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Wednesday, 21 February, 2018, 16 : 38 PM [IST]

Time to focus on Revenue Management

Hotel Rooms (along with airline tickets) are amongst the few businesses where the customers’ purchasing behavior is conditioned to accept fluctuating rates based on market conditions. It is imperative that a hotel’s revenue management (room pricing) practices are agile to update room rates to changing demand patterns. Smart pricing practices can significantly enhance the revenues of the hotel.
Evolution of Revenue Management
The first stage of revenue management practices centered around the creation of a unified distribution network for a hotel’s room inventory. Over the past few years, hotels have been adopting technology solutions like channel managers that integrate various distribution channels like online travel agencies (OTAs), global distribution systems (GDS) & the hotel’s web site. Such tools provide basic support in updating rates & inventory counts across multiple channels

The next stage in the evolution of revenue management is the implementation of smart pricing practices that maximize a hotel’s revenues. This requires that the revenue manager has a clear & proactive understanding of the changing demand for a hotel’s inventory along with a pricing recommendation that factors the various competitors of the hotel.

Based on the study & analysis of a large data set of hotels, it was observed that a majority of them had significant gaps in their revenue management practices. The calculated potential loss of revenues due to such gaps is significant and estimated to be around 10-25% of their current revenues.

Case Study: High Demand Days
A well-managed 5 star property in Mumbai has implemented a number of good practices in revenue management. Its has a well defined pricing strategy based on years of understanding its customers as well its position in the hotel’s competitor group set.

At a basic level, the hotel ensured pricing parity of its sell rate across OTAs as well as dynamically changing rates based on its occupancy levels (defined by the booking pace).

However a closer analysis of high demand days (e.g. 20 Jan, 2018) indicated that the hotel was slow to pick up on the projected demand and thus not agile in increasing its prices. The inability of the hotel to forecast higher demand was thus resulting in lower revenues.

Using smart analytic tools like Maximojo Mantras, its is possible for a hotel to pick up changing demand patterns ahead of its competitors. It is thus better positioned to change its rates ahead of its competitors to maximize on the potential bookings.

Case Study: Maximizing Competitiveness & Yield
As in the previous case study, another 5 star hotel had good revenue management practices in place (rate parity, etc.)

However its pricing patterns (for the next 30 day stay window) also indicated some unawareness of upcoming high demand days or changes in competitor pricing. Thus, the hotel was not effectively changing its prices on other days as per the changes in pricing of its competitor hotels.

Maximojo Mantras tracks the competitiveness of a hotel’s pricing against its competitor group set to provide an indicative Competitive Pricing Index value. A low value suggests a potential factor for reduction in occupancy (due to relatively higher rates). Similarly a high value suggest potential reduced yield (due to lower than necessary rates).

About Maximojo Mantras
Analytics Mantra works on collating data across multiple sources, facilitates the correlation or data by presenting the underlying relationships in a visually comprehensible way. Mantras is based on the latest cloud-technology which ensures very high performance, scalability and availability.

As of December 2017, the Maximojo Mantras platform processes bookings of a value over INR 125 crores each month (with a CAGR of over 100%). These bookings are spread geographically across all regions of India and include a full range of hotel categories. The analytics are thus based on a strong factual dataset with a high probability of accuracy.

(The views expressed within this column are the opinion of the authors, and may not necessarily be endorsed by the publication.)
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