Defining Revenue Management – Who’s the Right Customer for my hotel?

This is the fourth blog in a series looking at one aspect of the definition of Revenue Management – right customer. In hospitality the recognised definition of revenue management is as allocating the right space (room) at the right price at the right time to the right customer through the right channel so as to maximise revenue

Customer centric revenue management

In their book Revenue Management for the Hospitality Industry, David Hayes and Allisha Miller argue the case for customer centric revenue management. They argue that any business, but particularly a service business needs to focus on what the customer wants from the transaction. So a customer has to feel a benefit (or profit) from any transaction. In fact they reword the definition of revenue management as ‘employing pricing strategies that result in charging prices that informed customers will willingly pay for the right products, in the right quantities, through the right channels and at the right times.’
So having, keeping and gaining customers is the key to a successful and profitable business. Therefore it is important that you know what your customers want.

Market Segmentation

One of the ways of achieving this is to group similar customers together to measure their habits; this is the purpose of market segmentation. It enables a more targeted approach to the offer made to the customer rather than offering one price or package to everyone, different packages and hence prices can be offered to different markets. So the business customer may want just a rate for the room, a leisure customer may want package including dinner and a conference customer may want a package that includes accommodation and all the conference elements. Also the marketing and sales teams can then target these groups using different marketing information and channels. So the leisure customer may respond to information on Facebook or adverts, whereas the business customer may respond to information in business publications. The conference booker will want a detailed information pack.
Each segment will also have different patterns in terms of when they want to use the hotel and what they are willing to pay. So tracking this information is important as it can then be used by Revenue Managers to make decisions.

Different customers in peaks and troughs

So on a hotels’ high demand days, weeks or months, do you have your higher paying customers in house using your highest value services? Or have you sold space to a group or using an offer or package that has a lower value and has displaced potential higher paying business?  And on a hotels’ low demand days, weeks or months, have you put in place the packages and marketing activity to attract the more price sensitive customer to use your hotel? Tracking your customers by their behaviour and willingness to pay is essential for effective revenue management.
So focussing on what your customers want and when the want it, will help you to make the right decisions and your hotel will prosper.

Further Reading:

Hayes, D, Miller, A. (2011) Revenue Management for the Hospitality Industry. Wiley, New Jersey.
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