How to Improve Your

Hotel’s Pricing Strategy

Revenue Management for hoteliers
How to Improve Your Hotel’s Pricing Strategy
Revenue Management for hoteliers
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1 Revenue Management: What Is It, History, and Basic Concepts 5
A) How to Manage Rates Within Your Revenue Management Strategy 6
B) From Rates and Bar to Open Pricing and Derived Rates 8
Rate Charts and BAR 9
Open Pricing and Derived Rates 10
C) A Strategy Adaptable to Channels and Segments 11

2 Factors Affecting Total Hotel Demand 12

A) Booking Behavior of Different Segments 12
B) Factors That Are Hotel Dependent 14
C) External Factors That Influence Hotel Demand 15

3 Why Use Revenue Management? 16

A) The Benefits of Revenue Management on Hotel Revenue 17
B) Revenue Management, a Transversal Strategy: Its Role in Marketing and E-Commerce 17

4 What Is Needed to Implement a Proper Revenue Management Strategy? 19

A) The Human Factor 20
Who Should Manage Your Pricing Strategy? 20
What Skills and Knowledge Should Your Revenue Manager Possess? 21
Corporate Commitment: Company’s Strategic and Global Vision 22
B) The Technology Factor 23
Big Data Applied in Revenue Management 23
What Kind of Data Does an RMS Use in Forecasting? 24

5 What Makes Beonprice’s Revenue Management Different? 25

6 Future Hotel Revenue Management Trends 26

Next Steps for Revenue Management and Digital Marketing 27

7 Beonprice Makes It Simple for You 28

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1 Revenue Management:
What Is It, History, and Basic Concepts

In the last four decades, the hotel sector has thrived. The new online players in the booking process, emerging
OTAs (Online Travel Agencies) and the constant change in travel behavior and search habits have created a
highly competitive market. Hence, it’s crucial to price hotel rooms accurately to generate enough revenue to
survive in the market, in the medium - and long-term.

It’s essential to establish a sound pricing strategy that incorporates technology into the decision making
process, to ensure your hotel’s optimal occupancy and the most profitable guests.

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 How to Manage Rates Within Your Revenue Management Strategy

When we manage hotel rates, there’s a clear objective: to maximize revenue and hotel profitability.
Traditionally, revenue managers follow these norms when adjusting rates:

Monday through Thursday vs. Weekend:

Price rooms higher during weekdays in business areas, and cheaper from Friday to
Sunday; and vice versa in leisure destinations.
Seasonality:
Define high, low and medium seasons. For example, a beachfront hotel will have higher hotel rates
during the summer and a ski resort have higher rates from December to March.

Annual Profit Objectives:

Establish room rates with the hotel’s yearly business goals in mind. This approach, however, does have
a risk if hoteliers stop considering their hotel’s competitors and social situation and price inaccurately,
leading to revenue loss.

Competitor Prices:
In contrast to the previous case, this strategy involves monitoring your competitors’ prices and reaching
price-sensitive consumers.

One Night Stay vs. Multi-Night Stay:

Offer discounts for extended stays. The unit price is proportionally lower for longer stays.

This kind of practice, although it is an improvement to fixed rates, often results in an opportunity
loss. Hence, a hotel’s pricing policy is managed intuitively. When pricing is managed this way,
rooms are sold too soon, or bookings are offered on a first-come, first- serve basis, risking losing
out on high-value guests.

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In light of these limitations, revenue Airlines and Hotels:
management emerges to help predict consumer Ideal Sector to Apply RM
behavior for given dates, so that hotels can sell
their rooms daily at the best rate and maximize
In the late 1980s revenue management was in
revenue growth.
the early stages of development in the
hospitality industry, although major airlines
According to Pilar Talón1 , revenue management
(like British Airways and American Airlines)
is the management philosophy that helps
were the first to use revenue management in
businesses with a fixed decision-making process
in areas involving pricing, inventory and their yield management strategy in the 1970s.
customers. This philosophy is based on Both industries offer:
information analysis and uses science,
technology and common sense to accurately
forecast demand, segment rates, and define
Fixed Capacity:
Regarding number of units (flights or rooms) available
budgets.
for sale.

