Hotel Revenue Management: 6 Tips for Weathering Economic Downturns

Hotel revenue management software

Travel is one of the first things people cut back on in a poor economy, and this impacts the hotel industry especially hard.

From independent, boutique hotels to major brands, hoteliers should consider revenue management solutions that can help them prepare for difficult economic conditions.

Here are several strategies hotels can adopt now to weather unavoidable economic downturns in the future.

Table of Contents

1. Rethink How You Price Accommodations
2. Create New Partnerships to Attract New Customers
3. Reduce Overhead and Operating Costs
4. Analyze Data to Understand Customer Preferences
5. Make the Booking Process Easier
6. Perfect the Art of Upselling and Cross-Selling


1. Rethink How You Price Accommodations

There are a variety of pricing models that hotels can adopt to increase occupancy rates and encourage more bookings. Here are three effective pricing models to consider.

Integrate Attribute Based Selling

Attribute-based selling provides customers with the optimal booking experience when shopping for and booking hotel accommodations.

Travelers love options, and they don’t want to pay for features, services or amenities they don’t want. Attribute-based selling allows travelers to control which features they pay for and receive.

It’s also a way for hotels to charge customers more for every additional feature they desire, especially when the supply of those features runs low. People are willing to spend more on the features they’re specifically looking for.

 

Attribute-Based Selling Puts Travelers in Control

With attribute-based selling, customers can select their destination first, then add on the key features and amenities they want — rather than finding a hotel and then simply seeing what’s available there.

This might include upgraded hotel services and features like:

  • Ocean view
  • King bed
  • Fireplace
  • Hot tub
  • Complimentary breakfast
  • Free laundry service
  • An included service at the hotel spa or salon

With attribute-based selling, travelers can add on as few or as many “extras” as they want. This customization lets customers determine the right price for their desired room type and gives them a better sense of control. When they feel in control, they’ll perceive more value for their dollar, and may be willing to spend more to get exactly what they want.

Hotels can also use attribute-based selling to automate and adjust prices based on the availability of each feature offered. It’s like making a pricing recommendation to a traveler, then allowing them the option to pay more if they so choose.

Here’s an example:

A typical ocean view room costs $50 more per night. There is only one ocean view room available on a specific day. Because availability is low, the hotel can increase the ocean view rate to $60, $70 or $80 per night. If a customer is willing to pay the extra price, the room is theirs.

Automating room prices based on availability helps hotels maintain a stable revenue flow.

 

Dynamic Pricing

Attribute-based selling isn’t the only “new” pricing model in the hotel industry. Many hotels have also adopted a dynamic pricing strategy to keep occupancy rates high and maintain stable revenue.

Here’s how dynamic pricing works:

Using an algorithm, hotels can create a dynamic pricing structure that changes a room rate based on the market demand for that type of room. As a result, the decision-making process is no longer solely the responsibility of the hotel manager or property manager. Instead, the needs and wants of your travelers and their guests help dictate the pricing.

Dynamic pricing allows hotels to charge more for rooms when the demand is high. It reduces the cost of rooms when the demand is low. It’s a two-pronged approach that helps increase occupancy rates and revenue. After all, it’s better to take a small hit on a room rate than to let it simply sit empty.

 

Price Rooms Competitively for a Global Market

In addition to pricing rooms based on the local city or region, many hotel brands price rooms based on how they relate to the larger global market.

For example, resorts in Hawaii don’t make pricing decisions based on the market conditions in Hawaii alone. They take into consideration the cost of traveling to similar destinations in other parts of the world, such as Jamaica and Cancun.

This strategy works as the traveler’s main objective may be to enjoy a tropical beach vacation instead of traveling to a specific island.


2. Create New Partnerships to Attract New Customers

In an economic downturn, you want to retain the loyal customers you have. But it’s just as essential to develop a strategy for attracting new travelers.

The biggest hotel brands have a plan in place that attracts new guests to their properties. This is all in an effort to maximize occupancy rates as much as possible. Hotels can increase occupancy rates even more if they can attract both business and leisure travelers.

