Viewpoint

The art and science of revenue management

Yogeesh Chandra

Hospitality is a dynamic business; it is continuously evolving. In the past, the success of a hotel was measured in units like average occupancy followed by ARR. However, a closer look at these units reveals a uni-dimensional approach - a reduced ARR may result in increased occupancy but fails to make the overall business a success.

The concept of yield or revenue management was then introduced to measure the revenue more accurately and the unit of RevPAR was established to calculate the performance of each and every room in the total inventory of the property. A collective average of RevPARs of hotels in a specific area would reflect the strength of business in that market.

Revenue management in its modern avatar believes in modulating the price of the product (rooms) depending on true demand, thus giving rise to the term Revenue Management (RM). The hotels realised that customers could be segmented as price or time-conscious. Fences were established and price points were set up. While guessing the right price is not an exact science (since the purchase decision has a human element attached to it), guessing the price closest to the 'right price' under given circumstances is what revenue management is all about.

As a concept, revenue management has been adopted for airlines, but technically any business with limited or fixed supply of product sold in units of time (perishable) can benefit from it.

In India, with an increasing amount of hotel rooms, it's not a surprise that hotels are hunting for the best in revenue management talent. It has, in our country, started getting due attention now, which will change the way travel as a product is sold in India.

Revenue management as a discipline is a hot career option. However, since it is still nascent and evolving, it faces many challenges - lack of conceptual understanding amongst hoteliers, small talent pool, limited training material, old forecasting procedures, rate imparity and even customer behaviour.

It is not a surprise that leading hotel companies have taken up this concept with a lot of seriousness and are working closely with revenue management research scientists to establish effective tools. At the end of the day, it's all about maximising profits and if knowing the art of correct pricing can boost your profitability by up to 10 per cent, then it certainly is the way to go.

The author is a revenue management specialist. He can be contacted at yogeeshchandra@gmail.com