It’s important to consider the long-term value of

hotel guests to control bookings and manage sales.
Perishable Inventory:
Doing so, will help hotels satisfy customer needs
When a hotel room or an airline seat goes unsold, it can
and increase hotel revenue.
never be recovered.

To achieve this, it’s vital to collect, analyze, and

interpret data to forecast total market demand. Advance Purchase:
This forecast will help determine the ideal price Consumers book in advance. The purchase and
for each guest,thus increasing hotel profitability. consumption occur at different times.

Big Data plays an important role in gathering,

extracting and analyzing data. Advances in High Fixed Costs and Low Variable Costs:
technology allows hoteliers to collect and cross The marginal cost is close to zero. Price changes are
huge amounts of information of interest, such as simple, quick and cost effective.
the PMS history, competitive prices, weather
forecasts, online reputation and website user
activity. Price Differentiation by Segment:
A pricing strategy that charges different segments of
customers different prices for the same product or
service.

Demand Variable and Dependency on

Environmental Factors:
A product’s total demand is in constant change. Demand
for the same hotel room or airline seat depends on the date
and time offered.

Price Elasticity:
Consumers are price sensitive, one of the main factors
influencing the decision making process.

1
Yield revenue management en el sector hotelero: estrategias e implantación, P Talón, L González, MS Pérez - 2012

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 From Rates and Bar to Open Pricing and Derived Rates

It’s been several decades since revenue management made its way to the hospitality industry. Hotel pricing
strategies have evolved over the past decade and have optimized rates for each guest segment. Rate charts
and BAR (Best Available Rate) models have been replaced with Open Pricing and derived rates.

Rate Open Total Revenue

Management

BAR Rate

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Rate charts and BAR

The first attempt to optimize pricing in the hotel market was with the rate chart. Rate charts showed which
rates needed to be applied to certain groups such as repeat guests or requests from agencies. With the
rate chart, the main reservation office could evaluate traveler characteristics and choose the most
appropriate rate according for each situation.

Rate charts are master sheets where rates are established

according to the room type, additional services purchased and
seasonality, with specific rates for certain group segments.

However, the rate charts were fixed. This led the sector to move towards a more flexible pricing system, the
BAR (Best Available Rate) model.

BAR is the lowest rate of the day that is available for guests to book and rates are often based on a percentage
difference from the BAR. When revenue managers modify the BAR, all other prices adjust accordingly.

The BAR (Best Available Rate) is the lowest rate of the day and
rates are based on a percentage difference from the BAR.

The BAR fluctuates with seasonality and day of the week. A common practice is to change the BAR as
occupancy increases.

The main advantage of this model is that it’s easy to manage since it’s only necessary to change one variable,
the BAR, and all other modifications occur successively. However, there are limitations. BAR doesn’t consider
mid-range prices that could be optimal for certain consumers at certain times. Without this option, some
consumers may choose to book elsewhere.

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Open Pricing and Derived Rates

Today, there are still revenue management departments that use the BAR method for their hotel pricing
strategy. However, hotels are opting for more innovative methods like Open Pricing and derived rates.

Open Pricing is based on dynamic pricing and allows hotels to yield each segment, channel, and room type
independently of each other to maximize hotel revenue. This method allows hotels to offer optimal rates
to a greater number of users, rather than having to close channels to avoid unwanted room reservations.
Instead, hotels will cut off distribution for those requests that don’t meet the requirements.

The Open Pricing method allows hotels to yield each

segment, channel, and room type independently of each
other to maximize hotel revenue.

Open Pricing complements derived rates, or rates derived from a standard rate (proportionally or by
adding a certain amount) that changes when the latter is modified. An example would be the room price
that includes breakfast versus one that doesn’t; or the additional fee for an extra bed in a double room. In
fact, a growing trend is Total Revenue Management (TRM), which consists of both strategic and tactical
procedures and aims to identify and optimize the customer journey.

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 A Strategy Adaptable to Channels and Segments

The greatest advantage of using a revenue management strategy for hotel pricing is its adaptability.
Revenue management can adapt to all types of distribution channels and segments likely to book with your hotel.

The methods previously described can be applied to distribution channels such as OTAs, direct telephone
booking, online booking, and to different segments defined by hotels to manage their sales strategy, from
the simplest variables (individuals, groups and business) to the most complex ones, such as booking
channel, average spending and advance booking.

