Total Revenue Management in the Year 2020 – A Futuristic View of Optimal Profitability
Hospitality Upgrade Article – April 2013
Everything evolves. Eventually, processes…procedures…practices…move to that next level – to that next elevation of innovation. Sometimes this movement is mind-boggling – like the biobot…a tiny hydrogel robot produced by a 3-D printer that is small enough to crawl through the body wired with living neurons that detect toxins and then treat the disease. What??? Are you kidding me?? Actually, no I’m not. This technology is on the horizon.
So, what may you ask, does this have to do with total revenue management? Well, it might seem “space-age” to think about biobots crawling through your body today, but it may well be common medical practice in the year 2020 or 2030. And it may seem unlikely that the hospitality industry could pinpoint the absolute most profitable business mix of guests on any given day of the year, but that is coming. Maybe not tomorrow or next week or next year, but it’s coming.
The concept of total revenue management is simply about managing every revenue source at every guest touch point to it’s maximum profitability for the hotel or resort asset. Yes, as an industry we’ve always tried to choose the best pieces of business, but the difference today is the desire by hoteliers to sophisticate that process; to have the empirical data to identify that ideal business mix and the investigative talent and strategic vision to deploy optimal selling guidelines at every time horizon – long, medium and short-term.
We see glimpses of these phenomena, but no widespread, universally accepted practices across industry sectors. Few would argue that American Express could send out an email blast about a great golf package strictly on the basis of targeting members who recently purchased a new set of golf clubs on their American Express card. Most would agree that a casino hotel knows exactly who their high value guests are, or that a cruise line knows exactly how much per-passenger spending takes place on board a 7-day cruise. Certainly those resorts that issue guests a single card to use for all transactions, know their guests’ spending habits.
But if I ask senior hospitality professionals what is their most profitable market segment, or their most profitable mix of business, I’ve yet to have anyone tell me they really knew. And so we come to a point at which we must identify what total revenue management (for sake of a better term) looks like; to which processes, procedures, and practices do we aspire? What will Total Revenue Management look like in the year 2020?
First of all, the industry’s Uniform System of Accounts will be permanently revamped and updated. The traditional Rooms division profitability ratio will be fully disaggregated, identifying expense factors by market segment, by distribution channel, by room type and even by length of stay. Budgeting templates will incorporate formulas whereby changes in market mix will automatically reveal changes in profitability. Business mix and channel mix will also be connected to “other spend” factors using ratios from historical spending habits/trends to calculate ancillary revenues.