The room-centric model hotels have long relied on calls for pricing strategies designed to generate the greatest possible amount of revenue per room.
The RevPAR gold standard has emerged as the key universal metric for an industry focused on maximizing room revenues, but in the wake of the COVID crisis, hoteliers who have been through the belt-tightening and all-hands-on-deck emergency status of pandemic operations have, often by necessity, had to rethink this approach.
Today, making full use of the property is seen by many hotel owners and operators as both a competitive necessity and a smart way to position themselves in an evolving industry landscape. Hotel management professionals are dedicating resources to uncover new ways utilize every square inch of space to create and expand opportunities to drive revenue. Maximizing and optimizing all available revenue streams sometimes means creative approaches and thinking outside the box. Hoteliers are required to embrace new technologies-or simply new ways of thinking about their guests and their guests’ preferences.
Rethinking and reinventing revenue management strategies range from pricing and data considerations to promotions and loyalty building activities.
In keeping with hotel brands’ long-time focus on maximizing room revenues, attribute pricing has been a popular option for many hotels. Following the model utilized by airlines, brands have implemented this approach by offering things like late checkouts, connecting rooms, higher floors, better views, and other premiums-with variable pricing based on demand and other factors. While this can be an effective way to boost room-based revenue, it’s also an approach that can carry risk.
Proceed With Caution
Identifying opportunities to extract more room revenues both literally and figuratively comes at a cost: customers don’t love it if they feel they were previously getting these items for free. While the airline model is instructive and makes some dollars-and-cents sense, the hospitality business is fundamentally different in some important ways. Most importantly, the hotel business is much more competitive, and customers have many more options. They won’t hesitate to take their business elsewhere if they feel like they are being nickel and dimed and being forced to pay for “extras” that used to be complimentary.
While natural opportunities exist to maximize room-based revenue through some natural upgrades like nicer rooms and better views, that does not mean we should be recklessly applying attributes to everything. As an industry, we must be strategic and thoughtful: we must identify the things customers value and are willing to pay for. And that naturally takes us outside the room itself to the rest of the property-which is where some of the genuinely interesting and impactful innovation is taking place.
A Management Mindset
While the big hotel brands are understandably focused on rooms, hotel management needs to think about how to optimize the entire asset. While that was the case long before the first case of COVID was diagnosed, operating efficiently while providing great service and getting as much total revenue into the hotel as possible has become even more of a priority now. But what goes into that optimization? Where does it start? What are the revenue drivers now and where is the revenue diversity in the portfolio beyond the rooms themselves?