The Surprising Reality: Most Hotels Lack Revenue Management Systems

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In the ever-evolving world of hospitality, the adoption and implementation of Revenue Management Systems (RMS) play a pivotal role in shaping business success. According to Skift, a leading tourism industry media outlet, only 26% of hoteliers are currently utilizing RMS. (only!!)

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This figure becomes even more intriguing when considering that it drops as low as 8% if we exclude those using Expedia’s free solution.

This statistic suggests that approximately 450,000 establishments have not embraced advanced RMS solutions. While this doesn't imply a complete absence of Revenue Management practices, it does indicate that many are possibly relying on more time-consuming, less sophisticated methods.

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Such a low adoption rate raises several questions: Is this lack of widespread RMS usage detrimental? What are the underlying reasons for this reluctance?

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By the end of this article, we aim to provide a comprehensive understanding of the RMS market, exploring its benefits, obstacles, and potential future directions in the hospitality industry. Let's start by examining the current state of RMS adoption.

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Where do we stand today ?

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As we delve into the current landscape, it's evident that a significant majority of hospitality establishments are yet to adopt RMS. While over 15% have turned to Expedia's free solution, the rest of the market is fragmented. This comprises mainly American RMS providers and bespoke, in-house systems tailored to the groups and hotel chains.

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This scenario reveals a market that is still warming up to the full potential of RMS. The presence of home-made or solutions indicates a desire for customization and close alignment with unique business needs, yet also reflects a market segment that remains untapped by mainstream RMS providers.

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"I've heard the number floated about that more than 90% of mid-market smaller independents in the US and Europe are not using revenue management software."

~Rob Ransom, SVP, Global Strategy and Business Development - Booking.com

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Yet, connecting an RMS makes sense...

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In the context of today's market, where consumer awareness and expectations are continuously evolving, the rationale for integrating a Revenue Management System (RMS) becomes increasingly compelling. Consumers, more informed and adaptable than ever, now understand and often expect the fluctuating prices that come with yield management practices. They accept that the cost of a hotel room, a train ticket, or a car rental can vary significantly based on timing and demand.

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This shift in consumer mindset underscores the importance of adopting RMS in the hospitality industry. RMS offers a strategic advantage, particularly in terms of automation. Implementing such a system can streamline complex pricing decisions, ensuring that pricing strategies are not only more efficient (with consistency and precision), but also more responsive to real-time market. Centralized data management is additionally a time-saver for all organization, helping to focus on what's really mater rather than playing with spreadsheets.

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"More than 95% of hotels, particularly small independent properties, did not manipulate their prices."

~Marvin Speh, COO and Co-founder of RoomPriceGenie

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Wait - Why ? What are the barriers?

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While the benefits of a Revenue Management System (RMS) are clear, its widespread adoption faces significant challenges. Two primary factors contribute to the hesitation in embracing RMS:

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1/ System Integration

The proliferation of tools in the hotelier industry, encompassing areas like quality management, pricing surveillance, marketing, and more, has led to a complex landscape. However, the challenge lies in the effective communication between these systems, resulting in hoteliers facing a considerable workload to manage and understand each tool.

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Vendors emphasize the unique value of their products, making it crucial for hoteliers to identify the most valuable tools and prioritize them. This complexity extends to integrating various systems like CRS, PMS, RMS, CRM, PoS systems, emphasizing the need for seamless connections and correct data flux.

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2/ Mindset

Another significant barrier is the prevailing mindset among business leaders who often prioritize cost management over exploring revenue opportunities. Financial pressures and investor expectations typically lead to a budgeting approach that starts with the financial result or EBITDA.

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This backward approach focuses on monitoring costs and then setting revenue targets, often overlooking potential revenue-generating opportunities. Implementing an RM strategy or tool involves costs in terms of time, human resources, and technology, which can lead to hesitancy in initiating such projects. Remember, we are talking about growth of up to 10% in revenue according to BCG.

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"Our sources tell us that only 10% of hotels have cloud property management systems and just 7% use revenue management software to price their rooms."

