For any hotel to survive, revenue is essential. Every business involves a cost, and without generating income, the business will not be viable since it will not be able to meet the costs. This is where hotel revenue management comes into the picture. Hotel revenue involves giving the right room to the right guest, at the right price and at the right time. For this, you require a hotel revenue strategy.
From this, we can deduce that hotel revenue management involves room inventory, price strategy, seasonality and marketing. Revenue management and hotel marketing go hand in hand because performing one without the other is like swimming with one hand tied to your back.
With so many factors involved, there will be as many hotel revenue strategy challenges as well. Revenue Managers will need to ensure that all the factors are working in tandem because a goof-up in one aspect will render the entire strategy ineffective.
We have listed the common challenges of hotel revenue strategy that hoteliers need to tackle to make the most of their strategy.
Internal Hotel Revenue Strategy Challenges
Here are a few challenges of hotel revenue management department needs to face while implementing revenue strategies. These challengges need to be tackled first, since setting your house in order is essential before you tackle the world.
1. Skill Sets Of Revenue Managers
Revenue Management is one of those specialized fields that require strong skill sets in various aspects. Hotel revenue managers need hard skills in pricing strategies, marketing, data interpretation and analytics, along with soft skills such as adaptability, coordination and awareness of the hospitality market. It is one of the major hotel revenue strategy challenges faced by hoteliers.
Developing these skills is the first challenge a revenue manager faces. Without these skill sets, a hotel cannot devise an effective hotel revenue strategy. One needs to learn and refresh the knowledge regarding the field and apply these skills and knowledge in real life. Along with it, one also needs to be familiar with the latest practices in the field.
2. Communication And Coordination With Other Departments
Hotel Revenue Management does not work in isolation and hence, it requires the coordination of other departments such as Marketing and Sales, Front Office and Housekeeping departments. All the departments need to ensure that their goals are in sync since any mismatch between goals will be a disaster for the hotel. Open communication and coordination are some of the common challenges of hotel revenue strategy.
For example, The Sales department may be concerned about getting more sales and will do anything to get more of it, however, you as a revenue manager need to explain why revenue should take priority over sales, because profit is revenue minus cost, and more revenue leads to more profits for the hotel. The housekeeping department also needs to inform the revenue managers of the number of rooms available to put on sale.
With these examples, one gets to understand the importance of communication and coordination in hotel revenue strategy.
3. Challenges Regarding Technology
Technology is now becoming an integral part of revenue management. In turn, technology, or lack of it, is becoming a major challenge for hotel revenue managers. Some of the hurdles in the technological aspect include having different sets of systems that don’t work together well or not having the budget to invest in these technologies. At times, even hotels are not ready to invest in such technology.
With the proper technology, the hotels have to manage each online channel individually, which makes the job exhausting, time-consuming and cumbersome. This also hampers hotel revenue strategy because an effective strategy requires the coordination of various factors, which can be done only with the help of efficient technology. It is one of the several hotel revenue strategy challenges.
To gain access to the technology, budget and approval of the hotelier are required. The budget aspect cannot be solved in short term, however, if you have the budget in place, you should convince the hotel to invest in these technologies. Outline the time taken for each task and how you can save time and make operations more efficient by investing in technology for hotel revenue management.
4. Measuring Distribution Cost
Distribution is an essential aspect of hotel revenue management. A hotel needs to distribute room inventory through various channels such as OTAs, Hotel websites, Travel Agents, On Spot Bookings etc. Managing the cost of distribution channels is one of the major challenges while implementing a revenue strategy.
A hotel needs to measure distribution costs comprehensively, it is, however, a complicated task. For example, if a potential guest goes to your hotel website, and then books the room through an OTA, how do you attribute the revenue/cost parameter? These complicated ways of consumer interactions with different mediums make it difficult to gauge the effectiveness of a single distribution channel. Hence, coordinated efforts are one of the major hotel revenue strategy challenges.
An increase in the significance and usage of online ads makes direct marketing more expensive, however, and it leads to brand awareness and brings your hotel in front of the guests. The same ads can increase website booking and OTA sales since customers are not hesitant to make use of all the avenues for consuming a product or a service.
To effectively implement a revenue strategy, first, calculate the cost of each channel and coordinate with the sales and marketing team to understand whether the cost incurred in each channel is helping the overall marketing of the hotel.
5. Extent Of Flexibility Over Pricing And Strategy
The flexibility revenue managers have in overpricing and strategy depends upon the type of property they are working under. Branded hotels have fixed policies, procedures, and regulations. Smaller independent hotels on the other hand have greater flexibility. ent hotels have more flexibility to experiment, innovate and formulate new strategies according to the market.
Hotel Revenue Managers have to work in different environments. This affects the performance and contribution of the revenue manager. It is one of the major hotel revenue strategy challenges.
External Hotel Revenue Strategy Challenges
We have discussed the internal challenges of hotel revenue strategy that revenue managers face. We will now discuss the external ones.
1. Domination Of OTAs
Online Travel Agents, commonly known as OTAs, have now emerged as the dominant distribution channels for room inventory. Hotels may want to avoid OTAs and their commissions but they cannot avoid them because -
From the customer's point of view, OTAs are convenient because it allows them to search for all the properties in one place according to the location, room type and several guests, rather than searching for hotels on google search.
From the hotel's point of view, OTAs can help them get customers since they have OTA Managers to aid them and can readily show their property to the guests who are looking for one in their location. Direct bookings are harder to get because of increased requirements and time taken for search engine optimization (SEO) for hotel websites and integrating a direct booking engine. Online ads incur a massive cost too.
Hence hotels should not underestimate the importance of OTAs, nor should hotel revenue managers. Your website needs to compete with other established websites of well-known hotel brands. The online sphere is more cutthroat compared to offline because if you are not on the first page of google search results, you don't even exist in the digital world. OTAs are your helping hand. Managing them is one of the major challenges of hotel revenue strategy.
2. Seasonality And External Circumstances
Hotel revenue strategy depends on open seasonality and external circumstances as well. For example, the Covid Pandemic and lockdowns have forced hotels to shut down, and the subsequent restrictions have made open and re-evaluate their strategies to meet the new circumstances. Prices and occupancy had to be modified and heavy losses had to be incurred in these two years. Every source of revenue became more important.
Along with unexpected circumstances and events, a hotel revenue strategy cannot be formulated without considering seasonality. One cannot keep the same rates and even follow the same strategy during the offseason and the season. Implementing a revenue strategy without considering external factors that determine revenue will lead to a loss in hotel revenue.
For example, easy cancellation can be a good strategy during the g offseason, but not during peak season. If a guest cancels a room, it not only leads to a loss of revenue from that guest but also from all the other potential guests that would have booked in his or her place instead. The same goes for pricing, room inventory distribution and maximum duration of stay allowed.
In short, hotel revenue managers have to face these various hotel revenue strategy challenges. Bigfoot Hospitality is the best revenue management and marketing company in Mumbai to take care of your hospitality management needs.
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