Revenue management models
Revenue management plays an important role in making effective and strategically sound decisions in a lodging establishment. Although it is difficult to imagine modern company management without it, this area is often only a "privilege" for large hotels, since small accommodations are unable to employ a full-time manager due to limited resources. This, in turn, has contributed to the development of various alternative solutions.
In 2017, a study* was conducted to identify revenue management implementation strategies in lodging establishments. 188 US hotel managers were interviewed, and range of revenue management models were identified: inhouse, centralized, corporate outsourcing, third-party outsourcing, and mixed method.
The paradigm of inhouse revenue management is a classic form of revenue management in which the lodging property invests in its capacity - personnel, IT technologies and training. One of the main benefit is more control over these processes. This model is often chosen by large lodging establishments.
The coordination of various lodging properties by a central office is central revenue management. They are most commonly small accommodations that share a similar cooperative model (within a single chain or group of hotels). Thanks to the advancement of information technologies and the Internet, the Central Office Revenue Manager can collaborate with hotel networks and remotely provide the required functions.
Corporate OutsourcingOutsourcing can be defined as the outsourcing of work or operations of an organization to an external entity that specializes in specific tasks. Corporate outsourcing is typically linked to branded businesses, such as where single-brand hotels purchase revenue management services from the headquarters of the company. For example, the Hilton Revenue Management Consolidated Centre (RMCC) is providing this service to individual hotel owners and operators.
Third-party OutsourcingOutsourcing by third parties varies from corporate outsourcing in that the work is assigned to a third-party company. Even though outsourcing initially meant outsourcing less important tasks, the popularity of its use and the number of areas covered has expanded exponentially over the last decade. From housekeeping, food and beverage services to the reservation centre and revenue management services.
MixedA mixed model is a variation of each of the models listed above. For example, to make strategic and operational decisions, the lodging property integrates the data gathered with the forecasting algorithms derived from corporate or third-party outsourcing.
There are at least three important factors to consider when choosing a revenue management model, based on the priorities and specifics of the lodging property.
Costs. The first and foremost concern is the financial aspect - the cost of recruiting a revenue manager and implementing revenue management technologies. Does revenue management require a full-time employee and how much will it cost to hire a qualified professional? If these costs are too high or the performance of specific tasks does not provide full-time work, then there is an alternative - to entrust these operations to one of the employees of the front office or sales departments as an additional task, for example. However, as there is always a need for more expertise to carry out these tasks and make decisions, it is vital to ensure that this employee has the required skills. Or consider outsourcing from third parties.
The second cost item is investment in revenue management technologies. Tools such as online distribution channel manager, competitor analysis, rate shopping and revenue management software are needed to replace manual operations and perform the simplest revenue management functions effectively. The selection of digital hotel management software is wide, and the offer is continuously expanding. Prices of online subscriptions range from a few tens of euros to a few hundred euros a month.
In-depth research. The second consideration is the need for in-depth research to obtain a more comprehensive analysis of the situation and the opinion of experts in the area. This would be particularly important when making long-term strategic decisions where, for example, macro and microeconomic indicators or a different target market analysis are needed.
Personnel management.The third is the personnel management factor, for example, allowing the hotel's qualified personnel to focus more on guest service than on data collection and analysis. Each of the revenue management models has its advantages and risks. Before choosing one or the other model, it is important for the lodging company to balance its needs with financial resources, as well as to assess the long-term importance of this service. Targeted and planned investments in automation of revenue management processes, technologies and attraction of qualified personnel will increase the company's competitiveness and encourage its growth.
References:
Altin, M. (2017). A taxonomy of hotel revenue management implementation strategies.
Journal of Revenue and Pricing Management 16, 246–264. https://doi.org/10.1057/s41272-017-0077-1