A revenue manager’s lesson in inventory management
Inventory Management is the art of optimising your inventory optimally on every type of demand. Those who master the art are those that can think a bit creatively. In this article we will give you our five best tips on the subject.
Tip 1: It is usually about the lowest price point
In our experience, most of the reservations are made on the lowest possible price point offered (cheapest unit, cheapest rate etc). We see this happening on most types of properties, independent of location and price elasticity. If you experience the same, your focus should be right there; on your lowest price point. Most properties have a number of price points available during any day of the week; refundable, non-refundable, standard, superior, single, double, etc.
The first thing to understand is that there is a difference between offering availability and having availability. So if, for instance, your standard product is sold out, you can still offer it, provided that this price point is the most optimal. The same counts if your upgraded unit (for instance; superior vs standard) has the perfect price point, close out standard and use it again closer to arrival date. Especially if you find yourself in a market where last-minute price dumpings are common practice, this might come in handy.
Another factor to take into account is refundable vs non-refundable. We find that non-refundable rates usually automatically are closed out at a specific amount of days before arrival. As logically as this may seem, your non-refundable might just have been the exact price point you would have wanted a little closer towards arrival date. Loosening up your restrictions on your non-refundables (or campaign rates, for that matter) gives you more flexibility in offering the right price point. This automatically leads us into the next point: make your rates as flexible as possible.
Tip 2: Make your rates as flexible as possible
This point is almost inevitable if you want to give yourself the possibility to always offer the best price point. Different demand periods call for different supplements on your room- and rate types. When the demand is expected to be highly elastic, for instance, in periods where your main demand comes from leisure guests, you might want to sell your single room rate at half the price of a double room, attracting those that might prefer two single rooms instead of one double. On the other hand; during periods when corporate customers are travelling, you might find yourself wanting to decrease your supplement towards double room, enabling yourself to make an up-sale to a larger room.
The same counts on Refundable towards Non-Refundable. During low demand periods, you can use a larger discount on your non-refundable in order to create a lower price point that might attract price sensitive guests and give you secured revenue at the same time. During high demand periods you might want to have these two rate plans as closely together as possible so that you still are happy with your non-refundable as it does give you the revenue security but at a higher price.
Tip 3: What to do if you want to decrease your public rate without decreasing it
We always recommend to limit the amount of times you decrease your public rate level. With rates being extremely transparent, guests have the increased possibility to see your every move. They might question why they have to pay a higher rate for the same room type, but can also cancel the previous reservation and re-book at the lower rate. Sites such as Trip Bam can have that effect.
Not decreasing your public rate level is easier said than done. There are some options:
- Open a cheaper room type. Especially when your property is located in a market where you find that your competitors constantly are using last-minute decreases, you might want to have a room type available for this purpose. Remember that there is a difference between offering availability and having availability. Some properties successfully offer non-existing or run-of-house units for this purpose. This even enables them to increase the public rate level and use the price point of a lower unit type to find the right price point.
- Use campaigns and/or non-refundable rates strategically. As we stated earlier,
- Use your distribution channels optimally. Channels such as Secret Escapes, Hotel Specials but even the Global Distribution Systems (GDS) and apps such as RoomsTonight can help you here as they attract guests that typically not use the OTA channels such as Bookings and Expedia.
Tip four: Find out the peak of your demand
This is an interesting one that, we find, hotels have most difficulty with. Most properties find that reservations are done reasonably (or very) close to arrival date and focus on rate- and availability updates on the last days before arrival. Quite often demand comes and goes in several periods. The trend is very much depending on type of property, location and market, but can come in several, clearly defined periods. The trick is to find which type of guests book when and what the optimal price point is.
Especially for properties with a high amount of corporate business, that usually book quite late and at a low rate, securing reservations at an earlier stage might be a good idea. By Using penetration pricing through out different lead times you can increase your bookings. This can mean that a property chooses to wait increasing their public non-refundable rate and let it sit at a point somewhat higher than their most used corporate rate though lower compared to their competitors. This can mean an increased demand at an earlier stage. Yes, at a lower public rate but higher compared to the type of rates they might have to accept at a later stage. Important to take into account here is to calculate Cost Of Sale in order to get the best net effect.
Tip five: keep your availability updated
We find that, sometimes all we need to do to increase result, is to make sure the property can be booked. This sounds really logical, but in reality it is a bit of a challenge. The first thing to do is to find technology that provides a two-way connection to your Property Management System. This means that your inventory automatically becomes available when a cancellation is made.
Our last chapter in this article is not a tip, it is common practice for every company. Analyse your strategic decisions. Did they give you the wanted result? If not; why not. If so; can you improve even more? Make sure you can pull the right reports to analyse fully. Make sure you take your time to ensure that your strategic depictions have had its course. So; implement a strategy, wait for some time, analyse, adjust, implement the adjustment, wait for some time, analyse, implement a strategy, etc. This is an ongoing process with the aim to continuously improve result.
Good luck and have fun!