Are you still persisting with traditional hotel revenue management strategies?

Have you begun embracing a post pandemic era rethink of your revenue management model?

Ironically, it is a retracing of steps to an approach that is considered a given.

What am I talking about?

Hang on, I am clarifying myself.

While the post pandemic changes are sweeping they are hardly insurmountable.

They merely require you to go back to the drawing board.

And ensure your fundamentals are strong.

You still look puzzled.

I will lay out a case for this rethink in revenue management strategies.

And how the rethink includes embracing innovation that works.

Sounds good?

Let’s get going.

This Blog Post will cover

Questioning Traditional Hotel Revenue Sources

In the post pandemic era, customer preferences (more like demands actually) have dramatically changed.

This is a far cry from the traditional approach to hotel revenue management in the past.

What was this traditional way?

Well, Rooms department had the ability to command upwards of 80% departmental revenue and profit.

They used to be the bread and butter of hotel revenue sources.

Restaurants with their much lesser departmental profit (from 30% to 50%), however produced traffic to the hotel.

This combination worked effectively delivering good bottom line.

However, over the latter part of this decade, a major transformation occurred.

Millennial and Generation Z customer profiles have almost sounded a death knell to the traditional approach.

A potent mixture of young, mobile, urban men and women have become the sought after customers.

Carrying with them great spending capability.

However, with radically different demands.

They have completely altered market segmentation techniques entrenched for about half a century.

The changes in their tastes and preferences have been disastrous for many hotel businesses.

Traditional room and restaurant combinations are producing less incremental revenue and profit.

This has manifested itself in falling room occupancies and plummeting average rates.

In other words, the bottom line is dwindling and the returns stalling.

Landmark trends like:

• smaller hotel room numbers,
• shrinking room sizes and
• obsession for personalized experiences

have meant that the age old room-restaurant model was slated to collapse.

Covid-19 further sealed the traditional way for good.

In this environment, continuous growth cycles seemed an uphill task.

Mixed Use Hotel Revenue Management Strategies

There was one silver lining in the clouds of apparent despair.

For a couple of decades now, stakeholders have successfully discovered another cash cow (so to speak).

Into the traditional business model of rooms-restaurant, they have injected a new money spinner.

A revenue source that is tried and tested.

That delivered consistently high bottom line results.

And drove traffic to hotels.

Wow, that is an impressive combination.

Enter the Retail Business Model.

With retail adding to rooms-restaurant revenue sources, the project got a new name.

These were called Mixed Use Developments.

As in multiple business models in one project.

All aimed at redefining hotel revenue management.

These developments are not necessarily only retail focused.

Art, culture, local artisan wares, entertainment, recreation are some of the newer sources of revenue which form part of the mixed use project concoction.

So, you are now having the spectacle of:

• retail displays,
• art and artisan wares in hotel lobbies
• organic plants and vegetables grown in roof top restaurants

and so on.

It is a paradigm shift in hotel revenue management strategies.

Competitive Set & Hotel Revenue Management Strategies

Revenue sources are not the only changes occurring in the post pandemic era.

A new look is needed into competitive sets too.

What is a Competitive Set?

Every hotel of whatever type, size and location is essentially operating in a given market.

The market consists of all the hotels which are operating in that location and around.

However, it will be impossible to include all the hotels in a market share calculation.

As a result, the first thing to be determined is: who are the hotel's direct competitors?

Direct Competitors are those hotels which answer an important question:

Which hotels are competing for the same or similar type of customer?

Or which hotels can actually take away business from your hotel?

The common method of determining Direct Competitors for a hotel takes a two pronged approach:

• hotels based on Location and
• hotels based on Concept.

Determining Location based Direct Competitors is straight forward.

Those hotels within a certain radius and which can take away business from your hotel are included in this category.

Arriving at Concept based Direct Competitors is a bit more complex.

These are hotels whether within a certain radius or not but but which operate a similar concept.

Concept is determined by different criterion.

And hotels which can take away business from your hotel are included in this category.

Most times, it is a mix of location and concept that determine Direct Competitors.

It is important to understand that setting up Direct Competitors is not a one time task.

To assume that it does not change often is a huge mistake.

Direct Competition and Market Changes

However, market changes may dictate:

• inclusion of a new player or
• removal of an existing player

from the Direct Competitor list.

Moreover, markets may never have foreseen changes wrought by covid-19.

A caveat though!

It is extremely important to get your Direct Competitors list right the first time.

There are consequences if you do not make an accurate depiction of who can take away your business.

And they are not pleasant.

You will constantly be measuring yourself with hotels who may not be able to take away business from you.

It can hurt your business greatly over time and have a negative impact on your market share itself.

Covid-19, with its sweeping changes in customer preferences has forced a thorough re-look at competitive sets.

And what did that impact immediately?

Market Segments.

Re-Calibrating Market Segments in Hotel Revenue Strategies

Market Segments need a major re-calibration in the post pandemic era.

Obsolete ones need to be discarded.

New ones identified and nurtured.

It means a major shift in hotel revenue management strategies.

All toward carving out a sizable market share for the hotel.

The Competitive Set you saw earlier is one of the critical first steps in understanding and influencing market share.

However, its real power is a deeper scrutiny of its building blocks (so to speak).

These building blocks are the market segments.

And those need major re-calibration.

Competitive Sets set up your target audience.

Target audiences are central to a successful hotel revenue generation strategy.

If you were to classify your target audience into distinctive segments or profiles, you would get market segments.

Market Segments emphasize the diversity of your target audience.

It is generally a good strategy to have diversity in your target audience without spreading yourself too thin.

And the post pandemic era has brought in its own rendition of market segments.

So, the re-calibration process would require identifying which market segments are still relevant.

Plus, which ones have changed.

With some of these transformations understood, your hotel is now ready to begin the re-thinking of basics internally.

In reality, you should have been well into this process by now.

And that means going back to the drawing board.

In each of the next 7 parts, you will re-acquaint yourself with everything from capacity to KPIs to channels and much more.

In short, you will be looking at hotel revenue management strategies through totally different lenses.

All in an effort to remain competitive in the post pandemic era.

Hotel Revenue Management Strategies - 7 Ways to ReThink Basics

The next seven post episodes will lay out the ways hotel revenue management basics will be re-thought.

These strategies will of course be driven by new customer demands.

See Infographic below for the areas in which hotels will rethink their essentials of revenue management.

They will broadly cover the following:

• Capacity, Volume Challenge - Why is this critical for survival?
• The Yield-Revenue Balance
• Fair and Market Share Battles
• Your Top 3 Market Segments
• Have a Channels of Distribution Strategy
• What is Your Direct Booking Strategy?
• Are You Pricing for Profit?

What Are Your Hotel Revenue Management Strategies Post Pandemic?

How are you re-thinking your hotel revenue management strategy?

Are you taking a close look at your target audience?

Comment below, I will be keen on knowing what your plan of action will be.

I will see you in the next episode of this series of 7 posts.

Related Posts of Hotel Revenue Management Strategies - 7 Ways to ReThink Basics

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