Four ways Revenue Management must change to thrive in 2023
Revenue Management has gotten a lot of well-deserved credit recently. After exhibiting creativity and resilience in finding business wherever possible, RM held or even pushed rates through the recovery demand surges resulting in record high ADRs in some markets and much needed cash flow for owners. But let’s not break our arms patting ourselves on the back just yet. The demand surge was a gift, but 2023 isn’t going to do us any more favors. It’s going to be harder from here.
The last three years has reinforced the critical role of people in RM. Human judgement is needed to build strategy and manage exceptions, and we just lived through a pretty dramatic example of that. Despite advances in AI and analytics, even the most advanced technology today is still best at the routine decisions with lots of prior evidence. Humans must continue to be at the center of revenue management, having business acumen to set and advocate for the strategy while, at the same time leveraging cutting-edge technology where available.
Unfortunately, we’re still stuck in some past behavior patterns that are holding us back from advancing the discipline farther and faster. Despite availability of technology to automate routine decisions and support strategic planning, RMs still override, blame the system, argue about tactics and fall back into their massive, complex, spreadsheets. In many cases, relationships with our stakeholders are not where we want them to be, and our teams end up “taking pricing orders” rather than aligning on strategy. To continue to thrive, we need to break out of these old behaviors. So, let’s make 2023 about changing the way we work.
Here are four things our RMs need to do to ensure we thrive in 2023 and beyond:
- Stop throwing “the system” under the bus
- Learn to communicate (finally)
- Stop relying on “rules of thumb”
- Leaders: lead by example
Stop throwing “the system” under the bus:
We have a bad habit in revenue management of defaulting to “well, the system said” as an explanation for any controversial, questionable or debated decision. While this was exacerbated during the volatility that followed the pandemic, it’s not new behavior. We’ve been in the habit of pointing to unstable decisions or perceived inaccuracy in forecasting as the explanation, or even excuse, for undesirable or unexplainable outcomes, when really the ultimate responsibility for decisions and outcomes should lie with the revenue manager. “The system” is just a support tool, not the decision maker. Here’s a controversial idea: Why should anyone except the revenue manager care what the “system” says? They should care what their revenue manager says. What the revenue manager says should be based on a whole series of inputs, including the system, filtered through their judgement and their business acumen. Let’s stop throwing that system under the bus and start taking responsibility for the strategy and the outcomes.
This means that the revenue manager must understand how the market inputs are influencing the revenue management system outputs, and how those outputs should be interpreted and implemented in context of the market opportunity. And they need to be able to articulate this to their stakeholders without saying “the system says we should raise prices on the weekend”. Clearly the system didn’t just make this up. The revenue manager should know what factors the system considered when making this recommendation and should know what the implications of this decision are on their overall strategy. This means we must invest in ongoing training, push vendor partners to keep improving both outputs and the visibility of influences on recommendations, and invest in tools and automation outside the RMS to support continued decision making. It’s only when the revenue manager can communicate at this strategic level with that degree of confidence, that they will become the strategic trusted advisor to owners and GMs that this role really should be.
On that note:
Learn to communicate:
We’ve harped on this for decades. The increasing uncertainty and complexity of the operating environment is making communicating for influence absolutely crucial for revenue management. We say we need better communicators, so let’s make 2023 the year we finally figure out how to get our teams (and ourselves) there. It can start with some simple actions to take as you are planning interactions with owners:
- Understand your audience. You should deliver the message differently to the owner than you would to your revenue management leadership because these stakeholders have different goals and different levels of understanding. Start with defining who you are speaking to, what they already know, what they need to know and what action you want them to take.
- Define your high-level message: Clearly define the one unifying message you are trying to deliver. It should be the one thing you want the attendees to repeat back to colleagues when they run into them in the elevator. Then find supporting details. Keep it simple and compelling.
- Simplify for power: Stop bringing massive spreadsheets of data to meetings. You live in that data every day, but your audience doesn’t. Once you’ve defined your central point, support it with only the most crucial data points, clearly described. You can always bring more supporting data later, but if you hide the main point, you can never recover it.
Stop relying on rules of thumb:
The phrase “rule of thumb” is said to derive from the belief that English law allowed a man to beat his wife with a stick so long as it was no thicker than his thumb. Do you really want to be associated with this dubious kind of decision making? We’ve fallen in a lazy habit of applying the same basic decision-making rules without taking time to truly analyze the circumstances, and especially without testing and learning. Staying $x above the hotel across the street or blindly following the pricing actions of the comp set are perfect examples of this. Rule of thumb decision making in revenue management started when there simply wasn’t time or access to data to come up with a better solution. We have that now (or at least some better tools). While we can’t agree on what RM should be called, I hope we can agree that RMs are moving away from being “price-ers” to being “demand managers”. Revenue managers should be constantly evaluating market conditions with a “so what am I doing to do about it” attitude. Instead of blindly following a set of rules, they should be proposing new actions and testing them to hone strategies and drive desired outcomes.
Leaders need to lead by example:
Leaders have been talking about RM needing to behave differently for decades, but are they leading that way? If you want teams to be more strategic, are you asking them “why” and “how” or dragging them back into performance readouts or specific day by day rate decisions. How are you communicating data to your stakeholders? Are you backing RMs when they want to push back on delivering the same set of data to different stakeholders in different formats? Are you pushing for investment in tools, training and professional development that will give them the time and skills to be better communicators and to think more strategically (Do you even know what you mean by strategic? You should probably figure that out as well). This kind of behavioral change must be bottom up and top down, and your teams will need your advocacy and support with their stakeholders as they adapt.
It is tempting to coast on the current momentum. After all, the last three years have been really tough! And, 2023 is going to be tough as well! Let’s keep our foot on the gas and use all this momentum to finally achieve what we’ve been talking about for all these years!
1. I recognize that thinking around role of revenue management has evolved to the point that both revenue and management are not quite accurate terms to describe the desired scope of responsibility. However, between the behavior not evolving as fast as the desired scope, and the fact that because they aren’t quite acting like it yet, we haven’t quite agreed on what this persona should be called, I’m sticking with revenue management for now as the “you all know what I mean” term!
