Revenue or yield management in hotels is a practice that has evolved significantly in its relatively short history.  Adopted by hotels in the late 1980s, after the airline industry demonstrated great success using inventory, capacity and pricing to ‘manage’ revenue, revenue management has become one of the most integral and identifiable aspects of hotel operating strategy.  Yet perhaps understandably, today’s brand of hotel revenue management differs significantly from that of two decades ago.  Changes in the general approach to revenue management, pricing strategy, channel management, inventory allocation and the use of information as pertains to revenue management have redefined the field.

 

Just as detailed historical analysis might have represented best pricing practice in the early 1990s, stock market-influenced algorithms reside on the cutting edge of today’s pricing thought.  Similarly, the emphasis on occupancy or average daily rate that might have dominated revenue managers’ attitudes two decades ago has given way to the primacy of revenue per available room (RevPAR). 

 

Pricing is an aspect of revenue management that features several intriguing and innovative developments in recent years.  While pricing has always been a significant driver affecting both occupancy and RevPAR, in the current environment of unprecedented price transparency, rates have assumed an even greater role.  Determining the optimal rate to present to a potential customer has therefore become one of the single most important aspects of revenue management.  The fundamental fact that the right rate- one that attains the balance between simulating enough demand to maximize occupancy, while not leaving money on the table in the form of too-low ADR- is the key to a successful revenue management strategy makes pricing perhaps the most important aspect of revenue management.

 

The question then becomes, how can a hotel determine what an optimal rate should be at any given time?  In times past, this would hinge on historical analysis and be computed by applying a discount to a predetermined rack rate.  In this basic form, the aims of revenue management are barely met, and in today’s environment they cannot provide an adequate competitive advantage.  Rather, the best revenue managers and revenue management systems rely on stock market principles to formulate complex algorithms that can generate with accuracy the optimal rate.  Furthermore, these systems work in real time, making subtle adjustments at brief intervals of time to maintain the best rate.  The two best practices at work here are automation and an advanced algorithmic approach to pricing.