What Not to Do in Revenue Management

Today, most articles are full of advice: best practices, tips, tricks and information that will help you do your job better. But as useful as those tips can be, it can often be even more helpful to learn what NOT to do, especially when it comes to a field like revenue management where there are as many different opinions, as there are hotels.

So lets get down to business. Here are five things NOT to do in revenue management.

DONT Think That Your Customers Know Anything About Your Compset

When most revenue managers analyze the rates of their competition, they typically only compare their rates with the small number of hotels in their compset. This is a mistake. When potential guests search online to find a hotel for their upcoming trip, they don’t consider compsets. They search through all of the hotels within a certain star rating (or two!) within a destination. If revenue managers don’t think like their customers, and therefore, if they dont provide rates that will appeal to customers needs, they will lose the booking to another property – and another revenue manager – who can.

DONT Use Stagnant RatesAs you probably all know from reading my previous articles, I am a big, HUGE supporter of dynamic rates. Why? Because in todays highly competitive and ever-changing marketplace, updating your prices in the online channel once a day is not nearly often enough. By consistently updating your rates in real-time as factors within the market change, your property will be able to secure as many bookings as possible, at the highest rate possible. Dynamic rates are the ONLY way to fully capitalize on the revenue-earning opportunity offered by the online channel.

DONT Forget to Replenish your Inventory Online

Just like with rates, which need to be updated constantly, it is important that revenue managers are replenishing their online inventory immediately when it runs out. Especially during busy season, when an entire block of rooms could be booked in hours or even minutes, if youre not replenishing your inventory on a regular basis, youre losing valuable revenue.

DONT Overcomplicate Your Job

Im sure that youve heard the phrase K.I.S.S., which stands for Keep It Simple Silly. As a revenue manager, because your job has so many very important responsibilities many of which are hugely time-consuming its important that you follow this rule of thumb. If youve ever heard the term unconstrained demand, then you know what Im talking about!revenue manager be able to be as efficient as possible, and therefore earn as much money as possible from each booking.

Your goal each day should be to minimize the busy work that can come along with the job endless reporting, meetings, etc. – so that you can focus on the activities that earn your property money. A good rule of thumb is to aim to spend 80% of your time on the functions that directly impact revenues and only 20% of your time on admin tasks.

DONT Be Afraid of Technology

Revenue management technology was designed as a tool to help revenue managers be more effective and productive in their jobs, NOT replace them altogether. Revenue managers should be taking advantage of technology to manage the never-ending data analysis and automatic updating of rates and inventory in the online channel. Only by using sophisticated technology, will a revenue manager be able to be as efficient as possible, and therefore earn as much money as possible from each booking.

DON’T Overestimate/Underestimate Your Property’s Star Rating

It is very common for revenue managers to incorrectly list their property’s star rating on the OTAs in order to fulfill certain beliefs.

Some revenue managers consistently overestimate their property’s rating. The thought process behind this decision is based on the fact that the person setting their pricing figures that if they have a higher star rating on the OTAs (and a price to match, of course), then customers will automatically accept paying a higher rate. Not true. If you are a four-star with a five-star price, you have a problem. Come back to reality.

But by the same token, don’t underestimate your star rating, thinking that it will please your customers when they arrive and see that they are getting four-star amenities for a three-star price. This will only hurt your revenues in the long run. Again, not a good strategy.

The reality is that customers are always looking for the best rate for the best property – which means that they are first choosing by rate and then by amenities, location, etc. So make sure that you are honest about your property’s star rating so that you are able to earn the most revenue possible for each booking, while keeping your customers happy.

DON’T Discount Your Rates as the Arrival Date Approaches

Again, there is a logical explanation behind this mindset; in a perfect world, pricing from high to low would “train” consumers to book their stays well in advance in order to save money. But especially today, as last-minute booking apps and websites are becoming more and more popular, this pricing strategy can cost a hotel millions of dollars.

Instead of high to low, the best strategy is yielding – fluctuating your price up and down according to the market, demand, competition, etc. to always find the “sweet spot” that increases bookings and revenues.

DON’T Increase Your Rates As Your Occupancy Increases

Many hoteliers increase their rates dramatically when they reach 80% occupancy, which is completely counterintuitive. If your current pricing strategy has effectively sold 80% of your rooms, then why fix what isn’t broken? By increasing rates abruptly, you end up pricing yourself out of the competition, and most likely, slowing or freezing sales altogether.

DON’T Think That Customers Care About Room Types

Consumers don’t care about room types in their initial search. A customer’s three basic search criteria are price, star rating and area (within destination). Once they’ve narrowed down their search to a few hotels (based on those factors), they will start thinking about room types. At that point, it’s important for hotels to have as many options for room types and upgrades available through the hotel booking website, but on the OTAs, simple is better (3-4 options is plenty!). Stick with the basics: standard, oceanview, suite, etc. to ensure that customers don’t get confused.

DON’T Get Stuck in Pricing Patterns That Don’t Work

Psychology has told us throughout the years that consumers respond more favorably to prices that end in 9 (as in $149, instead of $150). But setting room rates based on this knowledge could actually be costing your property business.

On the OTAs, your page position is based upon a customer’s search terms, and the most common way that customers sort hotels on OTAs is by price (low to high). Therefore, offering a lower room rate will result in higher placement on the page and a greater likelihood that a customer would choose to book with your property.

Here’s an example: if one property in your destination and star rating is charging $150 a night, it is a safe assumption that most other hotels will be trying to price their rooms slightly lower than that. So instead of pricing your room at $149 like everyone else, discount your rate slightly off that rate in order to win customers’ business.

Another pricing pattern that doesn’t work is the common practice of discounting by $10. This pattern doesn’t work because a hotel ends up giving away too much of their revenues unnecessarily.

Let’s use the above example to demonstrate my point. If most hotels within a destination are charging $149/night for their rooms, if you are a believer in the $10 discount rule, you’ll list your rooms at $139. Yes, you’ll probably get the booking but you’ll be losing out on $10 of revenue per room. Instead price your room at $144. You’ll only give away $5 of revenue per room and you will still get the customer’s business.

Think about it this way: if you are able to earn an extra $5 on each booking that you make, you could be earning thousands of dollars of additional income each year based on this small change in your pricing strategy. Makes sense right?

Finally, we’ve saved the best (or in this case, the worst and most egregious mistake) for last…

DON’T Offer Customers a Lower Rate Through the OTAs

Many hoteliers and revenue managers choose to offer customers a better rate through the OTAs, than the direct channel. This is counterintuitive because in reality, you should be incentivizing customers to book direct (where you don’t need to pay high commission rates). Of course, because of rate parity, you can’t offer a lower rate through the direct channel but consider offering consumers other incentives, like a free upgrade, free food and drink, free parking in order to sweeten the deal and encourage travelers to book directly.

One final thought: if a consumer calls your property to ask if you can match an OTA rate, your reservations team should be empowered to do so. This is the PERFECT opportunity for you to convert this customer into a direct sale, rather than sending them back to the OTA to get the best rate and then paying a commission on the booking.

Well, that’s it, that’s the list of what NOT to do in revenue management. Now comes the tough part – will you update your pricing strategy to avoid making these mistakes?