To RMS or not to RMS, that is the question – or is it really???

Automated revenue management systems for the hospitality industry have been around for some time – the first generation deployed in the 1990s – but the adoption is still as low as 15% globally according to Skift Research. This number includes proprietary systems like IHGs Concerto and Marriotts One Yield making the percentage for publicly available systems even smaller.

So what are the reasons for not deploying an automated solution to increase hotel revenues?

Purposely simplified Revenue Management as a business practice aims to adjust the price and availability of a hotel room according to forecasted demand – for high demand increase the price/limit availability and for low demand decrease the price to stimulate demand. But even this simplified definition of revenue management is still not practiced everywhere as there are still many hospitality operators, who have a seasonal price grid instead of using dynamic pricing and therefore don’t optimize their rooms revenue.

The challenge with manually forecasting demand accurately are the number of variables that need to be taken into consideration. There is time-frame for example: If the majority of customers are booking your hotel within 2 weeks, then is a forecasting window of 14 days sufficient? What about long-haul Wholesale business booking 3 months in advance and what about large MICE business booking 1 year in advance. In order to determine the most optimum price the forecasting window should be at least 365 days. Then maybe you could just forecast 12 months occupancy by month? That wouldn’t be sufficient as well as forecasting demand should take into consideration seasonal patterns, weekday/weekend patterns, public holidays in your market and your source markets, big events (exhibitions, concerns) in your city. OK so maybe you can forecast the demand for 365 days by day – still manually possible. But do you experience a similar demand pattern for all segments. Like mentioned above the lead time for Wholesale and Retail business is very different and so is the demand. You would (or should ) set your Best Available Rate very different for Day A with 90% occupancy because you have a large group in House, but the city is empty and Day B with 90% occupancy because the city is full. This is only possible if you forecast demand by segment. Now it is starting to get a bit complicated – assuming you have 10 segments that would mean you have to forecast 3650 different numbers for a one year period.

I will stop here with the math, but the above does not include different demand patterns by roomtype and channel and source market. In conclusion it is just not possible to accurately forecast demand in a granular fashion manually, but that level of sophisticated forecasting is required nowadays if you want to set and dynamically change your pricing to maximize your rooms revenue.

So back to the original question of why not more properties deploy an automated revenue management system. There are hotels, which don’t practice revenue management at all for whatever reason, but many non-branded individual properties or small regional chains might not be aware of the ROI of deploying such a system. The perception might be that a revenue management system is “expensive”. While price perception is subjective, there are revenue management systems catering to different customers with different depth of functionality in the market and whatever the cost the key question should be the return on investment, isn’t it?

Another reason might be that the hotel did not employ a revenue management expert and there is no one, who can manage the system. While every hotel should have a revenue management expert (outsourced, clustered or in-house) in my opinion, for very small properties there is also the option to train any of the existing staff members to multi-task and having a revenue management system can actually help as a lot of the vendors provide basic revenue management training in addition to actual system training.

It is empirically proven that by practicing revenue management more revenue can be generated than without practicing revenue management. Due to the complex and fast changing demand pattern in the hospitality industry deploying an automated revenue management system is just the next step to keep up with ever growing competition, market changes and continue pressure by owners to delivery higher profitability.

Should you need any help with taking the next step in your revenue management journey reach out to [email protected] or check out one of our revenue management culture packages.