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From Revenue Management to Revenue Strategy

It’s taken a long time to get revenue management into the lexicon of the hotel industry, but now that we’re finally there, let’s talk about redefining it. Revenue management—yield management, price optimization or however it’s described from company to company—will always be a critical function at every hotel, and it’s great the majority of the industry recognizes this. But revenue management has come to be defined by managing rates, which isn’t exactly what Robert Cross first imagined in 1997 when he called for a marketing renaissance in his book, “Revenue Management: Hard-Core Tactics for Market Domination.”

If you haven’t read the Fall issue of Hospitality Upgrade yet, check out Cindy Estis Green’s excellent story, “Running Shoes, Bears and Revenue Strategy.” You may notice many similar themes to what we’ve written here on this blog and things we’ve been talking about since before we even started Duetto. I contributed to the article and have been advocating a revenue strategy approach for years. It’s why Marco, Craig and I created Duetto.

But this isn’t about us, or our products. It’s about innovation and technology. The industry has changed, and continues to change at warp speed. Or more accurately, the technology behind it continues to change, as do consumers’ behavior. When American Airlines started its primitive forms of yield management in the 1980s and when Leland Pillsbury began what became revenue management for Marriott soon after, the Internet barely existed. Priceline and Expedia were still a decade away from launching, Mark Zuckerberg was a toddler and Google was 20 years from debuting. And yet, revenue management systems are functioning much the same as they did decades ago despite these changes.

Think about how customers booked hotels back then. Think about how it’s done today. Besides customers calling hotels directly, and the even more rare walk-in, how many bookings are processed or touched by others? Even the most profitable customers visiting the hotel’s website to book are likely first visiting other sites that are getting a cut of the action. If not, in the case of Facebook or Apple, it’s believable, if not expected, that those sites will soon be getting a bigger piece of what were once hotels’ profits. Very little today constitutes a “direct booking,” and tomorrow, it will be even less. Of that, there’s little argument.

Times have changed, and so must the hotel industry if it wants to remain profitable. It’s why we’re hosting the Revenue Strategy Summit at the Affinia Manhattan tomorrow. We want to discuss how the industry can become more profitable. How we must all adapt to survive. Optimizing revenue is no longer about just pricing inventory.

Revenue strategy must encompass sales, marketing, distribution, revenue management, loyalty and everything else that is a part of generating revenue. And revenue isn’t even really the right ultimate goal. It must be net revenue, or profits, we talk about and strive for, because not all revenue is equal, as Cindy explained in our interview with her. She recently told me about a hotelier she was working with who couldn’t understand why profits were falling despite increasing revenue (and this hotelier was cutting operational expenses, too). The cost of acquiring that revenue—the money being paid to intermediaries and now metamediaries as some are calling them and other marketing fees—is increasing exponentially.

This story, sadly, is becoming commonplace. Transactional costs will continue to rise and to remain profitable, hoteliers need to understand this, adapt and innovate.

Revenue managers and their systems have been responsible for forecasting demand and then pricing rooms to maximize revenue. That can no longer be done in a vacuum, separate from the marketers who are creating much of that demand and the sales team trying to convert it. These departments can no longer be siloed and instead must work better together. They have a common goal: growing profits, or net revenue.

We hope the Revenue Strategy Summit can help facilitate the conversations needed across different departments, companies and technologies to help make this happen. Check out the agenda for the conference. We’ve got some of the sharpest minds in hospitality and technology and other innovators speaking, and we hope the discussion extends beyond the main stage.

I really hope to see you there, so if you’re in New York for the hotel show, take a break and head over to see us. You can register at the door.

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