set, supply/demand and historical data. Because all of these factors (except historical data) are constantly in flux, it becomes absolutely important for a revenue manager to be able to keep collecting and analyzing data in real-time. This is why investing in revenue management software is instrumental for success in revenue management as has the ability to collect and analyze market trends 24/7.

Price Management

Revenue management software has the ability to manage the entire pricing life cycle from strategy to execution, often serving as the pricing engine and system of record. It can also implement sophisticated pricing rules and guidelines, resulting in accurate, real-time pricing, eliminating the chance of human error and thus, improving your property’s operational performance.

Revenue management software can also develop, analyze, and optimize price strategies across geographic regions. This is especially important for revenue managers who have properties located in different areas of the world. The software will not only monitor market trends in just one specific area, but rather in all regions your hotel(s) operates in, helping to price your rooms in each property individually based on the market trends of that region.

Channel Management
Because revenue management software suggests pricing updates in real-time, revenue managers will not be able to keep up in updating the rate across all of a property’s online channels. As well, manual channel management can create situations where rooms are overbooked. Even the most careful, detail-oriented employee could make a small error while inputting room rates, which could result in lost profit and, if overbooking happens, negative online reviews – which can have an extremely negative impact on revenues.

This creates the need for a technology solution that will automatically update the rates and inventory across all of a property’s online channels. As well as being able to make room rate updates faster and with less risk of error, channel management technology can also ensure that a property’s inventory is kept up-to-date as rooms are booked through the online channel. .

Revenue management software will enable more effective channel management, allowing a property to be listed on more OTAs (than when channel management is handled manually. Because OTAs greatly increase a property’s visibility to potential guests and having your rooms listed on more OTA channels can lead to an increase in direct bookings (commonly referred to as the Billboard Effect). In 2013, Cornell Professor Dr. Chris Anderson found that hotel direct bookings increased from 7.5% to 26% when listed on Expedia – a direct increase in revenues due to the visibility created by being listed on the OTA.[1]

Automating all of the revenue management processes enables your staff to spend their time pursuing more valuable activities, such as providing the best possible customer service for guests, which could lead to higher re-booking rates and overall profits.

With the continuing globalization of the travel industry, hoteliers must provide customers with up-to-date information, including prices, hotel information and room availability across all online channels. A reliable revenue management system will not only make this possible, it will also ensure that every reservation will be free from errors, which will your property maintain its competitive edge, all while significantly increasing occupancy rates and revenues.

Now is the time to invest in revenue management software that is fast, reliable and affordable. The financial performance of your property depends on it.

[1] http://thehospitalityblog.ecornell.com/the-billboard-effect/

[i] http://en.wikipedia.org/wiki/Revenue_management

About Jean Francois Mourier

Jean Francois Mourier

Jean Francois Mourier arrived in South Florida in 2003 after a successful and distinguished career in Europe as a trader, financial analyst and director for a number of top firms including Merrill Lynch, ING Barings and others. He joined

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