Roundtable - Revenue

Some don't like it much, others swear by it. Revenue management is a form of pricing that uses price elasticity. It involves offering and renting hotel rooms as favourably as possible using forecasting and historical data. Adjusting the price at the right time then ensures maximum returns. At The Hague's Marriott Hotel, four experts by experience met to discuss this fascinating topic.

To start with, there appear to be significant differences in how revenue management is set up at different parties. André Aaij, General Manager The Hague Marriott: "We used to have our own revenue managers here but they now work for several locations of YTL Hotels, owners of The Hague Marriott, with their own revenue strategy office. They are here in the building and work not only for this hotel but also for YTL Hotels in the UK. They use Marriott's international systems very heavily and also work with local systems." At the KIT Hotel (part of the Royal Tropical Institute) in Amsterdam, the choice was just the opposite, says Marielle van Rumpt, General Manager KIT Hospitality. "As a stand-alone hotel, we outsourced our pricing. There is so much knowledge at IFHG, we can confidently leave it to them. The renovation of our hotel is now the reason for a completely new pricing strategy. In these uncertain times, it is very difficult to make choices. So we do that together with IFHG."

So how to set up revenue management in the smartest way is still quite complicated and depends on the situation. "In principle, of course, every hotel director could be his very best revenue manager himself," believes Albert Kreeft, owner Excite Hotels and revenue management company IFHG, "but in the rush of the day that just doesn't work out. One advantage of outsourcing is that the focus is consistently on that pricing every day."

Thijs Merks, Director at Ibis Styles Delft, therefore advocates a combination of internal and external: "Revenue management has increasingly become a mature profession. There are many more knobs to turn than in the past. However, I will always opt for a degree of cooperation. I believe in outsourcing because it involves very specific knowledge. The expert brings in the market knowledge and good overview, and then it is the GM's responsibility to tie the knot. So basically, I am looking for shared ownership. The difficulty is though: how do you find the balance between ownership of sales and an advisory partner? That should be more sparring but in practice that often becomes: the expert says it so we do it."

So what makes a good revenue manager? "That is someone who unburdens and dares to challenge," says Van Rumpt. "Someone who obviously goes for optimal occupancy, but also looks from the perspective of the specific location. After all, every hotel has its own market conditions, environment and target group. In our case, for example, this means that a revenu manager not only, irreverently put, fills the rooms but also takes into account in pricing that we are a conference venue. In doing so, we are a non-profit organisation with a mission. That should also be taken into account. Moreover, as a stand-alone venue, we have no fall-back options to other locations. All this requires solid revenue management.

In conclusion, the four hotel managers say there should always be a common sense check. Aaij: "Revenue management is an essential part of operations. Even if a very solid proposal rolls out of the systems, based on history, price comparison, competitive set and all other aspects, you still cannot hide behind it. There is always a degree of Fingerspitzengefühl and personal judgement involved - ultimately it comes down to the knowledge and skill of the revenue manager."

Once you have set it up and are working with it, that raises the question of how best to deal with price differentials. Are guests very unhappy if they have to pay a higher price than others? "Funnily enough, that is not such a big problem," says Aaij. "People also know from each other what they paid for a plane ticket. People then say: logical, that's how supply and demand works. We have all got used to it by now. Even amusement parks and the NS now work with it."

Incidentally, the guest's background is an aspect that does play a part in this, Kreeft believes. "You are not allowed in Europe to diversify prices based on nationality.

A room should not be cheaper for a German than for a Belgian. Since England is no longer in the EU, if English people stay longer, you can give them a better price than someone from the Benelux."

Booking sites are usually used as channels for offering the tiered prices. At the same time, many hotels are trying to attract people to their own websites. Does that make sense? The four are unanimous that this is mainly driven by marketing considerations. Kreeft: "For a smaller hotel, the advantages are actually limited. People often forget that a booking through their own website often costs between 5-8%. It is then more about customer loyalty and being able to say you are not on Booking.com. But most come back from that. After all, it's all about the volume of bookings."

This brings the conversation to the topic of revenue. After all, that is what revenue management is ultimately about. So we discuss the proposition: 'Little turnover beats no turnover. If we have to, we reduce prices extremely.'

Speaking from experience, the four hotel managers do not, or no longer, want to go that far. Merks explains his position using a past example: "When I was in another position, at one point we had done very well on a holiday auction site and put away a lot of rooms. We were thereby bringing in people who had rooms for next to nothing. Then what did we get? After that, everything was a problem. Even a coke in the bar was too expensive. They literally came in with shopping bags of food and drinks. The question is whether you then get the audience in that fits your business model. Speaking from experience, I prefer to stay empty then. Because you don't really get the extra turnover you need when you sit so low. I think you should stick to yourself and not go so low that you get guests with a different spending level."

"The problem is that whoever pays the lowest price also complains the most," Kreeft believes. "A guest who is dissatisfied with everything is not good for your staff. You have the most problems if the room rate is too low. So you have to set a minimum. If it can't be done for that, then there's just no business and you can't create it."

In that sense, they learned during the corona period how that works in practice, Van Rumpt believes: "Many of us had to make extreme price cuts back then. In our hotel, that even led to beds being scrapped to the extent that at one point we had to buy new ones. You then become more like a hostel than a hotel. With that comes a certain interior and formula. If you don't have that, you shouldn't want to be one." "On the other hand, that is a dilemma to think about carefully," says Aaij. "For example, there are also hotels that - according to agreements with the government - accommodate refugees or status holders. I am certainly open to this myself, but ultimately you want to be able to uphold your core values around hospitality. In practice, you do sometimes have to make concessions to be able to offer care and keep it pleasant for employees. You also have to be able to connect to what such a group needs. It can be solved in the short term, for instance by setting up a buffet and a row of washing machines and microwaves. But certainly in the longer term it is more problematic and you need to think carefully about margin and impact on other target groups. After all, you can't go below a certain minimum without cutting yourself in half."

Is it then desirable or sensible to be able to agree on minimum prices among themselves? Kreeft: "For the market to work properly, you obviously shouldn't make mutual price agreements in the region. That doesn't work either, by the way, because in the end everyone wants to be able to go their own way. The market is set up in such a way that there is a natural spread between three-, four- and five-star hotels. That does its job well. I do think that in the corona era we all went too far with extreme price cuts. We shouldn't want that anymore."

What is clear is that when it comes to pricing, there is a lot of information available these days. It is hugely transparent, for example, how a hotel is doing compared to the average. That makes competing difficult. So how can you still win the race as a hotel manager?

"By adjusting very alertly," says Merks. "We all make our own policies and implement them. A very large number of days a year you are then right. Sometimes you are too low, sometimes too high. Then you make quick adjustments with the help of the analyses from the revenue management systems. By being on top of things and acting quickly, you can still make a difference and win the game."

According to Kreeft, it ultimately comes down to everyone playing their own game in this. "We have clients who always want 100% occupancy at all costs. Because every room not sold costs money, the last beds then go away for very little. So then it comes down to: what are you happy with? In that sense, it's your own game as general manager. You decide how you want to play and within that, we go for maximum return."