Total Revenue Management & Menu Engineering

When it comes to revenue management, the hotel industry has recognised the need to move beyond revenue per available room to total hotel revenue management. Whilst it is important to first have good control and processes in place for rooms revenue first as this is the main driver of hotel revenue, there are small steps revenue managers can take to get there.
Hotel companies are adopting a more holistic approach to revenue management, including paying attention to profitability by customer segment, channel costs and function space, said Veronica Andrews, director of active data for STR. There are however a few potential barriers to reaching total revenue management:
  • Technology. Revenue managers used to hear a lot about cost, but technological advancement costs have come down, she said, and return on investment for technology will improve.
  • Integration issues. Revenue managers need to be inclusive and collaborative with their teams, and all key stakeholders should be at the table.
  • Gathering data. This refers to the completeness and accuracy of data. Andrews said to pair technology with processes and talent, and day-to-day interaction with guests also can build data.
Data should be used to forecast and make inventory and pricing decisions, while benchmarking can help revenue managers learn from the past and apply it to the future, Andrews said. Any key successes can define future selling strategies.
“Over time, data should become richer,” she said. “Let data jump off the page and speak for itself.”
Data also should be driven by consumer behavior, Andrews said.
She said revenue managers are used to looking at data per roomnights, but looking at it through a customer lens can be helpful. It’s important, she said, to take the skills revenue managers use for rooms and apply them to all revenue streams. “What was the total spend per reservation? So that per-stay, this is what our customers are feeling.”
Andrews pointed to an example of a hotelier who wanted to stop taking business from a certain account because of low rate. However, it was discovered that the food-and-beverage spend was large, and to cut the account would actually cost the hotel revenue.
Driving ancillary revenue
Guest behaviour also should drive decisions when it comes to ancillary revenue and optimising market segmentation, according to Bernard Ellis, VP of industry strategy-hospitality at Infor. Revenue managers, he said, need to look at booking windows, channel preference, spend propensity and loyalty of guests.
When it comes to ancillary spend, however, Ellis said it might be difficult for revenue managers to get buy-in from the rest of the team. He listed several buy-in barriers revenue managers might hear from other departments:
  • low profitability (unlike rooms profit);
  • uncertain capture rates;
  • technology investment erosion:
  • too easily outsourced; and
  • not enough levers to allow revenue management.
Ellis said revenue managers can overcome these buy-in pitfalls by taking an active role in lowering technology barriers. To do this, they need to keep pushing their IT departments and vendors. The data is living there, he said, and revenue managers hold the most interest in discovering it.
“Technology and data do exist; you just have to find it,” he said.
Also, revenue managers can optimise market segmentation and offers by going back to the customer and leveraging existing bookings. They can offer customers dynamic packaging, upgrade opportunities and a pre-arrival concierge, for example.
Menu engineering
Nathan Bacher, regional director of revenue management for Fairmont Raffles Hotels International Hotels & Resorts, introduced the concept of menu engineering when it comes to a hotel’s restaurant. Of FRHI’s hotels, 32 are part of the company’s restaurant revenue management program. But Bacher said any hotel restaurant with a point-of-sale system has access to the type of data used for menu engineering.
The goal of menu engineering, he said, is to increase profitability per guest. He pointed to the Fairmont Royal York hotel in Toronto as a case study. There are four things needed to get started: menu item costs; item prices; item sales quantity; and contribution margin per item, which is price minus cost.
Then, the menu items can be ranked on a four-quadrant matrix. The items will fall into one of the following categories:
  1. puzzle: high contribution and low menu item sales;
  2. dog: low contribution and low menu item sales;
  3. star: high contribution and high menu item sales; and
  4. cash cow: low contribution and high menu item sales.
From here, revenue managers can decide which items on the menu servers can recommend, can increase in price or be featured items on the menu. Bacher said it’s important to note every menu will have dogs, and not all dogs should be taken off the menu.
“The goal should be to have strategic dogs that speak to the restaurant concept,” he said. Or, for instance, a vegetarian menu item could be a low-selling dog, but it’s needed for the menu to have those options for guests.
Bacher said revenue managers should start small and look at one menu category during one meal period to generate a quick win.
“Don’t try to do too much too fast,” he said. “One quick win and the rest will come together naturally.”

– Hotel News Now and ARMA

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