How to Optimize Revenue in the Hospitality Industry

The practice of revenue management in the hospitality industry is more than finding the right pricing. It is a multifaceted topic, as it involves balancing factors such as pricing strategies, product distribution, and customer acquisition.

Imagine: The tickets to the concert of your favourite artist have dropped, but many are flocking to grab the best deals across many platforms. How would you determine their credibility and make sure you stand a chance to win the cheapest?

In this post-event interview, we have gathered insights from Andy Khen, Corporate Director of Revenue & Distribution, PMG Hotels & Resorts, Ranjani Rangan, Executive Director & CEO, Changi Travel Exchange and Chris Legaspi, Chief Commercial Officer, Archipelago International to shed light on dynamic pricing, channel optimisation, and the implementation of AI-powered revenue management tools to make smarter decisions.

Dynamic Pricing: A Smarter Approach to Pricing

Dynamic pricing is a familiar concept to the hospitality industry but its use in restaurants is growing at an unprecedented pace as the industry becomes more competitive.

For example, many restaurants may offer ‘happy hours,’ where prices for certain items are reduced during specific times of the day. Additionally, some restaurants implement peak pricing, charging higher prices during busy periods. In Australia, it’s common for restaurants to increase prices by 10-15% on weekends and public holidays.

Jacked up prices at a Melbourne Sushi Shop in Australia (Image Source: news.com.au)

To ensure fairness and transparency, it’s crucial to clearly communicate any price differences to customers.

According to the shift in market trends and customers’ expectations, dynamic pricing can be used in restaurant menus with the following: Time based pricing, Demand Based Pricing or Cost Based Pricing.

Rate Parity and Channel Profitability: Strategies to Optimise Sales

In Andy’s opinion, direct distribution is more profitable as it eliminates the middleman and reduces need for commission payment. But hotels also need intermediaries (indirect channels) not only as their marketing vehicles but also as revenue generators. Hotels just need to strike a balance between these two as every channel is unique and has its own strengths and target audience.

The litmus test on which channels to focus include generating more bookings; cost-effective; and protecting rate integrity.

On the other hand, Chris says that rate parity is a common practice, but there is a need to understand that rates come from hotel brands. When lower rates are released to a certain partner, they may have sold the rate to another partner, who in turn may have sold it to yet another partner. Therefore, the control of rate parity is with the hotel.

In terms of profiting from optimised channels, he believes that working with OTAs or any marketing partner can incur high costs due to performance-based fees. Chris stresses on the costs of customer acquisition: does the channel enable you to gain entryway into new markets or is it just going to cannibalize your business? Assuming we are not working with OTAs, what will be our route to market? And what are some of the other options can we work with to gain business?

In the travel products space particularly currency exchange, Ranjani divides it up into the following areas: Channel Segmentation, Revenue Attribution, Cost Allocation, Profitability Analysis, Channel Optimization, Rate Parity, Cross Channel Analysis and Continuous Monitoring. By following a structured approach in optimising channels, businesses can make data-driven decisions to increase revenue and profitability, improve marketing and sales effectiveness, and maintain competitiveness in the market.

Unlocking New Revenue Streams: AI as an Ever-Growing Imperative

Andy believes that AI is embedded in revenue management practices. Besides dynamic rates, PMG Hotels & Resorts uses AI to drive ancillary revenue. He believes it is a powerful tool to offer insights into which guest to offer, what to offer, when to offer, and what price to offer with the primary motive to raise conversion rates and generate more revenue. These strategies will also improve the guest stay experience resulting in guest satisfaction and ultimately loyalty.

Image Source: freepik

Whilst AI may have emerged as a technology hype, the functionalities are not entirely new. Revenue management tools, such as those used for rate setting and shopping, have long incorporated AI-driven techniques.

Ranjani underscores the importance of AI in areas like fraud detection and name screening. Adherence to regulations through AI-powered tools strengthens credibility and fosters sustainable revenue growth.

Our Contributors:

Andy Khen, Corporate Director of Revenue & Distribution, PMG Hotels & Resorts

Ranjani Rangan, Executive Director & CEO, Changi Travel Exchange

Chris Legaspi, Chief Commercial Officer, Archipelago International