Common Revenue Management mistakes to avoid

In today’s competitive landscape, successful Revenue Management requires more than just adjusting rates. It demands a strategic approach that balances data, market trends, and customer insights. But sometimes Revenue Managers can fall into common traps that can have a negative impact on profitability. Here are some of the top mistakes I’ve seen – and tips on how to avoid them.

1. Relying Too Much on Historical Data  

While historical data is useful and important, focusing solely on past performance without adapting to current market trends can be costly. 

As an example, the Global and domestic economy evolve very rapidly, in 2022 and 2023, inflation rose sharply in many countries, and hotels relying on pre-inflation pricing missed opportunities to adjust rates appropriately, impacting profitability.

We can also mention the impact of unexpected events like bushfires, pandemic, or event non return major events like FIFA Women's World Cup over winter 2023 which dramatically affect the demand.

There is also a shift in consumer behaviour, according to a recent Deloitte study, many travellers are now booking extended stays, favouring different accommodations and booking channels than they did pre-pandemic.

2. Neglecting Demand Forecasting   

Accurate forecasting is the backbone of revenue strategy. However, many Revenue Managers still rely on manually overriding Revenue Management System (RMS) recommendations, which can limit the power of AI-driven insights. AI-enhanced RMS tools continuously analyse vast amounts of data, making it crucial for Revenue Managers to focus on the initial setup and parameter tuning rather than constant manual adjustments.

With demand volatility increasing, hotels that update forecasts frequently whether daily or weekly outperform those with static strategies. In fact, a study from Deloitte found that adopting dynamic AI-driven forecasting increased average occupancy rates by up to 10% during volatile seasons.

3. Choosing the Wrong Competitor Set for Pricing Strategy

Selecting an accurate competitor set is crucial in developing an effective pricing strategy. Yet, some Revenue Managers build their compset based on personal assumptions rather than customer behaviour, leading to misaligned pricing and missed opportunities.

In today’s data-rich environment, OTAs like Booking.com or Expedia offer powerful extranet tools that provide insights into the specific competitors guests are actually comparing when booking. By analysing this data, Revenue Managers can better understand their true competitive landscape. For example, according to Hawkins Hospitality hotels that adjusted their compset based on OTA customer comparisons saw up to a 12% increase in conversion rates.

4. Unclear Optimal Segment Mix

A common Revenue Management mistake is not having a well-defined segment mix strategy. Many Revenue Managers rely on assumptions or historical trends, rather than data-driven insights, to determine the ideal balance of customer segments. This lack of clarity can lead to over-dependence on certain segments such as leisure or corporate and limit a hotel’s ability to capture demand from a wider range of customers.

Hotels that actively adjust their segment mix based on demand data and booking behaviours have seen up to a 12% increase in RevPAR, as they better align with market needs and seasonal patterns (STR).

5. Lacking Rate Structures

A one-size-fits-all pricing model can leave money on the table. Tailoring rate structures to different segments and room types based on season, length of stay, and demand patterns can boost revenue. In fact, dynamic pricing has been shown to increase revenue by as much as 20% compared to static pricing. 

6. Missing Out on Non-Room Revenue 

Non-room revenue can be a hidden goldmine, often making up 30% of total revenue. Beyond standard F&B or spa offerings, consider monetizing unique services: partner with local artists to sell in-room art, offer paid "Chef’s Table" experiences in the kitchen, or introduce wellness workshops for guests. Hotels implementing such initiatives have seen 5-7% revenue growth, tapping into experiences that surprise and engage guests (STR).

7. Ineffective Communication Across Departments 

Revenue Management doesn’t operate in a silo. Engaging with sales, marketing, and operations ensures alignment on strategy. Research shows that hotels with strong interdepartmental collaboration achieve 18% higher RevPAR (Hawkins Hospitality). A team approach to revenue is key to maximizing results.

8. Ignoring the Impact of Guest Experience

Revenue Managers often overlook the strong connection between guest experience and revenue performance, missing out on the benefits that high satisfaction scores can bring. Guest experience metrics, like Reputation Performance Score (RPS), directly impact a hotel’s ability to attract and retain guests, as well as justify premium pricing. Studies indicate that hotels with high RPS scores achieve up to 15% higher RevPAR, as positive reviews and word-of-mouth increase booking conversions and customer loyalty (Cornell Hospitality Report).

Improving guest experience should be seen as an integral part of a Revenue Management strategy and should be covered during Revenue Meetings. For instance, investing in personalized service, cleanliness, and room upgrades can enhance RPS, leading to stronger demand and allowing for higher rates.

Being proactive and data-driven is critical to Revenue Management success. By avoiding these pitfalls, hotels can unlock new profitability and stay competitive. Remember, the devil is in the details – and the data!

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