Hotels embrace a new chapter in revenue management

The music is not in the notes, but in the silence between, the composer Mozart once said. That notion is now seemingly being applied to hospitality technology as hotels explore new ways to grow profits beyond rooms.

While larger chains have long invested in the science of revenue management, independent hotel groups are catching up.

"It’s the second wave of technology adoption,” said Daniel Segerblom, head of revenue at Diamo — the revenue platform spun out of Life House in September this year. "The first wave was small hotels realizing they needed to transition their property management system (PMS) to something more modern and more capable."

This second wave is made possible by the new PMSs offering an almost unlimited number of integrations and connections into other systems, such as sales, marketing, distribution, F&B — and revenue management.

"We've seen that pendulum swing," said Sabrina Jackson, senior director of product management, applications at Duetto. "Now it's much easier for smaller hotels to shop for an off-the-shelf product versus before, where either they had a homegrown revenue solution or they were just using tools available through the Microsoft suite."

The pandemic also pushed the movement as it forced hotels to streamline workforces, bringing once disparate commercial divisions under one roof. "Revenue management is not a single department competing for a very limited budget," Jackson said. "You're now a much bigger group of people with a lot of diverse needs that need different sets of technology to work together."

Emerging trends

Now hotels are better equipped to experiment with revenue management, and able to react more quickly. Revenue management system provider IDeaS puts some of the heightened interest in demand for its services down to the rise in the number of remote and hybrid workers.

"We've seen a big push in meetings. Companies are making an effort to bring people together more often and when they do that they use hotels," said Klaus Kohlmayr, chief evangelist and development officer.

Meeting professionals predict internal meetings will be the most frequent meeting type in 2025, according to American Express Global Business Travel’s latest Global Meetings and Events Forecast. The report predicts nearly half of all internal meetings will be held in a hotel.

Kohlmayr adds this is relevant to smaller hospitality groups and was one factor in IDeaS securing Titanic Hotels as a customer in September this year. As part of the deal, IDeaS is providing its 'What-If' analysis tool to help Titanic "visualize potential outcomes to ensure the group pursues the most profitable strategies."

In the same vein, Duetto recently bought meeting and event spaces booking and dynamic pricing technology provider Micerate, which reflected the company’s "heightened focus on the groups and events sector."

Boutique focus

Diamo’s Segerblom says the goal for Life House’s new venture is to help independent hotels leverage revenue management to maximize their unique offerings to compete against branded rivals. "Larger hotels are getting into an even further complex level of total revenue management," he said.

The concept of "total revenue" per guest, rather than a room, is a fast growing trend of revenue maximization — in other words it’s about "making the most out of what you could have" not what you have, said Starwood Capital Group’s Joe Pettigrew last year.

"You're starting to talk about food and beverage and experiences, and you roll these into the overall total guest value. You're saying 'you know this guest, we need to get them in the door, and we also need to book them at the spa, and they need to eat at the restaurant,'" Segerblom said.

Diamo is now exploring big data elements, social media and AI to analyze a variety of touchpoints.

"You're trying to learn as much as possible about the customer before they come in … we have a lot of our hotels that have 10 rooms, and they have 10 room types. That adds an extra layer of complexity to setting up the system because they've got to map all of these things out and get these rate plans."

Revenue management specialist SHR is meanwhile exploring the "propensity to cancel" a room, among other avenues.

"A high percentage of reservations get canceled, and hotels are very lenient. I'm always amazed," said Rodrigo Jimenez, SHR co-founder and CEO. "Who else lets you have something reserved for three months, and the day that I'm supposed to come in, I just go, never mind. Now the hotel has to unload this rate."

SHR, which recently joined the Access Group, is exploring offering better deals to customer profiles that represent a more loyal customer. "Or you fit a certain persona that the algorithm says should have a lower cancelation rate. Or I'm more willing to give you a different package of offerings, or even a better room rate," Jimenez said.

Faster reactions

Duetto, which itself has just partnered with SHR to enable its casino customers to deliver real-time personalized pricing, is increasingly helping hotel customers stay ahead of sudden market shifts, particularly around event-based tourism; think major announcements like an Oasis or Taylor Swift concert.

"Those are drastic shifts hotels are sometimes unprepared for. We're seeing an emergence of our customers asking how to better protect themselves from these," Jackson said, highlighting the recent launch of its Dynamic Optimization product.

"It means Duetto is listening 24/7 to all of the data that's coming in, all the signals we're getting. And if we detect some big peak in data, some anomalies, we automatically reevaluate pricing for that hotel and can push out new rates almost immediately," she said.

Duetto is also doubling down on price-testing experiments: "When we put a rate out into the market, we want to know and capture how many people actually book and respond to that rate, so we can go back and say: OK, we actually should lower it by this much or raise it by this much."

At the top end of the scale, industry collaborations further advance revenue management developments, including SiteMinder’s tie-up up with IDeaS to launch Dynamic Revenue Plus. Leah Rankin, chief product officer for SiteMinder, attributed this to the "convergence that we're seeing between distribution, revenue optimization and market intelligence."

The next wave

Notwithstanding barriers such as data privacy laws, generative artificial intelligence will likely shake up revenue management in the coming years. However, the focus, for now, seems to be on the user experience for hotel employees — similar to the trend of how brands deploy sophisticated avatars for bookers to engage with when looking for a hotel, including Priceline looking to make travel booking as "simple as having a conversation."

The idea here is to help hoteliers become more comfortable with revenue management, giving them the opportunity to quiz suggestions and price recommendations. Following Duetto’s acquisition in June this year, Jackson says new owner GrowthCurve will accelerate its exploration of AI: "With our new private equity investors, they are heavily, heavily, geared towards bringing new AI technologies to the companies that they work with."

IDeaS’s Kohlmayr said: "We never used to hear the CEOs on earning calls talk about revenue management and revenue management systems. But in the last three years, if you go on any earnings call of the publicly traded brands, you will most likely hear a comment about revenue management technology because it's seen as a competitive advantage now."