Revenue Management is Dead. Long Live Revenue Management.

Revenue Management, as we know it, is dead. To stay at the forefront of the industry, hospitality companies need to embrace the changing nature of the Revenue Management concepts and technologies to reimagine the delivery of total revenue optimization.

These fresh concepts give hospitality companies the opportunity to pursue total revenue optimization by permeating Revenue Management capabilities throughout the entire organization, and those that fumble or hesitate will see their competitors eat their lunch.

It’s not as if hospitality Revenue Management professionals are unaware of the power behind the latest tech advancements. In fact, research from Cornell professor Sheryl Kimes, a highly regarded thought leader in Revenue Management, revealed that hospitality industry leaders predicted in 2010 that Revenue Management would be applied to all revenue streams in their industry within five years. The catch? Those same predictions were made in 2016, and we haven’t attained this goal at either point in time.

What’s holding the hospitality industry back from embracing the potential to optimize revenue and maximize profit? The answer is rooted in the following changes taking place in hospitality revenue management.

1. Beyond Yield

In its infancy, Revenue Management was designed around the concept of yield, which is an inventory-centric approach to filling planes and hotels. Moving forward, it should be thought of as dynamic. The cruise industry is leading the charge and is a prime example of how Revenue Management is multi-dimensional. They are considering value adds, onboard spend, commission, and taxes. This results in the optimal mix of customers and ideal price point to maximize revenue generation. Likewise, hospitality decision makers must consider all costs, and optimize all revenue streams along their value chains, creating total revenue optimization.

2. Beyond Transaction

Revenue Management has historically viewed the customer merely as a transaction for the benefit of the organization – in other words, one transaction was considered just as good as another. Today, industry executives are moving toward a broader view of guests. Leaders in travel and hospitality are integrating customer centric insights into their Revenue Management strategies to drive customized ancillary offers and priority access to constrained inventory. Hospitality decision makers must take a broader view of customers as relationships with the potential for integrated lifetime experiences.

3. Beyond Opaque

Pricing alternatives in the hospitality industry have been opaque and difficult for guests to consider. Rates were not highly visible across channels, there were no online travel agencies (OTAs), and there was a limited expectation that a guest would shop around for the best rates. However, in today’s information age, pricing alternatives have become transparent. Consumers look through OTAs for promotions, star ratings and more. As the industry transitions, hospitality companies must take these factors into consideration when measuring price response and evaluating the impact on search results to maximize market share and profitability.

4. Beyond Transient

Revenue Management professionals used to look at guests as transient, fleeting revenue-generators. Executives must now pay attention to all guests and their touch-points, in order to maximize their customer lifetime value (CLV). CLV is essential to the growth and analytics are core to accomplishing this. Proven analytical approaches have driven enormous value to the transient segment for hospitality companies and should also be leveraged to optimize groups and corporate contracts.

5. Beyond Limited Technology

Revenue Management used to operate in a world where fax machines, dot matrix printers and mainframe computers dominated the tech landscape. Today’s reality has nearly limitless technology and information. In fact, we will create more data in 2017 than in the past 5,000 years of human history combined. The future of technology in Revenue Management has exciting developments in the world of quantum computing. Certain optimization models traditionally have been impossible to perfectly solve in a reasonable amount of time, and require heuristics to produce an approximate solution (i.e. making a tradeoff between time vs. money). Quantum computing has the potential to revolutionize these models, by drastically reducing the amount of time to solve a problem, which translates into creating optimal solutions. Hospitality organizations need to pursue these innovative and future technology capabilities to fully achieve total revenue optimization.

6. Beyond Centralization

Revenue Management has been viewed as a centralized function that services hotels, casinos, resorts, cruise ships and all other manner of organizations. In the future, it will require a flexible and decentralized decision support system and analytical capabilities that are imbedded in every part of an organization.

Revenue Management as we know it today is a thing of past. Hospitality companies should embrace the changing concepts and technologies that allow organizations to strive for total revenue optimization.
So, adopt a plan to move forward and ensure you beat your competitors to the punch.

Long live Revenue Management!

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