Total Revenue Management

Revenue Management

At a time when revenue management is winning over more and more sectors for obvious profitability reasons, a more comprehensive approach is emerging: total revenue management.

Let’s start from the beginning. Revenue management consists of varying the price of a service to optimise a business’s capacity in order to maximise its revenue. Customers are segmented according to their level of contribution, so that the most profitable classes are prioritised.

A hotel’s revenue manager, for example, forecasts demand (the number of potential customers) on the basis of past sales and other internal and external variables likely to affect it. Once the forecasts are made, the revenue manager adjusts prices so that demand matches the available supply. If, according to the forecasts, 3 customers are each willing to book the hotel’s last room at a different price, the revenue manager will set the room price at the highest amount a customer is prepared to pay.

This expertise has already proven itself in many sectors, the best known being air transport and hotels, but also spas, theme parks, restaurants, car rental, golf courses, cinemas and car parks…

The concept of Total Revenue Management

Total revenue management takes the thinking further, since this model starts from the principle that buying a service can generate other ancillary spending. Customers are therefore segmented on the basis of their total spending, not just on the price of the core service.

In the case of a hotel, total revenue management will segment customers according to the amount of money they spend across all the services offered by the hotel (restaurant, spa…) instead of focusing solely on the price of the room.

A customer who pays €75 a night for a room, spends €50 in the hotel restaurant and €50 at the spa brings the hotel more than a customer who books a night at €150. Yet the latter paid twice as much for the room! Total revenue management consists of identifying each customer according to the total amount they are likely to spend during their stay.

Implementation

Today this approach is limited mainly for technological reasons. The multitude of software packages in use makes it difficult to bring data together across the different departments of the same business. It is nevertheless achievable with a powerful CRM tool capable of gathering information on each customer profile throughout the customer’s journey across the various services offered. The data collected can then be used to analyse different purchasing behaviours and ensure relevant segmentation.

Application by sector

This model is widely applicable in the hotel industry, since the customer is identified by a room number each time they use one of the hotel’s services. It is more difficult in other sectors, however. Take theme parks, for example:

Once visitors have paid for admission, their spending inside the park is not linked to an identity, so it is not possible to determine which customers contribute the most once ancillary products and services are taken into account…. At least until now. At its iconic park in Orlando, the Walt Disney group has found a way to track each customer’s spending using wristbands that are scanned with every purchase inside the park. While the company presents this innovation as a way to save time by paying only at the end of the day, above all it gathers valuable information on customers’ consumption habits and level of contribution. By knowing how much each customer spends, the company can then make personalised commercial offers and set segmented prices for different profiles.

Revenue management is therefore moving towards a more comprehensive approach that optimises revenue across all of a business’s services, not just the core service. This new approach does, however, require a system for tracking customers throughout their journey across the various services, together with centralised data management.

Océane BOCA, consultant at Aérogestion