6 Winning Hotel Revenue Strategies

Your Essential Revenue Management Cheat Sheet

6 Revenue Strategies for Your Hotel to Win in 2021

A bulletproof price management strategy packed with resources.

By Nathan Gawlik
Nathan Gawlik's experience includes being a General Manager of a Hampton Inn and other front line roles such as a Banquet Captain, Front Desk Agent, Housekeeper, Catering Event Manager, and Director of Sales.

This guide is crammed with insights from hospitality revenue experts in a digestible format that you can easily apply to your business. Whether you work with hotels, B&Bs or Vacation Rentals the insights offered here apply to all lodging professionals. Let's start with some definitions.

Definitions to Consider

What is Variable Pricing?
Variable pricing is the practice of assigning price based on different elements of value. For example, suites vs standard rooms, or rooms with a view, or campsites closest to the lake.

What is Yield Management?
Yield Management is strategically changing prices to increase as demand increases and to decrease and demand decreases. The price fluctuates with supply and demand. If your occupancy is 80% your would likely charge slightly more for a room then if your occupancy was at 30%.

What is Dynamic Pricing?
Dynamic pricing means changing the price due to repeating events which affect supply and demand. Examples include seasons, weekends, holidays and other annual events. Combined, these strategies are known as revenue management. Dynamic pricing and yield management are tools that Revenue Managers use.

What is Revenue Management?
It is the practice of varying the price for a product or service to reflect changing market conditions, in particular, changing to a higher price at a time of greater demand.

As revenue management becomes more sophisticated, technology can help by adding day of week events, nightly, and real-time adjustments to pricing. But we want to go deeper than that because holistic revenue management is so much more.

piggy bank and miniature houses on stacks of money

Powering a More Sophisticated Strategy

Price alone is not the only thing to be concerned about when it comes to revenue management. Revenue management is about data. Better access to data and how that data has evolved in the revenue management space is important. Technology helps you account for the following common data points:

traveler demands
digital nomads
drive versus fly markets
merchandising policies and promotions

Revenue Management for Trends

Generally, short term rentals are growing year over year while hotels are stagnating. Likewise, we see the meetings and event spaces struggling as well. These are rather obvious wounds brought on by the global pandemic and mere result of travelers' buying habits shifting away from city centers to destinations where it's easier to social distance.

Drilling down a bit, those that are booking reservations are doing so with far shorter lead times. This is likely for two reasons: one, demand for these rooms is far lower, meaning guests know that properties are not sold out and they have a good chance of getting a reservation, and two, for the short term rental market this was already typical for most travelers. This is also coupled with vacations trending longer, anywhere from 25%-50% longer on average.

Companies like Airbnb, VRBO, Minthouse (apart-hotels) and other non-traditional accommodation providers have brought millions of units online. This influx of inventory and lack of events has spelled death for many big box hotels. Alternative accommodations plus the pandemic really is the perfect storm for the hospitality space which will certainly have a ripple effect for years to come.

But travel will come back in force. Many people don't realize that travel actually makes up 10% of global GDP and over 330 million jobs worldwide. The World Monetary Fund projects that this recession could be more than 40 times worse than the great recession of 2009. However, if vaccines are widely distributed, the recession may not last nearly as long.

Accommodation providers that are hoping and praying that travel will come back in force in 2021 and beyond need to be ready to optimize their pricing strategy to get their fair share of the pie.

Revenue Strategy

As detailed above, there will be one of two scenarios: feast or famine

Experts backed by data suggest that a renaissance of merry travelers is the most likely. While the 2021 tourist season likely won't outperform 2019, it will likely be better than 2020.

Assuming this is the case, property managers must adapt to not sell out too quickly by pushing rates where you can to benefit from this scenario. Because there is a shorter booking window, it's going to be difficult to optimize. You will likely get caught leaving money on the table because you want to sell out as quickly as possible.

1. Agility Wins

2019 was a record year for many hotels. RevPAR was the best it had ever been. That changed seemingly overnight. Trends follow changing tides. Those that aren't willing to adapt and go with the flow will likely be writing their own obituary. 2021 will be marked with winners and losers. Properties that are willing to keep their ear to the ground will be able to weather the uncertainty ahead. Take lessons learned from 2020. The change is far from over.

