Industry Update
Opinion Article27 August 2019

What Stops Boutique Hotels to Fully Implement Revenue Management?

By Ahmed Mahmoud , Founder of Revenueyourhotel.com

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Mahmoud

A few weeks ago, a friend of mine asked me to assist her in evaluating and introduce some insight about revenue management for Boutique hotels, using my experience in revenue management field that was a new opportunity to explore more about the revenue management and if it can be implemented to the boutique hotels and up to which level .

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As a step forward, we all know that Boutique hotels enjoy a unique position in the hospitality market while also facing unique obstacles. They have an opportunity to offer guests a one-of-a-kind, high-end experience that stands apart from other options in the market. At the same time, due to their smaller brand presence, it can be challenging to attract guests on a nightly basis.

About Boutique Hotels

Boutique hotels are small, chic hotels that are usually located in fashionable districts in most cities.Compared to traditional hotels, boutique hotels focus on their individuality and creating their own character. Boutique hotels are independently operated, although more and more, larger hotel chains are attempting (and succeeding) in dipping their toes into the boutique hotel space.

While there are no strict rules that these hotels follow in terms of policy, guidelines or standards for their operations, they follow some sort of guidelines that are easy to spot and are usually present in most boutique hotels. The definition of a boutique hotel varies, especially among the hotel industry's primary players. However, the majority of boutique hotel operators, creators, and owners can all agree on the following primary features of boutique hotels: They are usually:

  1. Smaller in size
  2. Unique in character
  3. Gives a lot of attention to design
  4. Located in fashionable or historical areas
  5. Offers personalized and individual services
  6. Offers a great selection of activities and things to do

Although no standard definition of boutique hotels has been agreed upon, and the sizes of these types of hotels vary considerably, most boutique hotels do share some common characteristics. As with any other hospitality product but the majority of boutique hotels are smaller in size (10-100 rooms), and by definition, homier in nature. Their more intimate construction allows for a less rigid structure; furthermore, their smaller size allows for less of a "cookie-cutter" appearance, and more of customized architectural design, perhaps something that is more easily identifiable from the road. In general, most boutique hotels' smaller size calls for less than one hundred rooms per location, mostly it is 10-50 rooms as maximum size; if a boutique hotel exceeds one hundred total rooms, it won't be by much. Their smaller size is what essentially allows them to cater individually to each guest. If it is small enough to appear cozy but large enough to appear as though it acts as a functioning hotel.

Overall, boutique hotels are created for the hip traveler, those who would like to make the most out of their stay, get in touch to the place's culture, art, and food scene, and most especially experience great service and comfortable accommodation without having to splurge too much.

What Stops Boutique Hotels to Use Revenue Management?

Any examination of contrasting revenue management strategies will highlight the differences between boutique hotels and chain hotels ; in fact, the differences inherent to each of these types of hotel help determine which revenue management strategy is most effective although revenue management for boutique hotels requires a different approach than traditional hotels but nothing stops them to use the revenue management concept, where generally Boutique hotels target customers who are in their early 20s to mid-50s, with mid- to upper-income averages. The success stories of boutique hotels begin with fundamentals such as location, product quality, and market demand, a clearly defined marketing approach, and effective distribution/reservations coverage. In light of these factors, boutique hotel creators detach their creations into two branches: Boutique hotels in city destinations and Boutique hotels in resort destinations.

Where to Start?

Direct bookings are by far the most cost-effective business for boutique hotels so it is always the goal to drive business to our own booking channels. Identifying what percent of the business, you need from group sales, global distribution systems, and online travel agencies are essential to a successful revenue strategy. Understanding the cost of all of your booking channels allows you to properly layer in business by evaluating the effective average daily rate and adjusting your available rates accordingly.

Set occupancy thresholds for your hotel as key indicators of when to increase your rates. The further out a guest books a stay, the better deal they should obtain—in most cases. The worst thing you can do is to train your guests to book the last minute by reducing rates or making last-minute deals available.

Identify your hotel's ideal rooms-to-space ratio to maximize profits on any piece of group business and to ensure your revenue manager and sales team are on the same page.

Avail OTA at Most - Factors like OTAs have a much bigger advertising budget, access to more traveler data and more success in drawing in online traffic are the main reasons hotels are choosing OTAs as online distribution partners, as well accessing to competitor rates through several sources that allow them to "shop" competitor rates by searching published online travel agency (OTA) rates automatically..

Of course, OTAs have a different revenue management attitude. OTAs can entice a different kind of customer than a hotel can. To that end, Expedia gives client hotels access to its revenue-management tools Rev+, Booking.com does the same for Rate Intelligence.

Revenue Management System - These revenue-management systems "learn" and provide suggested rates based on their analysis, today's top hotel companies invest heavily in software that aids revenue-management decisions. Examples include HiltonGro (Hilton), One Yield (Marriott), IDeaS, Duetto, and many others there in the market which are independent systems used by many hotel franchises and independent hotels. The playing field has been leveled somewhat between branded and independent / boutique hotels related to access to these high-tech systems. The upfront cost of these systems was in the $30,000 to $50,000 range until about a few years ago, a prohibitive cost for most independent hotels and small boutique hotels in particular, even given the higher average rates at such properties. With the advent of cloud-based systems and increased competition, these new high-tech systems can be acquired for an upfront cost of between $7,000 and $10,000, with monthly fees now between $6 and $10 per available room per month.

Channel Manager - Boutique hotels depend on the same vast network of OTAs, but due to cost-saving, they have few staff to ensure that the right rooms and right rates are listed on dozens of different OTA and other sites. A channel manager automates a lot of the effort; allowing hotels to make changes in one place that are then reflected across all booking platforms. As a result, inventory management becomes easier and more consistent.

Conclusion

In the past, revenue management was a practice that only high-end, luxury properties implemented for two major reasons: first, it was hugely cost-prohibitive, and second, it required the hotel to hire a revenue manager to execute the processes (or oversee the revenue management system RMS). Only properties with large budgets - for both revenue management and personnel - could actually afford to use revenue management to price their properties, leaving smaller, boutique properties struggling to keep up, but that was yesterday and today, lots of things have changed. Today, revenue management is a practice that all properties should be used to improve their occupancy, ADR and RevPAR - no matter their budget, the number of staff, star rating and property status (branded vs. independent).

Ahmed Mahmoud

Ahmed Mahmoud has more than 18 years of international hospitality industry experience, specializing in revenue management implementation and execution. He began his career in 1992 holding a variety of management positions with such top hotel chains as Accor Hotels, Hyatt International and Starwood hotels.

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