Revenue Management: Have You Been Doing It Wrong?

A lot of distorted rules are today impacting revenue managers and taking them further away from their main mission which should be focusing on revenue optimization. Amongst them we find pre-made sentences such as: "decreasing the price brings volume" and "the performance achieved last year is the reference".

Indeed, sometimes it works. Now your portfolio of business is very dynamic and a lot more factors should be taken into consideration. Your pick-up curves do not only depend on daily public pricing, nor the pick-up curve from the year before. They also depend on many other factors such as the macro-economic factors of the country, the financial health of global or local companies, the marketing from the country/city tourism board or your brand, your ranking on OTAs, your recent customer comments, etc. etc.

Revenue management depends on too many factors and cannot be simplified by undiscussable and simple rules like the one listed before.

Those rules, mixed with the important weight of hierarchy are causing the following distortions in the responsibilities of the revenue manager:

• Pricing and planning based on simple analysis or feelings. Indeed, the industry has never been good at capturing and exploiting data due to the immense amount of information available and basic software unable to process it. However, it is the RM job to try to take advantage of all available information to make the best decision and the responsibility of his management to accept paying the price for tools development.
• Applying pricing & planning decisions coming from top management: this is probably the best example of counter-productive actions. Because it is only a price, revenue management decision could seem very simple and everyone could do it. Today, too many players interfere in those decisions without proper analysis nor market understanding. And if one of those is above the revenue manager in the hierarchy, gut feeling decisions end up being implement and are most of the time, not the right one. Suddenly, when it comes to taking responsibility for it, no one is interested in revenue management anymore.
• The monthly forecast should be the base of the RM work to establish a good strategy. But, as the forecast is also (and mainly) used for communication with head offices or owners it often ends up as a "political" number. The top management would then most of the time chose a figure that would not announce great results (to avoid underperforming) or bad results (to avoid an action plan).
• "Analysis with no actions are a complete loss of time". Revenue managers are asked a lot to run analysis on this or that topic just for the sake of proving that the actions taken in the past were the right one. However, if the analysis does not or cannot lead to an action plan or change of strategy, it only decreases the efficiency of the department.
• And finally communication (or let's call it justification). For a regular revenue manager, let's say that 30-50% of the work time is dedicated to explaining decisions, writing many different reports to explain to a lot of players why revenue could not have been better for the past month. Few are important yes, many are not. Can you imagine asking your Chef to write down reports to explain why the "Signature Dish" was not sold enough? Challenging the past is very often pointless, challenging the future (the forecast) would however be very relevant.

The responsibility of those distortions and loss of efficiency is due to two different factors.

The first part comes from a misconception of revenue management responsibility. Your revenue manager does not create demand, it optimizes what comes in. Of course, having a global vision of the revenue throughout the year he can provide precious insights on the period or segment that requires increased attention that then need to be converted in actions by the sales, marketing and distribution department.

The second part of the problem lies in the fact that responsibilities are not shared properly and some process, such as budgeting, are not done properly. Some changes in the mindset and working methods would be necessary.

In an ideal world you would have on one side, the managers of revenue, sales and marketing are responsible for improving topline results. One the other side, the General Managers in charge of bottom line transformation/reactivity. Same goes for all other departments. A clear organizational chart of responsibilities should be established with the rule "who can have a real impact to reach this or that target". If a player has none, then he should not have any targets on results and be excluded from the decision process. This organization aims to gain transparency and make sure that each manager in the hotel knows exactly on which topic to focus to reach their (realistic) objectives.

Revenue Management