Revenue Management Systems — Considerations for Evaluation

By. Carol Verrt 07th Jul 2005

A recent Cornell University Study found “hotels that price above their local competitors to be the most aggressive revenue managers. (This study) – also suggests that those hotels which are best able to extract high REVPARs are most likely to engage in revenue management practices.” (Cathy Enz, PHD, Linda Canina, PHD, The Center for Hospitality Research, Cornell University, Analysis of Revenue Management, Vol 5, No 6, April 2005.)

Most (not all) hotels want to be able to sell rooms at higher rates resulting in increased REVPAR. If aggressive revenue management is the key, as the article suggests, many will be looking to institute or upgrade their revenue management systems.

As many of you will go to HITEC and look at the latest in revenue management systems, it is good to stop and pause prior to being seduced by the most sophisticated technology. It is prudent to establish exactly what the requirements of the hotel are in terms of functionality and how an RMS system can make the process more effective resulting in increased revenue.

The needs of a 100-room boutique hotel are quite different from those of a 900-room hotel with multiple revenue sources such as F&B outlets, catering revenue, spa, etc, and a large group component. A hotel company with several hotels within a geographic area has different requirements than a national company with hotels spread across the country and no two of them in a close proximity.

In anticipation of implementing a new system or upgrading an existing one, some criteria should be established in order to evaluate the potential ROI of individual Revenue Management Systems and their suitability for the objectives of one hotel or a hotel company.

One company that I know of is doing this by assembling a team of key staff members from the corporate office and managers of different departments from selected properties. Their mission is to develop a framework for identifying the key functionalities expected from a Revenue Management System and a blueprint for implementing it. This gives each property and department a role in defining the objectives and expectations of the system and so should encourage buy-in from all of those that the system will impact.

Some of those evaluation criteria are:

Who needs to know what and why? In other words, what does each department want to see in terms of reports and other pertinent data in order to make decisions? What is the minimum required by each department and what is the optimal requirement?

The Current Revenue Management System. If you currently have a revenue management system, why are you considering replacing it? Is it all of the system that you want replaced or are there certain functionalities that you would like to “add” to it? Is it more cost effective to start from “ground zero” or to purchase “add ons?”

Channel Management. Most systems do this adequately. How sophisticated a system you require is dependent upon the complexity of your business mix. Will the system allow you to evaluate different channels revenue streams or are all of them dropped into the same basket?

Managing Multiple Revenue Sources. How well does the system manage and evaluate revenue from unique revenue sources? For example, a property with a water park in addition to the usual hotel revenue sources needs to be able to manage the park’s revenues effectively and evaluate business that maximizes revenue to all departments. A property with a popular spa needs to evaluate how the revenues of both are interrelated and manage both the inventory of rooms and spa services.

Analyzing and Predicting Customer Behavior. How will the system incorporate customer behavior into its forecasts? Can it provide reports of customers’ decision making timelines by market segment so that Marketing can use it to target campaigns? Will the data enable Customer Relationship Management to catch the repeat guest at the right time with the right offer at the right price?

What are the Benefits for Smaller Properties? Is the system under consideration “scalable” — can some parts of the system be implemented without purchasing more functionality than necessary? Will the benefits deliver an appropriate ROI on the investment? Will the modules of a new system interface with those of the system already in place?

Will the Corporate Office Have Access to the Individual Hotels’ Systems? In many companies, the situation exists where the skill sets of the property Revenue Managers vary from hotel to hotel. Will a system “level the playing field” allowing the corporate revenue manager to support those properties whose managers are less proficient?

How Will the System Evaluate Group Business? Many sales people complain that they have been relegated to booking groups only on the weekends and the revenue managers conversely complain that sales only wants to sell “cheap” rooms. How will the system enable the sales department to make good group bookings that satisfy the requirements of the hotel’s revenue management strategy and the sales persons’ desires to meet their goals? How finely can the system “drill down” the data to enable the decision making process in RFPs and contracts?

Can the System Manage Demand within a Geographic “Cluster?” Some hotel companies have multiple properties within close geographic proximity to each other. Can a revenue management system assist in the redistribution of demand so that all of them can maximize their revenue based on geographic demand?

You will notice that the above section has more questions than answers. That is due to the fact that the answers are up to the buyers and those answers will make the difference in purchasing the right system at the right price or being dazzled by technology that may be more than the hotel requires and therefore, provide disappointing results. The process of arriving at the answers is almost as important as the answers themselves given that it is the process that will determine if the new system receives “buy in” from all of the departments that “need to know.”

About Carol Verrt

Carol Verret was the founder of Carol Verret Consulting & Training provides consulting and training services to companies and organizations in the areas of customer service and sales and marketing. Carol Verret passed away in Dec. 5th , 2012 after long 8 years battle with breast cancer

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