High time for hotels to integrate revenue management with customer relations
Customer relationship management requires hoteliers to be strategically more customer focused
Tourism in Hong Kong has been facing severe slack growth, with inbound tourist numbers dropping continuously over the past two years. In 2016, visitor arrivals declined by 4.5 per cent over 2015 to 56 million.
Correspondingly, hotel room occupancy has been dropping from the peak of 90 per cent in 2014 to 87 per cent last year (up to November). Competition is fiercer than ever. And it is high time for hospitality industry professionals to look deeper for ways to increase their bottom line through developing a better understanding of their customers and revenue management strategies.
Revenue management for hotel rooms refers to the process of selling the right type of rooms to the right type of customers at the right price and at the right time through the right distribution channel. Focus in revenue management is on the management of demand and capacity.
Revenue management is applicable to other service industries as well whenever the inventory is perishable, demand is fluctuating and predictable, capacity is fixed in the short term, customers are segmentable, products can be sold in advance and marginal sales cost is low. Over the years, revenue management in the hospitality industry has become more strategic, analytic and customer centric.
Customer relationship management is the process of managing the relationships with customers with a purpose to identify, retain and grow a company’s most valuable customers through various resources including but not limited to information technology, employees and service process. Customer relationship management requires hoteliers to be strategically more customer focused.
These two business strategies have become increasingly more important for hospitality companies all around the world. The ultimate purpose of both strategies is to increase revenue through different approaches. Academic research 14 years ago has already acknowledged the value creation opportunity through integration of these two strategies. However, it appears that the hospitality industry is lagging behind in the implementation the integration strategy.
How can revenue management be integrated with customer relationship management? One example can be to segment the customers according to the value they represent to the hotel and then develop segment specific revenue management strategies for different customer segments. This requires hotel companies to define and measure customer value which is not exactly straightforward for many hotels due to the way data is collected and recorded in their system.
In addition, most IT systems are outdated and data recorded in different departments of the hotel do not necessarily connect to an overall database. The hotel industry is not exactly following the big data trend, which can be very helpful to extract useful customer related data to integrate into revenue management strategies.
To make this integration happen, at the very least hoteliers should be able to link their customer database to the accounting system to compute customer value. If this step can be accomplished, hoteliers then should focus on identifying the valuable customers and offer their better deals and availability to these loyal customers. It is likely that these customers will feel special and continue to patronise the hotel in the long run.
On the contrary, if these loyal customers are quoted a higher rate or denied the room they requested due to high demand through the revenue management system, they might feel upset and turn to a competitor for their intended hotel stay. It is necessary to note that this is rather a long term strategy than a short term approach to pricing which has been the focus of revenue management pricing strategies for the past two decades.
It is high time for hotel industry professionals to acknowledge this trend and find ways to integrate revenue management and customer relationship management. This integration process starts with the support, endorsement and understanding of hotel executive management. They should have a clear understanding of what this integration means and how it can help the hotel bottom line in the long run. There should not be any conflicts within different departments of the hotel organisation in terms of defined goals, timelines and performance indicators of the integrated strategies. Appropriate IT structures should be in place to enable the integration to facilitate the identification and tracking of customers. Once these are achieved, the revenue management team should be in regular communication with the customer relationship management team. Both teams should define customer long-term value, compute it and segment their customers according to the value they represent to the hotel. Customer-oriented revenue management strategies for different segments identified should be developed.
The proposed integration will align the goals of revenue management and customer relationship management and decrease the conflicts within the hotel management. It should be noted that not all customers are equal and valuable customers should be identified. Hoteliers should develop different revenue management strategies depending on the value of the customers.
Basak Denizci Guillet is an associate professor of the School of Hotel and Tourism Management at the Hong Kong Polytechnic University