Revenue Management

Channels

Individuals
Phone Reservation

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2 Factors Affecting Total
Hotel Demand

In the hospitality industry, demand is constantly fluctuating. Predicting total demand for each of the dates
available is a basic revenue management task. For this, it’s important to identify and attribute weights to
booking habits for the hotel’s different customer segments, factors that the hotel can modify internally and
externally, although hotels will have much less influence over the latter.

Booking Behavior of Different Segments

The first step to implementing an effective revenue management strategy is to properly segment. Hotel
market segmentation is identifying consumer segments who share common characteristics, both intrinsic
and behavioral, like:

Individuals

Business

Direct or indirect; on average, how

If it’s an OTA, many nights are they
which one? staying, what additional
services will they request, etc.

Customer type: individuals, groups, business, etc.

Travel motivation: leisure or business.

Booking Channel: direct or indirect; if it’s an OTA, which one?

Travel behavior: how much do guests spend on average, how many nights are they staying, what
additional services will they request, etc.

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Traditional segmentation has four segments: individuals, groups, business, and leisure.

However, the number of segments established will largely depend on hotel size and/or hotel chain and the
revenue management strategy implemented.

Hotels must segment by categories (behavior, needs, demographics, etc.) to understand consumers and
create personalized experiences.

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 Factors That Are Hotel Dependent

In addition to their own personal characteristics, consumer booking habits can be affected if hotels change
their configuration permanently or their services on certain dates. For example:

Building a swimming pool or a new sports area.

Renovating facilities and rooms, to attract higher-value guests.

Including breakfast in the usual hotel offer.

Offering a shuttle service to the airport or to other nearby attractions.

For a good revenue management and accurate pricing strategy, it’s important to take these factors into
account.

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 External Factors That Influence Hotel Demand

On the other hand, there are external factors hotels have no control over; for example, when the media
influences travelers and causes abrupt fluctuations (either upwards or downwards) in total demand:

Local Events: Concerts, sporting events, association meetings, educational seminars, etc., can make a
room much more desirable on the dates these events take place.

Weather: This depends on what you want to see and do on your trip; customers will want sunny days if
they are planning on spending a few days at the beach; snow if they want to ski or snowboard; and a clear
day, if they are traveling to participate in cultural outdoor activities. For business travelers, the weather is
less of a factor.

Accessibility: Hotels with excellent transport connections are more attractive to potential guests.

Tourism Demand Forecasting: Demand will not be the same if a potential guest perceives that hotel
demand will be high in the same area where the hotel is located, or considers that the destination will not be
crowded for those dates.

Adopting revenue management techniques requires integrating this information into demand forecasting.

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3 Why Use
Revenue Management?

A revenue management strategy always has a positive impact on a hotel or hotel chain, not only in increasing
revenue, but on the overall organization of business and human resources. In fact, it’s estimated that
using a revenue management system (RMS), such as the one offered by Beonprice, helps increase a hotel’s
annual RevPAR by 11 percent.

Revenue management incorporates various disciplines and stretches across different departments within a
hotel, seeking to change the entire company culture.

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 The Benefits of Revenue Management on Hotel Revenue

Adopting a solid revenue management approach offers many benefits and allows hotels to:

Predict real hotel demand, allowing hoteliers to make informed decisions and improve day-to-day
planning.

Control channel distribution and adapt rates to each channel, according to consumer needs.

Identify and select the most profitable guests and sell to high-value segments.

Increase the Average Daily Rate (ADR), or the average rental income per paid occupied room in a given
time period.

Increase the Revenue Per Available Room (RevPAR), or the revenue generated for each available room.

Revenue Management, a Transversal Strategy: Its Role in Marketing and E-Commerce

Adopting revenue management as a guiding strategy for the company’s activity will make marketing and e-
commerce areas more effective. Why is that?

Revenue Management provides the marketing department with two types of valuable information: guest
segmentation and total demand forecasting. With this data, it’s much easier for marketing departments to
identify a target market and tailor content that resonates and connects. It’s also easier to identify and create
promotions to stimulate bookings during low demand.

