Will strategy be the key to enhancing Revenue Management?

There are many definitions of strategy, more complex or simpler, however in a generic way we can say it’s the use of a plan to reach a certain purpose or desired goal. In Tourism and in a business perspective, one of main goals will be to maximize resources, boosting revenue creation until the end of economical period.

Based on this assumption, we find that many of the decisions taken by hoteliers today are to irrational. In some cases, they even function as a "safe haven", putting into question the company's main objective to revenue maximization.

Why does this happen?

This reality has a multiplicity of factors however it’s a reality that today, what’s safe and less risky is highly rewarded by companies instead new actions and innovations. Managers are accommodated and are afraid to risk because they are called into question by administrations that don’t understand business dynamics in digital environments and general behaviour of the consumer. This mind set completely changes the logic of compensations and the managers are forced to stay in comfort zone by fear of losing their financial stability.

"Insanity is doing the same thing over and over again and expecting different results."

Albert Einstein

These revenue professionals are in a “straitjacket”, often offered by administrations, which don’t allow decisions taking within their own sphere, limiting their own potential income.

However, we find that when we talk about Revenue Management (RM) we are talking about long-term strategies and corporate reengineering that often take several years to execute. This is a marathon and not a sprint. This is not compatible with fixed-term contracts or average employability cycles for middle managers between 2 or 3 years.

What does this have to do with RM?

Everything …

When work labour cycles are short, employees are forced to work with short-term measures and don’t have a strategic view of the companies, they don’t make process reengineering or restructurings extremely necessary for every organization. This is completely insane when we have opposite business characteristics such as, long term investment cycles, high fixed cost weight, high variable occupancy costs, high distribution costs and a huge fixed asset amortization periods (to list just a few). As we can see, we have a perfect cocktail for the unsustainability of the business, the interruption of its cycle is urgent.

How can we counteract this inevitability and make hospitality business more sustainable?

First, we must to have a long-term strategic guideline planning and review corporate growth strategies.

If it is not possible to hire Revenue Management professionals for longer periods in your organization, we must have a partner company (outsourcing) to do this strategic process development and follow-up, investing in infrastructures and tools. Only in this way, it’s possible to minimize the adverse effect of the lack of planning in these areas over the years. Nowadays they are critical points of development in business success and it can become a highly and a profitable competitive advantage.

However, we must to be critical looking closer to the performance on business units. We must implement tight evaluation systems and methods to properly remunerate those who contribute for value and penalize those who don’t obtain the expected performance to increase long term relationships.

Fundamentally in revenue management we have two great realities with a high strategic impact on value creation, those related directly with price and those that have nothing to do with the price (more strategic). Curiously, almost all of them are based on long-term policies.

Pillars that are related directly to price:

• Customers or potential customers (price sensitivity)
• The hotel (fixed / structural costs)
• Competitors (Competitive set)
• The distribution channels

Pillars that are not directly related with price (more strategic):

• Culture of Revenue Management (implementation)
• Financial accounting and management systems
• Strategic competitive factors (long term)
• Quality of service and guest satisfaction
• Partnerships
• Loyalty Programs
• Diversification of revenue sources
• New market segments development
• Marketing Strategy and Actions
• Evaluating performance
• Rewards implementation for staff and internal recognition systems

It has been scientifically proven through various studies that there is a direct association between guest satisfaction and the implementation of long-term performance evaluation methods ^[1], consequently their financial performance is affected ^[2].

Through the development of actions assuring those critical points, concerted with an overall strategy for the company with a long-term perspective, we have been able to significantly increase revenues and strength the position of the Revenue Managers within organizations.

Today, the tasks of Revenue Managers become much more strategic and have moved beyond the scope of rates implementation and motion.

Those employees have become the largest asset of the units, who want to invest in long-term value creation policies, mediating between various operational departments across the organization. In this way we can do some new questions about their functions and if administrations are prepared for this mind set change. Are they ready to welcome those great professionals (for a next article).

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