Revenue Thieves: Common Revenue Management Mistakes to Avoid – By Melissa Kalan

A man with a whistle - Source - STAAH
Revenue Thieves: Common Revenue Management Mistakes to Avoid

Are group bookings always the right way to make money? Surprisingly, no. Especially post COVID-19 and with the travel restrictions, you have to target new segments. There are times when denying these bookings in favour of transient customers is better. Revenue Management expert Melissa Kalan shares her tips:

Spoilage

This probably should be listed as the number one revenue thief. Spoilage includes no-shows, late cancellations and very late release of group room blocks or unsold allotment space. Essentially, this includes any scenario where we were sold out at a particular point in time and then finished with rooms available. Generally, these rooms are released back into the market as distressed inventory, but we may have potentially missed many key booking windows for a business that would have booked and stayed if the rooms were available at the time.

Dilution

This is where a customer accepts a price point in the market, however, they may have paid a higher price if it was still available. Dilution is difficult to measure and is more prevalent when we have no strategy around discounting in place and we find ourselves operating in a very reactive way.
Additionally, if we do not apply appropriate “rate fences” (a strategy used to minimise dilution from one market segment to another) to different price points that we put in the market, this can also have a dilutionary effect.

High Yield Spill

This occurs when we accept too many lower rates only to discover there were a lot more inquiries from customers that would have paid higher price points closer to the day, or their total piece of business would have yielded a higher value. In this situation, we have taken too many lower rates and we find ourselves in a position where we have to turn business away.

Low Yield Spill

The reverse of high yield spill, this is where we protected for too many higher rates or higher-yielding pieces of business and then missed the lower price points that would have booked further out from the arrival date. This can often happen in times when there is a large or significant calendar event coming up, such as New Year’s Eve. There is usually strong demand in city centres during New Year’s Eve, however, it is often the case that once the night has passed, and we look back at the statistics, availability on the night is apparent even though it was anticipated to sell out.

Sub-optimal Forecasting

This includes lack of forecasting, lack of forecasting detail or having a high degree of inaccuracy in your forecast. Forecasting forms the roadmap and is an essential element of revenue management. Without a forecast, we cannot determine what price point we should have in the market at any given point in time, and if the forecast is inaccurate, we are then selling at sub-optimal price values. A forecast provides us with a projection of our anticipated demand against available supply.
Forecasting can certainly be complex and challenging, especially in today’s fast-changing market conditions, however, there are many solutions that can assist and guide you with your demand projections.

Dynamic Pricing

This is a big topic and a key lever used by revenue managers, but it too can be a source for revenue thieves if;
1.You are not using it;
2.You are not optimising the compressions between your price points; or
3.You are not reacting with consistent speed to market as changes occur.
Holding at static pricing means having the one price point for every single day of the week for the entire year and/or
season. At static pricing, there is only a certain amount of market demand you will ever be able to attract, and even if
you do have some degree of dynamic pricing in place, there can be missed opportunity at the price points between
your compressions from one price tier to another. You must regularly review your price positioning, your price
compressions and your price for value relationship in the market across all of your market segments.

This article has been contributed by our guest writer and expert Melissa Kalan from our FREE Ebook on Beginners Guide to Revenue Management Download the full ebook here

Melissa Kalan is the founding director of Australian Revenue Management Association (ARMA), providing online revenue management training to hoteliers and students (Graduate Certificate of Revenue Management) worldwide. A respected revenue management practitioner, she believes in empowering organisations to lead the revenue management culture from top-down

This article was originally published by STAAH. For more hotelier tips, trends, and news please click here.