For this reason, it’s essential to analyze travel consumer searches and booking habits on different channels.
It’s also important not to forget about the hotel’s mobile strategy, since there are guest segments, such as
millennials, who book more hotels via their smartphone than on a computer, according to a Phocuswright
study published in August 2017.2

Revenue management and marketing departments will have to decide on their competitive set together and
compare their performance against their compset hotels with the ability to change or modify as needed. For
hotels, it’s important to monitor their competitive set in two key areas: pricing and promotional activities.

2
Mobile Overtakes Desktop as Preferred Hotel Booking Device for Millennial Business Travelers Phocuswright - 2017
http://www.phocuswright.com/Travel-Research/Research-Updates/2017/Mobile-Overtakes-Desktop-as-Preferred-Hotel-Booking-Device-for-Millennial-Business-Travelers

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With the data gathered in revenue management, marketing managers have an ideal benchmark to automate
their advertising campaigns in, for example, Google AdWords or Facebook, since they will be able to identify:

Keywords used by different segments in their online hotel search.

Characteristics of each target group (age, gender, interests, pages visited on a hotel website, etc.) to
determine the ideal audience for social media campaigns.

Meanwhile, revenue management techniques will help enrich the e-commerce department by analyzing user
website behavior, especially those who abandon the booking process (regrets & denials):

1. Regrets are when prospective guests take all the steps to book, but for whatever reason, they do not
complete the booking process.

2. Denials happen when hotels cannot accommodate any more guests, because they have reached maximum
occupancy and, therefore, have to deny reservations.

Reaching a record of regrets and denials is key for accurately calculating unconstrained demand and for
understanding how well the hotel’s revenue management strategy is working. For example, a high
number of regrets for a specific room type may indicate that the price is too high; and a great deal of denials
indicates that the rooms available have been sold with excessive advance notice.

The information collected can also be used to detect and fix any weaknesses in web usability, and help you
better orient your email marketing strategy and send the right communications to increase direct bookings
for specific dates.

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4 What Is Needed to Implement
a Proper Revenue Management Strategy?

A successful revenue management strategy combines knowledge, technology, resources and conviction.
Adopting a revenue management approach in your business requires commitment, and the following factors:

1. Recruit or select from current staff, the most qualified candidates to perform the necessary tasks.
2. Offer up-to-date training and ensure continual professional development.
3. Train all departments on the value of revenue management and align all goals and objectives with the new
vision.
4. Invest in hotel technology, such as in an all-in-one revenue management system (RMS) with the right
functionalities to meet your hotel’s specific revenue management needs.

The ideal revenue management strategy combines both the human and technology aspect. Here’s a closer
and more detailed look at each area.

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 The Human Factor

Who Should Manage Your Pricing Strategy?

Depending on property size, a revenue manager or revenue management department must be responsible for
defining a hotel’s pricing strategy. If you prefer the latter, ideally you want different professionals with
different business backgrounds to form part of your Revenue Management team:

A revenue manager is head of the revenue management department.

A general manager ensures that the hotel’s revenue management strategy is implemented within all
departments.

The reservations department tracks bookings in real time and updates room rates according to those
established by the revenue manager.

Front office staff are in direct contact with guests, allowing them to gather essential feedback and apply
it to revenue management.

The food & beverage department can greatly benefit if they receive accurate occupancy forecasts, as
this information can help with planning periodic supply purchases and adapting menus to guest segments.

The finance department is responsible for establishing the hotel’s budget and financial objectives of each
period.

F&B

Joint collaboration between departments is key for a successful revenue management strategy, resulting in
an increase in ADR and RevPAR, a more personalized guest experience, attracting high-end guests and
optimizing resources.

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What Skills and Knowledge Should Your Revenue Manager Possess?

The ideal hotel revenue manager candidate is someone with a university degree in tourism and finance and a
master’s degree in revenue management. However, professionals with other backgrounds can also be good
candidates if they have the following skills:

Analytical: They must be able cross analyze data, use tools such as Excel and other applications and
software, detect trends, make predictions and develop price optimization strategies.

Communication: Revenue managers must sell their story to the hotel’s executive management team
or owners themselves. They must convince hire ups to implement new ideas and strategies that improve
management and increase profits. Moreover, revenue managers must possess digital marketing skills to
determine how promotional messages can be delivered to different customer segments.

Team management and logistical: Revenue management is a strategy that requires various hotel
departments to work together, so revenue managers must know how to lead their own team and others to
achieve hotel objectives.

