By Kristen Shelton, Director of Sales and Marketing
Revenue Management is the way hotel companies predict demand and determine how to set rates for a hotel. The hotel industry is just like any other business in that it sets pricing based on supply and demand. When there is a great need or want for hotel rooms, the prices will increase. When that demand lowers and more hotel rooms are available, then hotel rates will drop.
Hotel management uses a number of factors to determine rate strategies. Many top brands have automated revenue management systems that help users predict demand and make rate recommendations. These systems are great tools to use, but you still must have team members who are able to analyze the system recommendations. A director of sales or a revenue manager will be able to factor in components that the system may not understand, like weather, special events in the market, or competitors who are not actively managing their rates.
Revenue managers review the recommended system data, competitor rates, market conditions, and hotel reports to determine the best pricing.
Peak, Shoulder, and Off-Season Rates
Hotels that are in seasonal markets sometimes show significant rate changes from one season to the next. In our region, beach and resort areas have a definitive peak season in summer. The weather is optimal, kids are out of school, and many area attractions are open. Demand during this season is very high, so rates steadily increase as fewer and fewer hotels have availability.
Shoulder seasons are the seasons that come before and after the peak season. In Virginia and North Carolina, these are seasons when the weather is still really nice, but the demand isn’t as high. Students are usually back in school during the shoulder seasons. Travel is popular for tour and travel, education groups, and sports during these periods.
The Off-season for us are the months when demand isn’t as high as peak or shoulder seasons. The weather can still be really nice during the off-season, but this is the time we are seeing our coldest temperatures. Since demand is lower, the rates are more attractive.
Revenue Management is the Future
Hotel operations managers have been following revenue management strategies and will continue to do so in the future. We are starting to see other industries begin to use revenue management. Places like Universal Studios, Walt Disney World, and other amusement parks have rate calendars for some of their ticket pricing. If you select a lower-demand day to visit one of these parks, your ticket price will be lower. On their higher demand days, the prices will go up.
Revenue management helps businesses price themselves appropriately and fairly compared to the market demand. Understanding hotel pricing helps consumers determine what they are willing to pay on desired travel dates.
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