~Hotel Tech Report

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And the opportunities for the future? 🗝️

Looking ahead, the landscape of Revenue Management (RM) in the hospitality industry presents promising opportunities :

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These developments indicate a more accessible and user-friendly future for RM, where a wider range of hospitality professionals can benefit from advanced RM strategies and technologies. The next section will explore additional trends and evolutions in Revenue Management.

1/ A Growing Number of Players

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The RM market is witnessing the emergence of various actors eager to establish themselves in both the RMS and broader RM tools market (E.g. : Revbell ; PriceLabs).. This growth is beneficial as it brings with it educational efforts that help disseminate the significance of Revenue Management. Furthermore, the expansion of offerings is expected to lead to competitive pricing, greater flexibility in sales terms, and more straightforward deployment options. For instance, some providers are exploring monthly billing, waiving setup fees, and offering contract-free services. This increased competition benefits both existing and potential users.

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2/ Simplification & Tools Automation

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Market participants are engaged in a race to simplify and automate RM tools. Two primary areas of focus set them apart:

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A. User-Friendly Interfaces: RM tools are no longer exclusively designed for Revenue Managers. They are being tailored to cater to a broader range of users, including hotel directors, regional managers, investors or sales manager who may not possess advanced analytical skills. The emphasis is on enhancing data visualization and user-friendliness to democratize the RM process.

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B. Enhanced Connectivity: Simplifying the integration of RMS with PMS for operation and/or CRS for distribution is a key objective. Without going too technical, today, an RM system needs to be fed by reservations (incoming flows) to learn and issue price and restriction recommendations (outgoing flows). Establishing this connection typically involves building a bridge between systems. In the future, the industry envisions the development of a public and standardized architecture that facilitates seamless data exchange between private systems. This would significantly reduce the prerequisites for rapid RMS deployment.

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3/ Evolution of the RM Model

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In response to the growing complexity of distribution channels, the Revenue Management (RM) model is undergoing significant changes. Two concrete directions are emerging for the future of RM, reflecting a broader and more holistic approach:

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Total Revenue Management (TRM):

‍The first evolution involves extending revenue optimization efforts beyond traditional areas. In the context of the hospitality industry, this means considering revenue opportunities in departments such as C&E (Conferences & Events), F&B (Food & Beverages) and even spa services in addition to room bookings. Segmenting the customer base becomes crucial in refining this approach. The concept of Total Revenue Management is already known for several years, gaining traction on large capacity properties and/or specific ones likes casino hotels (knowing that your gaming revenues might be higher than room ones, how should you price yourself ?).

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Another case in point is the Ennismore properties, where revenue other revenues often surpasses accommodation one.

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“At our hotel [The Hoxton] in Southwark, you’ve got 40 percent of revenues coming from rooms, 30 percent from F&B, and the rest from coworking.”

~CEO The Hoxton, Sharan Pasricha

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Profit-Centric Approach:

The second shift focuses on maximizing profits rather than just increasing revenue. With the proliferation of distribution intermediaries, additional costs are associated with various sales channels (think about your commissions fees and potential discounts by OTAs ? ). This concept emphasizes net revenue, where optimizing revenue by each sales channel ultimately leads to increased profitability for a company.

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Integration of RM and Marketing/E-commerce solutions:

Another exciting prospect is the integration of RM and Customer Acquisitions systems. This integration envisions the automatic adjustment of advertising budgets, such as Search Engine Acquisition (SEA) campaigns like Google Ads, based on the demand forecast provided by the RM system. By aligning marketing efforts with RM strategies and demand forecasts, businesses can optimize both their acquisition costs and revenue generation simultaneously.

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Ready to Unlock Your Revenue Potential?

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In a rapidly evolving hospitality landscape, the adoption of Revenue Management Systems (RMS) has become imperative for success. Despite the immense benefits, only a fraction of hoteliers are utilizing RMS, leaving significant room for growth and profitability.

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The barriers to widespread RMS adoption, such as financial and time investment, system integration complexities and cost-focused mindsets, should be addressed in the next decade or so. The future of Revenue Management promises an exciting journey for the industry !

Should you be interested to explore RMS opportunity for your properties, please reach out. We're willing and committed to support you for the selection and the deployment of the solution, based on your needs and tech-ecosystem.