Prior to COVID-19, approximately 41% of all hotel rooms booked were for business travel. Hotels can increase and stabilize revenue by partnering with online booking tools to acquire new leisure and business travelers, even when fewer people need accommodations.

As a lodging performance network that caters to business travelers, Hotel Engine has partnered with 700,000 hotel properties to attract business travelers in addition to leisure travelers. This helps to offset the loss of leisure travelers in an economic downturn. It also helps to increase weekday occupancy rates, which is when most business travelers need lodging.

3. Reduce Overhead and Operating Costs

Piggy bank with coins

There are many ways hotels can reduce operating costs that won’t negatively affect the customer experience.

 

Cross-train Staff

One way is to provide more training and cross-training to employees. Having employees that can function in various roles can reduce the need to hire someone new or schedule extra staff.

Do you have a bartender or waiter at your hotel lounge that has excellent customer service skills?

They might make an amazing concierge or front desk clerk.

Can you train your HVAC crew or maintenance team to mow lawns and maintain the pool?

Of course.

When employees are trained to work in multiple roles, staffing a hotel becomes easier and more cost-effective.

Be sure to increase your staff’s compensation accordingly as you add responsibilities to their plates. Keep in mind that it’s more expensive to hire and train new staff than to keep your existing employees happy.

 

Be Proactive In Maintaining Utilities and Systems

Don’t wait for an expensive problem to occur. Instead, schedule routine maintenance checks on HVAC, plumbing, and security systems.

Something as simple as changing air filters in AC units or replacing existing lights with energy-efficient bulbs can reduce energy consumption and lower utility bills.

 

Automate the Event Planning Process

Hotels that book conferences, meetings, and parties can send automatic reminders to their sales teams to follow up with leads and secure more event contracts. The more proactive a sales team is in booking events, the more revenue you can generate.

 

Adjust Food and Beverage Portions to Reduce Waste

Learn how much food and alcohol you’re wasting. If every dinner plate comes back with wasted food, your portions are too big. If customers at your hotel lounge rarely order a second cocktail, it might be that your bartenders are over-pouring.


4. Analyze Data to Understand Customer Preferences

There are many revenue management tools and RMS software systems that hotels rely on, most of which provide valuable data analytics.

Use your hotel revenue management software to analyze how customers search and book rooms. This can give you a better understanding of what customers are willing (and unwilling) to purchase.

Are your customers searching for pet-friendly rooms?

Would they prefer to use food and beverage credits at the hotel bar rather than eat the complimentary breakfast?

How often are they using their key cards to swipe into the business center or fitness center, and how much time do they spend there?

Once you know the amenities and services your customers prefer, you can create targeted promotions that appeal directly to those travelers, including travel gifts.


5. Make the Booking Process Easier

Suitcase in hotel room

Whether customers book directly through your hotel website, a third-party travel site, or a lodging performance network such as Hotel Engine, the process must be simple.

There are several tactics that can encourage customers to want to book at your property:

  • Optimize your website for performance and speed
  • Enable bookings via social media
  • Upsell or cross-sell promotions in confirmation emails rather than during the booking process

6. Perfect the Art of Upselling and Cross-Selling

Forecasting customers’ future wants and needs can be tricky, but studying historical data can help. The more you know about previous customer preferences, the easier it is to tailor travel packages to future customers.

For example, if data shows that X percentage of travelers or their guests booked a spa appointment or a dinner reservation on your property, create a room package that includes those features and services.

The point of creating hotel packages is to encourage travelers to want to spend more time on your property. The more time they spend on your property, the more revenue you generate.

By promoting the right hotel packages to the right customers, you can increase revenue when bookings are high and stabilize revenue when occupancy rates are low.


The hotel business is complicated and competitive, but with the right hotel revenue management systems and strategies in place, there are ways to stabilize revenue, even in a tough economy.

For more information on how you can increase occupancy and attract more business travelers to your hotel, contact Hotel Engine now.