This may be very difficult for some to take in but, do not plan for the long term. Do not use the 53 week strategy this year. Doing this only puts the blinders on. Think short term and dial into what you are seeing. Review pricing and occupancy every week for the past week and see if it is gradually increasing week after week, if it is (all things being equal), increase your rates gradually.

Richie Khandelwal of Pricelabs suggests that properties should pay close attention to their net pick-up. This can be determined by comparing your site traffic compared versus your total bookings. If you're seeing your booking rates increase compared to traffic then, that might indicate that a rate change should be considered to account for the changing market.

"At Pricelabs we look at two different net pick-ups, There is the pickup for the market where we see a certain day or certain month, or certain week is seeing more demand which is more booking than any other neighboring week. This indicates some event pattern or some demand pattern, which you should adjust your rate for. Either increase or decrease, depending on which side the pickup is going. That's on the market." Khandelwal continued, "And we also look at your own properties pickup rate, which is your market might be responding very slow, but if your property is going faster, you may want the still increase rate But if the market is going fast and your property is not going as fast you may want to decrease a bit."

Ryan Taylor, Revenue Manager at Beyond Pricing

"I'd say the biggest piece of advice for property managers is to really hone in on what's going on in real-time in your market, you might be pacing behind your own data compared to last year. And that can be worrisome, understandably. But if the market is in the same position, just know that maybe the demand isn't there yet, or know that your booking window has changed and focus your strategy on that booking window."

2. Discount is King

According to Travel Pulse, ads that featured discounts performed better than those showcasing luxurious accommodations. The same study found that travelers want hopeful forward-looking messaging. You can apply this with your property by rewarding travels with a Book Early and Save discount. Populate this rate only for shoppers seeking accommodations two weeks out or greater.

If you would really like to segment your market, consider offering additional incentives or discounts to travelers booking more than a month out with assurances of flexible cancelation. A 2016 survey "Traveler's Path to Purchase" by Expedia found that most bookers started their search 45 days prior to purchase and American's visited 140 travel sites in the six weeks leading up to their buying decision. This strategy will likely only capture a small percentage of bookers but there is still an appetite for early bookers.

Another discount many innkeepers are using is a length of stay (LOS) discount. Some properties offer the third night at 50% off or the fourth night free.

Dax Cross, CEO of Revenue Analytics on the importance of relevant data:

"In a way, what I think we're going to see is most hotels will be creating new history. I have a hard time believing that there's going to be some point in time where people say, ‘Okay, now 2019 is relevant again.' "I think 2019 is lost forever in terms of relevancy of the data," Cross said, "and you're going to see a slow climb back. At some point, maybe in 2022, the data from 2021 will be relevant again, but still, I think recent trends will be more relevant than that history." "I'd say the biggest piece of advice for property managers is to really hone in on what's going on in real-time in your market, you might be pacing behind your own data compared to last year. And that can be worrisome, understandably. But if the market is in the same position, just know that maybe the demand isn't there yet, or know that your booking window has changed and focus your strategy on that booking window."

3. Entice and Upsell

Another strategy other properties are utilizing is to not discount their cash cow but enhance it with meaningful, rewarding, and enticing experiences. This requires a deep understanding of your demographic and niche market. These properties are betting big on the right messaging to entice the right guests and rewarding their customers with experiences of a lifetime. And why shouldn't they? 2020 was unprecedented and 2021 will be another year of change as we bounce back. Pull out all the stops to save your business. At least that way you won't be asking "what if?"

You can combine the above two strategies by offering a discount to early bookers and a reward for returning guests. If a guest has stayed with you before, kick their stay up a notch with your Take your Next Stay to the Next Level campaign. You could offer a free or reduced add on package or a Wine Tasting Experience with a local Sommelier. This strategy can work wonders long term as you can offer the same promotion to guests that are checking out in an effort to get them to return soon.

Reconsider your Compset and dig into your competitor data to determine if your market segment has shifted.