Communication

Analysis Team Management

and Logistics

Revenue Manager

Finally, revenue managers must be able to define Key Performance Indicators (KPIs) to measure how well the hotel
is achieving key objectives and goals and understand how decisions impact the hotel’s economic results.

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Corporate Commitment: Company’s Strategic and Global Vision

When hotel chains implement revenue management, revenue managers should understand that this approach
must be fully integrated into the company’s global vision and strategy. This requires motivating, informing and
training all hotel staff. It’s highly important to keep all hotel personnel aligned with revenue management
goals and objectives. It’s also essential to expand Revenue Management beyond pricing inventory
management and to other areas within your establishment that can also benefit from Open Pricing. For
example, your hotel’s restaurant, spa, cafeteria, dry-cleaning, MICE (Meetings, Incentives, Conferences and
Exhibitions) and complementary leisure activities can benefit from revenue management. This moves us
towards a different scenario, one where the key metric is no longer RevPAR, but rather GOPPAR (Gross
Operating Profit per Available Room). In other words, the net profit obtained for each available room.
Team management and logistics: since Revenue Management is a strategy that involves many hotel
departments, revenue managers must be prepared to coordinate human teams and material resources to
achieve the established objectives.

Revenue earned for

(Revenue per each available room
Available Room)

GOPPAR Net profit earned for

(Gross Operating Profit each available room
per Available Room)

At the same time, special care must be taken not to establish departmental objectives and incentives that
contradict your hotel’s revenue management strategies. This can occur in the following situation: when your
revenue management team focuses on improving RevPAR, your marketing and sales teams make it their goal
to sell a certain number of rooms, and the booking center makes it their mission to reach maximum
occupancy. The ideal solution is to establish the same, or at least similar KPIs to foster collaboration between
departments.

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 The Technology Factor

To execute an effective revenue management, you need technology. Until a few years ago, revenue managers
had to use Excel spreadsheets to collect and analyze historical data to identify trends and make pricing
decisions. With today’s advances in hotel technology, the amount of data at our disposal has increased
making data difficult to manage on an Excel. Hotel revenue management systems (RMS) have changed the way
revenue managers work by offering greater storage capacity, more report generating capabilities, deeper
level of analysis and automation. With an RMS, revenue managers can save valuable time, work smarter
and faster.

Big Data Applied in Revenue Management

Revenue management could not remain in the sidelines in light of one of the most modern breakthroughs
of our time - Big Data. The capacity of modern technological systems to collect and process data provides
revenue managers access to real-time historical and information on:

PMS (Property Management System) and CRS (Central Reservation System) records.

Competitor room rates.

Food & Beverage sales performance.

Online hotel and brand reputation.

Market demand and benchmark data.

...and other relevant issues to support forecasting and revenue management strategies, which may vary
depending on the characteristics of each hotel, such as weather forecast, congress meetings in the area,
and so forth.

Today, large amounts of information are gathered. What distinguishes a good RMS from the average RMS is
its ability to filter data in ways that are most useful to the hotel and provide the most up-to-date and accurate
forecasting.

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What Kind of Data Does an RMS Use in Forecasting?

As previously mentioned, an RMS processes information according to each hotel’s configuration and
competitive set.

Beonprice’s RMS is based on the Beonprice QUALITY INDEX (BQI®), an index derived from combining more
than 21 objective parameters that measures the integral quality of a hotel and its competitive positioning.

The BQI® also synthesizes customer booking behavior, taking into account the quality expectation of the
establishment before and after booking.

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5 What Makes Beonprice’s Revenue
Management Different?

We’re a strategic hotel revenue management solution focused on personalized pricing.

Our benefits:

Customer-Centric
We understand your guests’ booking habits.

Artificial Intelligence
We have the data and make the most of it with the most advanced technology.

Open Pricing & Derived Rates

Structure your rates the way you want.

Clear Box
We firmly believe in transparency. Know what’s going
on at all times.

Easy to Use CHALLENGER

We make it easy, because we understand your needs.
In addition to the features offered by the Indie
service level, the Challenger:
Customer Experience
We’re here to help you achieve your goals. Suggests the optimal price per room,
market and nights of stay.

