Inventory game (Hotel Revenue Management 4.0)

Hotel revenue management is a fascinating topic because even if you think you’re an expert, there’s a good chance you may still be leaving a lot of money on the table. 

In this article, I’d like to challenge a few of the industry ‘best practices’ in what I’m calling Revenue Management 4.0. 

But first things first, what about 1.0, 2.0, and 3.0? Let’s get into it.

Revenue Management 1.0 (PMS)

In Revenue Management 1.0, the hotel uses a PMS. The rates are usually set by season, weekend rates are higher, etc. Most independent hotels operate this way. 

Experienced revenue managers would consider this model as inefficient, but it can actually work well for many. 

Why? Because it’s simple.

Revenue Management 2.0 (PMS + Dynamic Pricing)

Aka “let’s outsmart everyone with dynamic pricing!”

Dynamic pricing makes a lot of sense in many cases BUT:

  1. It makes your hotel rooms a commodity and doesn't consider the uniqueness of your property
  2. In the markets where everyone is using this system, your competitive advantage goes down.

Even if you’re doing everything by the book, Revenue Management 2.0 just might not be the most profitable approach.

Revenue Management 3.0 (PMS + Dynamic Pricing + CRM)

And then there’s Revenue Management 3.0. In this scenario, a hotel will optimize based on the type of clients that spend more on additional services and the ones who will likely visit them again. CRM is implemented, lifetime value calculated. All chains operate this way.

However, I’ve noticed many hotels in this category over optimize little details, creating a lot of unnecessary complexity and making it difficult to see inventory from a helicopter view. Which brings us to my next point.

Revenue Management 4.0 (Inventory Game)

Imagine if instead of optimizing rates each day and by room type, you zoomed out to see a bigger picture:

  • What type of guests do you want to attract?
  • How do bookings change during the year/month/week?
  • What changes in the hotel should you make to attract new types of guests?
  • What are the operating costs associated with each type of hotel guest?
  • What are your acquisition costs?

The Social Hub and “The Big Summer Switch”

I once attended a coliving meetup in Amsterdam where someone from The Student Hotel (now called The Social Hub) did a presentation on their hybrid model. 

The most interesting component of the presentation for me was this revenue slide:

The hotel switches the student rooms into hotel accommodations during the summer months. Makes sense, right?

But imagine switching between different concepts during the whole year based on demand. You play the inventory game. When you have guests staying longer, your rates are lower but your staff-related costs (like cleaning, back office, reception, etc.) are too. 

There is no software that helps you optimize this and almost nobody is doing it, but that just may be your competitive advantage.

Changing brands based on seasonality

Sun & Co. is a coliving space operated near Valencia in Spain. The high season in that area is from the 15th of June to the 15th of September. 

The property is operated as a hostel under the brand Youth Hostel Jávea during this time.

The rest of the year the property operates as Sun and Co. coliving. They make some adjustments during the transition day: the lobby of the hostel is converted into a coworking area, most bunk beds are removed and private rooms are prepared for coliving, etc.

One property, two brands. Think about it.

Squeeze those rates with dynamic pricing during the high season

Some of the hotels Surf Office works with follow an interesting strategy. 

Interesting, but quite simple. 

Hotels define a high season and those months they focus mainly on individual bookings. 

They play a lot with dynamic pricing, trying to keep enough availability around for the last minute bookings. With these they score very high rates as last-minute availability is limited during this season and guests are willing to pay a premium for it.

During mid and low seasons they work with Surf Office.

They offer good rates (while their competitors don't have bookings or are even shut down), and in return Surf Office funnels them a large volume of corporate groups. 

Even with lower rates, those groups have an amazing TRevPAR because the corporate groups bring a lot of revenue from F&B and other services.

This may sound simple but it requires a solid strategy with rates and inventory, as well as good staff planning. Some of the common areas and meeting spaces have to be adjusted too.

And these are just three examples. But I’m curious to hear others.

Do you know any? Please let me know and I will add them to this post.

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