High time for hotels to integrate revenue management with customer relations

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.