Revenue management is dead!
If you are a revenue management practitioner, odds are people have asked you what you actually do for a living. This article will highlight a few of the ways in which revenue management has been defined in the past, how it probably should be defined today and how to easily answer that — sometimes awkward — question at your next cocktail party.
I was thrilled to have had the opportunity to briefly meet Robert Cross this year for the first time, as he accepted the Vanguard Lifetime Achievement award at the Hotel Sales and Marketing International (HSMAI) Revenue Optimization Conference in Houston, Texas.
He is a smart yet humble man who deserves a tremendous amount of respect and credit for the contributions he has made as a pioneer in the revenue management profession. In his 1997 book, “Revenue Management – Hard-Core Tactics for Market Domination,” Cross defines revenue management as “the art and science of predicting real-time customer demand at the micro market level and optimizing the price and availability of products.”
Wow! While technically correct, that’s a mouthful — and if you throw this out there in the hopes of attracting a date, then you may be in trouble. In fact, it takes another 255 pages for Cross to fully explain what that actually means. Mercifully, he also adds a simpler definition: “Revenue management ensures that companies will sell the right product to the right customer at the right time for the right price.” OK, that’s better! It’s interesting to note that the concept of the “right channel” wasn’t given much consideration back then. In those days, guests would either make reservations directly with the property or call their travel agent or meeting planner.
Although the concepts that led to today’s Internet were introduced in the 1960s, by the early 1990s, only a few individuals were networking through electronic means — and they were probably in defense or research roles.
With the term “Internet” officially defined in 1995 (it was World Wide Web prior to then), plus the advent of what is now known as Expedia and Booking.com a year later, broader adoption ensued. That’s an understatement, actually; explosive adoption is more like it. And with that adoption, power shifted from the service provider to the intermediary. Today, cost of distribution is a key consideration for most hospitality operators.
How revenue strategy has evolved
The revenue management discipline itself has also evolved. In its early days, it was seen as primarily reactionary in nature. Pricing schemes were relatively simple — for the most part, guests were accommodated on a first-come first-served basis and technology (if present at all) was rudimentary. It was the job of the revenue manager to work out how to leverage the concepts of price and duration to maximize revenue.
Today, pricing schemes are much more sophisticated, multitudes of distribution models abound, complex and often disparate systems need to be managed and multiple sources of data need to be factored in to any revenue management decision. Add to this, ancillary spend profiles plus profit contribution, and it is easy to see how the revenue management role has shifted beyond just moving prices around to requiring a much more proactive approach. In fact, I don’t think the name revenue management is even relevant anymore!
I have to confess, I have hated the title “revenue manager” for nearly two decades because it simply didn’t fit the evolving expectations for the role. I even went so far as to change the titles of revenue management practitioners from director of revenue management to director of revenue optimization (DORO for short) at the company where I was working at the time.
Today, at my consulting firm, we have directors of revenue strategy. Why? It’s time for a new definition that better describes what we as “revenue strategists” actually do. So… “Revenue strategy is a business process that optimizes the financial performance of an asset through all market conditions.”
Let’s break that down a bit: Revenue strategy: Revenue management is dead! Proactive revenue strategy is in. Enough said. Business process: This goes far beyond just changing pricing and putting in stay restrictions. (I’ll share more details about this on another post.) Optimizes financial performance: This represents a shift from maximizing revenues to driving profitability Asset: This doesn’t have to be limited to hotel rooms. Revenue strategies can (and should) positively impact other areas of a hospitality operation, too. All market conditions: Demand doesn’t have to exceed supply for revenue strategies to apply.
So the next time someone asks you what you do for a living, you can say: “I am a revenue strategist — I help optimize the financial performance of my property.”There you go. And… you can also let me know how your date goes.
Trevor Stuart-Hill, ISHC, president, Revenue Matters, Denver, Colorado
This article appeared in the Hotels Magazine |
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