2020: A Vision for Revenue Management in the Next Decade
As we quickly approach the year 2020, I thought it would be an opportune time to highlight some of the key challenges and opportunities that those involved in revenue management will likely be grappling with in this coming decade.
Given that revenue management within the hotel industry has only been around for just over thirty years, it would be unwise to predict exactly how it will evolve over the next ten; however, some key trends have emerged that may shed light on where this discipline is headed.
Today it is difficult to pinpoint the impact that revenue management decisions have on the financial performance of a property. In order to do this, you would have to quantify what the results would have been, had a certain decision, or combination of decisions not been made. It is akin to being a witness to an event that didn't occur. That said, it is widely accepted that properties are better off by employing revenue management techniques than by not. As an industry, we'll likely get much better at measuring impacts of revenue management decision making in the future.
This desire to include revenue management as a foundational part of hotel operations, combined with ever-increasing supply growth in many markets, will result in increased demand and competition for talented revenue management practitioners. In order to meet this demand, more and more colleges and universities will include revenue management courses as part of their curriculum. In fact, it is likely that revenue management will become part of the core required classes for graduation from hospitality programs.
More pressure too will be on hotel operators and management companies to attract, grow and retain talent in this field. Career progression and succession planning is likely to become a hot topic in the years ahead.
Practitioners will broaden their focus from strictly top-line activities to both understand, and impact profitability. Starting with the brands and eventually filtering to independent operations, the concept of loyalty and lifetime guest value will emerge once again as very topical. Naming conventions and job titles for those in the role will evolve from the very pedestrian "revenue manager" to something that more readily reflects the evolving nature of this important discipline.
Consumers in this next decade will insist on the ability to fully understand and easily compare pricing across competitive properties and reasonable alternative substitutes.
Taxes, resort and other fees will need to be clearly depicted early in the research phase in order for potential guests to understand the value proposition that any given property offers. In some jurisdictions, this will be mandated by law, but booking engines, intermediaries and other technology providers will likely adopt enhanced consumer transparency as a standard best practice across the industry.
Pricing and Rate Parity
Contrary to popular belief, the concept of rate parity was introduced by hotels, and not by online travel agencies (OTA's). In some regions of the world, this concept, once a mainstay within OTA contracts, is being challenged legally. In other cases, as with brand loyalty member pricing for example, uniformly applied rate parity has crumbled.
It is almost certain that rate parity as we know it today will meet its demise in the coming decade.
Pricing will become far more sophisticated too. With tailored pricing distributed in real-time, based on artificial intelligence (AI) algorithms and on the ancillary spend profile and lifetime value of target audiences, to enhanced insights into consumer behavior modeling, pricing science will be at center stage.
While feedback from airline travelers clearly indicates that add-on fees for services are annoying, this is at odds with the desire on the part of travelers to customize their travel experience. It is easy to see that the desire for hotel guests to become the architects of their stay, combined with advances in enabling technology and pressure to abandon mandatory fees, that hotels will begin to "unbundle" service offerings. This will allow them to offer an attractive basic rate through applicable distribution channels, yet allow a guest to take advantage (for a price) of a wide variety of service offerings.
From selecting a specific guestroom number, to pre-setting the temperature, snacks in the mini-bar, pillow options, amenities, music, entertainment and electronic artwork, emerging technologies will enable guests to customize each stay to their liking.
Ironically, electronic-free stays will also become increasingly popular as guests will understand the therapeutic nature of "unplugging" for short periods of time. Some guests will be willing to pay a premium for the privilege of having less service and fewer options to choose from.
Tours and Activities
Innovation around enhancing guest experiences while generating revenue will come in many forms. One such area is that of tours and activities. While concierge services at large city center properties have referred tours and activities and have sometimes been remunerated for their efforts, hotels of all shapes, sizes and locations will likely engage in actively promoting activities in their destination.
Not only will technologies more readily facilitate bookings (either self-booking or assisted), hotel operators will realize the value associated in being viewed by guests as instrumental in enhancing their travel experience in the destination that exists beyond the boundaries of the hotel.