4. Know Your Niche

If you don't know what your niche market is, figure it out FAST. There is a tendency to think if you target too specifically then you are missing out on a broader range of people but in fact, the opposite is true. Targeting a niche helps you to define your product more clearly. Furthermore, customers' expectations continue to increase. Your guests want to know what experience you're offering and why it is better than your competitor.

Some hotels have chosen to pay a marketing company to conduct some research so they can clearly discern who their customer is, their buying habits, their likes and dislikes, and which ads they respond favorably to. This can pay dividends when the flood gates open. Remember, there are a myriad of options for travelers to choose from - more than ever before. Pick a lane and market to that segment... hard. If you don't, your marketing dollars will be wasted on lookers, not bookers.

Other companies choose to write content themselves to be displayed on their website. This is at the core of SEO. Social media companies are increasingly more savvy and understand their users deeply. Facebook's pixel is a way many hotel owners can track individuals that visit their site. Once those visitors visit Facebook, they'll see a targeted ad from that property. Facebook's Creative platform is so advanced it can even automatically adapt and change your ad based on the individual viewing the ad, so as to increase the likelihood of them interacting with it.

Wendy Shand, Founder of Tots To Travel on benefits to defining a niche.

"We thought very very carefully about what the market wanted and how to deliver that in a fun and delightful way for traveling families. The onus is on us as suppliers to do that. Understanding what makes our customers tick leads to fabulous reviews and a massive increase in lifetime value. Everytime we as a business have niched, we have grown our business exponentially. I think that's what we need to do post-covid."

5. Capture Last Minute Travelers

Consider how you can appeal to last minute bookers or walk in traffic. Don't rule out OTAs in your strategy. OTAs like Hotel Tonight and One Night specialize in this space. The right revenue management strategy has to complement your operational needs. Write a press release for a local newspaper to see if you can get some free advertising. Pay for a digital billboard off the main thoroughfare to appeal to that drive market. If you can't afford that, consider using an online directory link BnBfinder.com or other channel manager.

Diego Fernandez Perez De Ponga, Corporate Director Revenue Management Palladium Hotel Group says you should try to eliminate manual processes.

"Try to incorporate a Shopper Software which helps you avoid this manual process to see your competitors Rate, this is probably the best technology (apart from the RMS) to help you save time. Try to incorporate an RMS solution or an RMS Assistant who helps you in having all the important information together and if you don't have the budget enough to afford an RMS, at least try to build something on your own with a BI platform like Power BI in order to collect and show your data in a simple way.

Another very affordable platform would be a benchmarking tool, so this is also a mandatory system if you want to start a revenue management plan. With those tools you have controlled two main aspects of your revenue strategy, your data, and your competitor data so the rest, it would be easier."

6. Safety in Numbers

Communities prevail while individuals struggle. Understand your partners and competitors (CompSet). Attend meetings and webinars to educate yourself. Join your local chamber and tourism board. Curate relationships with other professionals in your industry. Read travel blogs from business leaders. Build a community. Address anxiety and fear by avoiding isolationism and ambiguity.

Reconsider your Compset and dig into your competitor data to determine if your market segment has shifted.

black and white chess figurines in a row

Conclusion

Insights from the industry are varied, change with time and are completely dependent on your property and both the geographical market you're in and the market of the guests you serve. There are so many factors, and it is important to remember to not apply a blanketed approach to revenue strategy – it will likely change over time, and that's okay.

Being agile really means being reactionary. Properties that dive into their property and market data are more likely to make better decisions based in fact.

There are two trains of thought when it comes to discounting: one is to discount on price directly, while the other is to keep the rate but add value with free add-ons and upgrades. You may need to test to see how your customers react to different offerings.

Once you have determined what is working and what isn't, you will start to form a better understanding of your niche, or target market. As this picture comes into view you will be better able to build your business around their story, adding content to your website to further attract like minded travelers.

Revenue management is a constant and iterative process. Review your strategy weekly for the immediate three month window for best results.

Resources

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CASE STUDIES

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MARKETING

OPERATIONS

CASE STUDIES

THEORY