Hotel Revenue Management Strategies

As a hotel revenue management consulting company, we have written extensively about hotel revenue management strategies over the last few years. It seems a good time to make a shortlist of the components crucial to your hotel revenue management strategies by covering all the revenue and yield management pricing strategies.

Article Summary

1. Demand Calendar 

The demand calendar is a tool for informed pricing strategies in hotel revenue management. For analysing market situations, the demand calendar includes key indicators such as RevPAR (revenue per available room) and demand levels from the previous year, along with factors like groups or events, bank holidays, school holidays, and exceptional demand indicators for the current year. Obtaining data like RevPAR and event information is relatively straightforward from internal PMS data, but determining the impact of school and bank holidays involves analysing arrival statistics from feeder markets. This information enables revenue managers to strategically target specific holidays or events with tailored offers and packages. Integrating demand calendar data into on-the-books and pick-up summaries provides a comprehensive view of the hotel’s trends, ultimately facilitating better-informed decisions and more effective hotel revenue management strategies.

Want to read our complete article about the Demand Calendar? Read our article Demand Calendar – Hotel Revenue Management Tool.

2. Market Segmentation

Main Hotel Market Segmentation

Hotel market segmentation is an important component of effective revenue management, allowing hotels to target diverse consumer groups based on their behaviours and budget levels. This segmentation involves identifying the purpose of the trip, differentiating between business and leisure travellers, and analysing various trends to enhance revenue performance. Key factors considered in market segmentation include length of stay, day-of-week stays, total revenue per room, total revenue per client, booking lead time, cancellation percentage, and no-show ratio. By understanding these factors, hotels can tailor offers to meet the specific needs of different segments. Each hotel must customise its segmentation strategy based on its market, property, and revenue management goals.

Want to read the full article? Read: Hotel Market Segmentation.

3. Forecasting

Effectively forecasting hotel revenue is an activity all managers should perform, particularly in the face of evolving challenges associated with changing reservation lead times in key markets. A comprehensive approach is necessary because of the integration of diverse forecasting methods to generate a thorough and resilient analysis. Operational, financial, and revenue management forecasting are distinct yet essential contributors to revenue optimisation.

Hotel Revenue Management Systems (RMS) can be used for effective forecasting, as this is equipped with advanced algorithms to enhance precision in forecasting. Key focus areas for successful forecasting include leveraging historical data, scrutinising on-the-book (OTB) data, and considering market trends. The ultimate goal is to achieve a maximum forecasting accuracy of 5%, continually examining differences and identifying root causes for ongoing improvement. Using a Hotel Forecasting Model is a good way to prevent and identify challenges in reaching your objectives: it gives time to adapt strategies or work out additional actions.

Read the full article about How to Forecast Hotel Revenue with Optimized Precision.

4. Booking Curves

The Hotel Booking Curve is a hotel tool that helps aid in data-driven decision-making. Converting pick-up reports into graphs, particularly a Booking Curve graph, helps visualise the hotel’s booking pace. The graph considers cancellations and identifies peak or slow booking days. If expectations are unmet, the hotel should analyse, understand, and determine if influencing factors can be addressed. Assessing the impact of rate changes on the forecast is essential, as the selling strategy directly affects it. Developing a revenue management tool for comparing data, such as comparing current bookings to the same day in the previous year, helps refine strategies and maximise opportunities.
To read more and see example booking curve graphs, read our full article, >Hotel Booking Curve.

5. Price Positioning

A Rate or Price Value Matrix serves as a valuable tool for evaluating the effectiveness of a hotel’s pricing strategy. This matrix prompts reflection on how frequently the hotel’s rates align with or deviate from competitors. The four outlined pricing strategies – penetration, equality, surrounding, and skimming – offer distinct market positioning approaches. Penetration emphasises affordability, requiring careful consideration to avoid lowering overall market rates. Equal pricing focuses on comparable rates, with the hotel’s value proposition as the key differentiator. Surrounding pricing strategically combines competitive rates with added value while Skimming positions the hotel among the most expensive, demanding a clear demonstration of superior value. Choosing a pricing strategy aligned with the hotel’s objectives and market dynamics and regularly reassessing it ensures optimal revenue management decisions and customer satisfaction.

Does your hotel price positioning strategy make sense? Read our full article.

6. Stay Controls

Stay controls identify fully booked days and optimise revenue potential on shoulder days. Revenue managers should analyse past booking patterns, referencing the guest in-house list from the previous year, including denials and regrets, to understand stays of varying lengths. Various stay restrictions, such as minimum length of stay, maximum length of stay, combinations of minimum and maximum lengths, closed to arrival, closed to departure, and stay through restrictions, offer strategic tools for managing bookings. Implementing these restrictions requires evaluating the revenue impact on shoulder days, emphasising the need for careful consideration when selling out specific days.

Full article: Stay Controls or Restrictions

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7. Rate Fences

In hotel revenue management, the challenge lies in optimising product offerings through physical and non-physical rate fences. This means examining the compatibility of superior room types with consumer needs and evaluating the perceived value of specific features that warrant higher rates. The strategy involves clear differentiation in inventory and the creation of “physical rate fences” to justify varied pricing based on competitive differentiators. 

Want learn more about Physical versus non Physical Rate Fences?

8. Benchmarking

Hotel Benchmark

Benchmarking is a foundational element of revenue management. When benchmarking against competitors, it involves evaluating performance based on specific criteria, such as:

  • Prices
  • Product
  • Level of service
  • Location
  • Distribution channels

When doing a good benchmarking can be beneficial to provide valuable insights for performance improvement, strategic planning, and maintaining a competitive edge in the hotel industry.

9. Displacement Calculations

Understanding the impact of contracted non-yieldable segments on your hotel revenue is advised. The displacement calculation involves evaluating whether these segments contribute positively to the bottom line or displace potential revenues that could be generated through public transient rates. Last Room Value (LRV), representing the total value of the previous rooms to sell, is a key metric in this analysis. Regularly performing displacement calculations on significant accounts, including tour operators, corporations, consortia, and IDSs, is essential for revenue managers to optimise pricing strategies and maximise overall profitability by assessing revenue gains versus potential losses.

Full article with example: Displacement Calculation

10. Unconstrained Demand

Unconstrained demand in hotel revenue management refers to the total demand for a date, irrespective of hotel capacity. Recognising periods of excess demand is vital for revenue optimisation. It aids in calculating the Last Room Value, identifying peak periods, and prioritising high-paying business. This concept involves regretting low-paying businesses during peak demand, recording denials for individuals and groups, and monitoring competitors’ bookings.

Read the article about Constrained Demand to learn more.

To Conclude

We hope these articles will help refresh your memory on hotel yield and revenue management strategies in the hotel industry and give you a renewed perspective on this topic.

Remember, it is all about outsmarting your competition. So, think of a stealth strategic revenue management action plan for your hotel that needs to be more transparent to the competition in your market. As experts in the field, XOTELS can help you with hotel revenue management consulting and hotel management consulting services. 

Enjoy the reading!