How “Revenue Management” influences the organization and how it helps coordinate common goals

What is Revenue Management?
Revenue management has been a significant business process that altered the travel and hospitality industry since its foundation in the early 1980s. Revenue management needs analysts with detailed market knowledge and advanced computing systems that analyze market behavior and capture revenue opportunities with the help of different useful techniques. This business process was initially developed by the airlines in order to ease the process of deregulation, over time it has expanded to hotels, car rentals, media, and various other industries. It helps the businesses in generating incremental revenues from an existing operation and hence appeals to the business leaders who wish to generate a return from revenue growth. This article explains the role of revenue management in coordinating the entire origination into common goals.

Significance of Revenue Management & its influence on the organization
30 years since the introduction of revenue management concept, it can be safely said that revenue management concept is an integral hospitality discipline. Brands, leaders, asset managers, and suppliers have all joined operators in analyzing the significance of pricing perishable inventory right to meet demands and consumer needs. Therefore, the role of revenue strategist and managers has evolved greatly. Revenue managers are an integral part of companies, especially hotels, who drive operations and take many decisions and actions in adjoining departments for revenue optimization and pricing optimization.

The revenue team is in charge of delivering the top line outcomes of a hotel’s revenue, and with time more and more hotels and organizations are becoming aware of the significance of revenue management and the role of revenue strategists in driving revenue growth. Revenues generation is the ultimate goal of the hotel industry and when there’s a great responsibility on shoulders of revenue team, it’s mandatory that they keep the rest of the hotel in line with both performance data and objectives. Hotel revenue management strategies play an important role in this regard. Revenue team’s relationship with the managers and other departments, including the finance manager, is of particular importance.

For the finance department, this process is more of an operational expenses tool. Finance department wants to know the data and numbers in order to make a forecast or projection for the coming year. If the revenue team misses out the budget, it affects the payroll. Hence, the coordination between the finance department and revenue management team is of great significance, after all both the departments have a shared goal i.e. revenue generation and growth. The revenue team should also be involved with sales and marketing departments. The involvement will make sure that the demands are met during peak seasons. Moreover, a revenue manager keeps sales managers in check by challenging various actions.

While setting price tags for various commodities and services such as the rate of a hotel room or an airline ticket, the strategic planner must take into account the general willingness of the consumers to pay the set rate of a certain product, in relation to its worth. Particularly, in fields that deal with customer care and hospitality, the pricing automation must be focused on accommodating the customer rather than focusing on the means of producing a profit in abundance.

The customer care services and offers usually come in a limited quantity. This can be explained by considering the fact that asking a company to grant a table instantly at peak hours of a restaurant or a hotel to issue a room on a Saturday night without any pre-booking. Apart from fulfilling other responsibilities, managers associated with revenue generation are required to set a suitable and acceptable price range of hotel rooms and food outlets, to deliver value and convenience to the customers. For example, visiting the same hotel at different times of the year and finding the rates increased or decreased radically. That is due to the fact that products or services don’t have fixed prices rather they variate in accordance with the customer demand. All this can be managed through pricing optimization and pricing automation. This mechanism is a meager component of the large revenue generation business in progress.

How it helps coordinate the entire organization into common goals
A company’s culture, departmental structure, and various departments impact the potential of its revenue management initiatives and objectives. To ensure success, it is important for the organization to have common goals and objectives. Coordination among different departments is vital to ensure revenue generation. It is important to the success of revenue management that the organization has enthusiasm for, respect for, and understanding of the discipline. It should start from the top. If the hotel CEO or the general manager does not understand the needs of the revenue management team then it will affect the revenue generation rate. Thus, it is significant for the top management of the organization to show support for the revenue management team so that other departments and the workforce adheres to the needs and requirements of the revenue management department.

The hotel can experience set-back from the actions of people who are not capable of analyzing the negative outcomes of specific decisions so a revenue director should have the authority and should have equal say in decision making. If the Director’s opinion is not taken under consideration there are high chances that decisions for grasping more business will be taken even if the decisions are not in best interest of the hostel’s overall RevPar.

The concept of setting different goals for different individuals is one of the most common mistakes of hotel professionals. The optimum approach is to work towards common goals and the individuals should be centralized around common goals. Revenue management team has a task to focus on RevPar and just like that one goal shouldn’t be targeted by sales department likewise sales department should also work towards a common goal.

Strategic pricing should be primarily addressed in every revenue plan, focused on revenue optimization. The pricing by the revenue management should be determined before-hand. During the process, elements like service levels, market demand, customer segmentation, and hotel product should be taken into consideration by all departments. Reactionary decisions can be talked and the hotel can be pr-active if pricing is determined in advance. Hence, the need for effective hotel revenue management strategies.

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Pedro Velhinho

Pedro Velhinho

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