Conversely, there will be renewed interest in select markets to drive visitors to a property as a destination itself. Day use, staycation and other similar opportunities will become popular.
Data and More Data
If we think we have a lot of data to consider today, that is likely to grow exponentially. Third party providers, research firms, distribution entities, ecommerce agencies and others will continue to enhance their report offering. In addition, the broadening and deepening of the role of revenue management at all levels within an organization will mean that additional data elements must be considered.
Practitioners are likely to be challenged with what to do with all this information, so that it can be assimilated and effectively used to make appropriate tactical decisions that support the overarching strategies that have been defined for any given property. The use of AI to identify and solve business problems will grow.
And while the picture may be "clear" to those close to the process, it will become even more important to provide contextual information to other key stakeholders. Education of ownership and senior leadership as to why certain action has, or should, be taken based on the data that is available will continue to be important as will be the art of "telling the story" through graphical and other depictions of relevant data elements.
Practitioners will need to become some combination of scientist, visionary and storyteller.
I think it is safe to say that intermediation to some extent or another is here to stay. Even with consolidation, the industry is still relatively fragmented, which makes it ripe for intermediation to occur. The question is how this will evolve. New business models (and players) are likely to emerge – putting incumbent distributors and suppliers on their heels.
New ways of thinking, new lines in the sand and new sticking points will make for tough, interesting and exciting times ahead in the next decade. Those that embrace (or at least recognize) change and develop effective strategies to navigate this brave new world will thrive. Those that apply traditional approaches and thinking will likely not.
Cost of guest acquisition will continue to grow as more and more firms focus on this area.
It will be comical to those in 2030 to think of marketing, sales, ecommerce, reservation sales, revenue management, and in some cases today, distribution operating in silos. By then, these functions will be under the purview of a principle resource, incentives will be aligned and will match the contribution towards the goals of each operation. While skill sets and personalities may vary widely, communication, objective alignment and collaboration amongst those involved in each area will be paramount.
The gold standard for key performance indicators (KPI's) in the hospitality industry has been related to occupancy, average rate and revenue per available room (RevPAR). While these will likely not disappear anytime soon, it is likely that supplemental benchmarks will emerge in the decade ahead to reflect the broadening and deepening role of revenue management. Total Revenue Per Available Room (TrevPAR) for example, may more accurately depict the ancillary spend impact of properly attracting and catering to certain market segments at different times of year.
Gross Operating Profit per Occupied Room (GoPAR) could allow a better understanding of the profitability associated with revenue management and marketing initiatives. Other internal metrics (ones that are more difficult to benchmark against competitors) are likely to be created. The idea being that focus and measurement around KPI's specific to the success of a particular operation will yield better results. In some instances, these could include time-share sales conversions by channel, or lodging nights per season pass holder, for example. There are many others.
Psychographics and Demographics
The traveler of tomorrow will not likely have the same desires or expectations as the traveler of today. Certainly, the basic offerings of food and shelter will remain unchanged as it has for centuries, but I am talking about how accommodation providers will fit into the ecosphere of the travel experience for these new travelers.
China, for example, is emerging as the number one source for outbound travelers in the world with only a fraction of the population having passports. As this trend continues, hotels will need to understand how to communicate with, connect with and service this growing audience.
The next generation of travelers too will undoubtedly begin to wield their clout. In the US for example, "Generation Z" comprises 25% of the population, which is greater than the generation that came before it or baby boomers, for that matter. As with any generation, Gen Z's will not resemble the prior generation in terms of attitudes, values, motivation or behaviors.
For revenue managers, these shifting trends mean a world of change when it comes to managing content, distribution channels, price-value assessments and the myriad of other tasks that they are involved with.
The good news for those involved in the field is that, like the previous three decades, the role of revenue management will continue to evolve in the coming decade. In some cases, the changes will be evolutionary, and in some cases, changes will be revolutionary – but rest assured, changes are coming. Those that prepare for the future today will thrive tomorrow.