With the help of our service you can: Integrates with your PMS, CRS and Channel
Boost Your RevPAR Manager.
Choose the best rates at all times.
Lets you budget and forecast.
Increase Your Productivity
Easily manage your hotel from a single tool. Optimizes pricing processes with business
rules.
Beat the Competition
Know the market in real time and set your goals.

Focus on the Strategy

The algorithms work hard so that you can focus on
what’s important.

Your experience is our top priority.

The only Customer- Centric Revenue Management
Solution that puts your needs first. In a world
driven by technology, we add the human touch.

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6 Future Hotel
Revenue Management Trends

Hotel room pricing will evolve into total revenuemanagementand become more strategic and technological, according to
the Center for Hospitality Research at Cornell University in its latest Cornell Hospitality Report. 3

These are some future trends of total hotel revenue management:

Price optimization tactics will extend to all hotel services (restaurants, leisure, transport, etc.), and not
only to hotel room pricing. The goal is to increase the net profit of the entire property.

The new metric for revenue management will be GOPPAR (gross operating profit per available room)
instead of RevPAR (revenue per available room). For revenue managers, profit generation will be a more
important indicator for a hotel’s overall fiscal health than revenue.

Revenue managers will receive more specialized training. Also, during selection half-analytical, half-
strategic profiles will be preferred.

Studies on behavioral segmentation will be more comprehensive with the intent of determining the most
profitable guest type and channel.

Mobile phones will be at the heart of revenue management strategy: According to a report by eDreams
Odigeo4, Spain, just behind the United States and the United Kingdom has more users willing to book a trip
on their smartphones. In addition, the study shows that 61 percent of users use their mobile phones to find
inspiration for their next trip; 57 percent explore travel options; and 45 percent use them to make final
booking transactions. Lastly, mobile devices are the preferred device for last-minute bookings.

3
The future of hotel revenue management. Cornell Hospitality Report, 17 SE Kimes – 2017
http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1239&context=chrpubs
4
Dispositivos Móviles: el compañero de viaje definitivo Dreams Odigeo - 2016
http://www.edreamsodigeo.com/wp-content/uploads/sites/19/2016/12/eDreamsODIGEO_Trends_Mobile_ESP.pdf

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 Next Steps for Revenue Management and Digital Marketing

Within hotel chains, revenue management and digital marketing departments will begin working even closer
together. OTAs and intermediaries aim to become essential for hotels and consumers and keep a higher
share in commissions. For hotels, it’s vital to lead potential guests to their websites to drive direct bookings,
rather than allow guests to book via third party websites.

Future revenue management techniques will be highly oriented towards:

1. Very specific target segments/groups and actions aimed at obtaining qualified web traffic that will provide
greater added value and will motivate consumers to book.

2. Making the entire booking process seamless, attractive and efficient for the user. Usability initiatives are
combined with personalized offers to prevent booking abandonment.

3. A customer-centric approach in revenue management. The focus changes. Instead of focusing on the
income generated per room, the guest is placed at the heart of revenue management. This implies developing
and nourishing a personalized relationship with each guest and offering exclusive deals.

4. Developing management tools that add value to different departments involved in hotel revenue
management. Departments such as revenue management, marketing and e-commerce. Thanks to RM
technology, different departments will be able to implement a customer-centric revenue management.

(5) Total Hotel Revenue Management: A Strategic Profit Perspective. Cornell Hospitality Report, 17 BM Noone, CA Enz, J Glassmire – 2017
https://sha.cornell.edu/faculty-research/centers-institutes/chr/research-publications/documents/cathy-enz-total-hotel-revenue-management-strategic-profit-perspective-report.pdf

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7 Beonprice
Makes It Simple for You

At Beonprice, we’re committed to the success of each hotel’s revenue management strategy. Our clients
have a team of specialized hotel and technology professionals at their disposal every step of the way. Our
expert team is there not only during the installation and adaptation phase of our RMS, but throughout the
entire revenue management journey. From the start, we mentor and take care of our clients, understand
their needs and help them get the maximum benefits from our solution to optimize hotel strategic decision
making.

You have our entire team of We’re always here whenever you
experienced revenue managers need us.
by your side.

There’s no point in improving Our clients inspire us. We work

business if we can’t help you with you side by side. I & D
advance in your career.

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