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The new approach to Revenue Management

Revenue Management has adapted to new customer behaviour.Armed with more experience further to recent major events and better equipped, Revenue Managers are now able to stand up against the increasingly unforeseeable reactions of customers.

While the hotel sector catches its breath for the first time in three years, Revenue Managers entrusted with improving the RevPAR at properties are still working non-stop. And for a good reason. Although the post-2001 wound has healed over and international tourism is back on its feet, the behaviour of world tourism industry consumers, hotel customers, have considerably and durably changed. Today the situation looks irreversible, as everyone has access to new technology and communication tools that increase the transparency of the market. “Clientele understand our business better than ever and this is bad news for us,” observes Scott Anderson, President of the Hospitality Sales & Marketing Association International (HSMAI). In fact these new reservation techniques make it possible to reserve very late and make the client a market studies specialist. By targeting his request, he can compare services and chose the best value for his next trips from home. “Even if he is loyal to our hotels, today the ordinary client is faced with a broad choice for a single destination. Where there were once three offers for rates, today there are fifteen. In order to capture this clientele, we cannot allow ourselves to be outside the market,” estimates Matthieu Perrin, marketplace Revenue Manager at Accor. These changes in reservation habits affect the efficiency of classic RMS (Revenue Management System) software. The latter supply business forecasts that allow the Revenue Manager to optimise revenues by optimising the allotment per customer segment. Thus, each yield class corresponds to a price, a buying behaviour, a sensibility to prices. Yet, as affirmed by Bernard Rannou, who works in operational research for the software producer Optims, “the rise of online distribution channels tends to make the traditional notion of segmentation obsolete”. A new segmentation appears that must be examined carefully. “Just because segments change doesn’t mean techniques need to be eliminated. It is necessary to carefully analyse demand as it arrives via Internet and the profiles of this clientele,” affirms Eric Blat, market manager for Hotels and F&B at Cegid. All the more so since this channel represents the future of hotel room distribution. “The anticipation of a strong growth rate in the hotel industry means hotels must implement excellent yield management systems to accompany their marketing strategies in order to maintain brand integrity and benefit from the growth in online travel sales,” indicates Leora Lanz, analyst at HVS.If yield management looked like a passing fashion for a while, the fact that is has surmounted a major crisis for the sector at the beginning of the 2000s proves that it has become durable. More flexible tools, more professional businessmen now make it possible to look towards the future serenely. Revenue Management has entered into the customs of the hotel industry and should be there to stay. As Barb Bowden, director of Revenue Management of the American Peabody Hotels observes: “We must now speak of Revenue Management as a culture and not a procedure.”The hotel industry did not come out of this crisis moribund as some observers had forecasted. It was hardened for it and it adapted. Today it is experiencing a second wind brought on by several phenomena. First of all, it became more professional. Yield management is a business for young managers who have often learned on the job and have skills that are much sought after by large groups, as well as by large independent properties that feel the need for a Revenue Management division. “Yield managers are generally some of a company’s youngest recruits, the average age being between 25 and 35. It is a new trade with a future,” analyses Félicité Danis, Revenue Manager at London’s Méridien Picadilly. A highly strategic position, the yield manager has become the strong arm of the chain or hotel’s manager and beyond a certain size, it cannot be bypassed. “The culture of Revenue Management is simultaneously directed and personalised by the Revenue Manager, the ceo and sales and marketing directors. All three must come to an agreement on the strategy for maximising their hotel’s revenue,” indicates Brad Anderson Revenue Management diavait rector at the American chain Omni Hotels.This professionalisation is accompanied by the emergence of new generation management tools that have been able to adapt to the uncertainty engendered by new behaviour. These tools are more complete, more flexible and offer more possibilities for analysis than before. “In three years, consumer behaviour has changed. They are reserving later and later. Now, reservations are often being made just 7 or even as little as 2 days in advance! It’s a bit of a war of nerves for the trade. But at the same time, tools have been perfected and revenue systems offer even more statistics,” confirms Félicité Danis, Revenue Manager. They integrate variables that make it possible to rapidly modify the model in case of a sudden crisis leading to unexpected cancellations. They also adapt to modern distribution via Internet.Nonetheless, even if behaviour is less rational than before, it would be false to believe that it is applicable to all clientele segments. During a trade fair or convention, the past is always valid. “When it comes to business customers, certain behaviours repeats themselves and may be foreseen and adapted to,” affirms Rodolphe Banzet, yield manager for the hotel chain Sol Meliá. For the other segments, dynamic models replaced the previous approach. “We used to base ourselves on a fixed history that allowed us to observe demand for a given period a posteriori. Now we have more dynamic tools that allow us to keep an eye on the progress of each market. Tools are more reliable, which facilitates risk taking,” observes Matthieu Perrin at Accor. These models make it possible to take pragmatic decisions in function of clientele because the recurrence of clientele profiles and characteristics may be pulled up at any given time. “Certain profiles decide in advance, others at a mid-range and still others last minute. Even if we identify segmentation later than we used to, the new tools make it possible to do a precise analysis,” analyses Eric Blat, market manager for Hotels and F&B at Cegid.The Revenue Manager must now do an enormous job upstream. Positioning with respect to the competition is primordial to avoid bad surprises. Surveillance tools make it possible to extract hotel samples on the same niche to compare results on a daily basis. “In order to take new consumer behaviours into consideration, pricing tools are being developed alongside Revenue Management. These consist in changing prices as soon as the market evolves, whence highly perfected surveillance systems thanks to GDS in particular, but also in function of an increasingly refined segmentation made possible by management tools for customer relations,” explains Jean-Claude Oulé, professor specialising in Revenue Management. Some of these tools can extract the number of reservations recorded by a particular hotel via GDS. Very detailed information is available: OR, average daily rate, RevPAR… All these figures are consolidated and trends are calculated on a weekly and monthly basis. Revenue Managers can compare occu- pancy curves and see if they have done better or worse than the competition.“Tools have been adapted to the uncertainty and offer an opening that allows us to know what’s happening outside. The work of Revenue Management has evolved towards a broader overture towards others: competition, clients, hotel services… Yield management has become a communications system. Consumer behaviours push us to be more reactive. It is thus necessary to know what is happening and anticipate it,” indicates Fabrice Afuta at the Hôtel Napoléon in Paris.

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