Revenue Management and 5 star hotels

People often ask us: is it possible to apply Revenue Management strategies to 5-star hotels? The answer is clear and simple: yes, it is! And, I’ll say this much: luxury hotels are certainly the best suited facilities for the implementation of Revenue Management policies, because they possess all the essential characteristics required to succeed.

Characteristics of luxury hotels

Usually, they are in very beautiful and famous locations, widely known by all, which require no further explanation. They have panoramic spots or sites of historic interest in close proximity; they are often situated in scenic locations or in historical centers, ancient or modern buildings, but nonetheless prestigious. They can offer high quality services to their guests. They are therefore desired or desirable and this makes it easier to find tourists eager to go there.

Yet, while it is true that 5-star hotels are those with characteristics most suitable to Revenue Management applications, it is equally true that they are not the ones putting this advantage to the best possible use. If they did, in addition to obtaining excellent benefits in terms of profit increase, they would be a driving force for all related services, such as rentals, restaurants, shops and every other activity directly or indirectly linked to tourism. If other hotels – same class or lower – implemented these techniques, as well, the entire destination would benefit from it, the season would become longer, and a longer season means more people employed, more turnover and more wealth for all.

In the eyes of those who don’t know us, what I write may seem utopian, but we only talk and write about those things that we have personally experienced first-hand. Over the years, we have worked with 5-star hotels and collected data and statistics that demonstrate how the implementation of Revenue management in more facilities at the same destination increases their advantages altogether.

Why don’t luxury hotels implement revenue management?

At this point, one question springs to mind: why is this not being done? Why are 5-star hotels not the bearers of this relaunch? In my opinion, there are many reasons but, the ones I’m interested in are, firstly, that they are not aware of this and, secondly, that this would cause a remarkable disruption in their way of working.

We all know how difficult and complicated changes can be; renouncing the way we have worked for decades and starting to do things differently, with all the risks involved. Leave the certain for the uncertain and, more importantly, doing this in a historical moment in which everything seems to be falling apart.

Implementing the Revenue Management techniques that we have been using for years, means approaching the market with new eyes, understanding what people are asking for and delivering it to them. Thanks to the Internet, sales prices have become a sales tool (my apologies for the turn of phrase) which can deliver exceptional results, if used in a modern and current way.

When we analyzed the data of luxury hotels requesting our consulting services (oddly enough, they were very few), we asked ourselves: why do they sell at such low prices during high season? Why don’t they raise them? And when we reviewed the low-season data, we asked ourselves:  how come they are selling at such high prices? They are the most desired and coveted hotels and yet they do not take advantage of this!

Wrong fears and beliefs take over

The explanation is not technical, but rather psychological. Owners and managers of luxury hotels have the same fears as everyone else: if I decrease prices too much during low season, I ruin the reputation of my hotel and drive my clients away; at the same time, if I increase prices during high season, my customers will complain and ruin my reputation.

5-star hotels are convinced that they cannot dare as to do so would ruin their reputation. They are victims and prisoners of their own beliefs, resulting from many years of experience… in the past, this was probably true, however, sooner or later they will have to come to terms with the fact that the world has changed, people have changed. perhaps not all of them, but the vast majority certainly has, and I think that this is quite apparent to all.

But I assure you that…

I would like to reassure 5-star hotels and explain why their fears are unfounded: wealthy clients, the most appealing to these hotels, who know how to behave in these environments and take advantage of services offered, travel during the high season, because they have the financial means to do so and choose the best for themselves and their families. Less affluent clients, who are price conscious, do not travel in high season because they can’t afford to pay such high prices. Therefore, we are talking about two different target customers who frequently visit the same locations and hotels but in different periods. Both will be satisfied.

This does not mean that one will never encounter unpleasant and rude customers; however, those who are experienced in luxury hospitality know that paying a lot of money does not necessarily equate with politeness, just as paying very little does not equate with rudeness.

Fears are enormously greater than whichever problems might arise and, should one encounter problems of any sort, they will not be as serious as one might think, and they should be quite manageable with a little common sense.

I conclude by inviting luxury hotels to play their role, which is a role of responsibility, because they are the main actors of their destination and have the power to accomplish much, including changing its fortunes!

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