Managing the hotel inventory effectively is one of the key strategies to maximizing revenue in the hospitality industry. Only by controlling and selling your rooms in a targeted way can you be sure to achieve this goal. You can ensure optimal sales by implementing strategies behind pricing, distribution and market segmentation.
In this article, we’ll talk about hotel inventory management, the main factors behind it, and how to efficiently manage hotel inventory while maximizing revenue.
What does hotel inventory management mean?
Hotel inventory management in a nutshell means understanding and overseeing your hotel’s room inventory in an effort to control perishable inventory. Perishable inventory is inventory that cannot be sold after that time has passed – just like food with an expiration date. In order to avoid time-sensitive inventory from expiring, hotels need to be able to balance supply and demand, thereby maximizing returns.
Effectively managing your hotel’s inventory is one of the secrets to a successful business. Inventory is your hotel’s most important asset, and you can’t get a return on it until your rooms are sold. Because competition to sell rooms is so fierce, you need to effectively manage occupancy rates, inventory, and prices, and adjust them according to forecasts and market trends.
What are the main factors of hotel inventory management?
We’ve looked at what hotel inventory management is, now let’s look at the main factors that affect it, such as pricing, distribution and market segmentation. Keep in mind, you must consider your target market segment not only when deciding your distribution network, but also when you choose your prices.
Calculate room costs
First things first: when managing hotel inventory, you need to know and calculate your room costs as well as the cost of an empty bed. Hoteliers should have these numbers clear before they can even start thinking about distribution and inventory.
Fixed costs include electricity (lights, TVs, telephones), water, AC/heat, overhead expenses, payroll, and internet, to name a few. Then there will be variable costs to keep in mind such as laundry, housekeeping, breakfast, the minibar, room service, etc. Understanding these numbers will help you keep a balance between covering your costs, and yielding the inventory during high-demand periods to maximize revenue.
Of course, the price of selling a room through your own booking engine will not be the same as selling through an online travel agency (OTA), so it’s important to understand these costs to be able to accurately price your rooms for distribution in different periods throughout the year.
This brings us to the next factor to keep in mind to effectively manage inventory: pricing.
Pricing is without a doubt one of the most fluctuating factors in inventory management. During peak season you need to be able to get the highest value for each room, and during low season you need to offer discounts and incentives in order to increase demand and occupancy. Hotels use this dynamic pricing strategy to influence the supply and demand at any given time. By lowering and raising prices, you can thereby optimize inventory and get maximum occupancy at the best rate.
By analyzing inventory regularly, you can make adjustments, set prices relative to competitors, simplify revenue processes and give guests the sensation that they are getting the best value for their money.
Distribution is key to maximizing revenue because distribution is the means by which your inventory gets into the hands of your potential guests. Nowadays, it’s hard to conceive a hotel that is not listed on different online distribution channels such as OTAs.
However, monitoring your distribution channels requires time and money. You must upload and promote inventory across different booking channels, making sure to track data and implement your findings.
In order to successfully manage distribution, you must keep a close eye on the different channels making sure to sell the minimum amount of rooms at any given time for every channel, and in this way make sure to list unsold rooms, decide on which channel to list them, and apply promotions when necessary to optimize your inventory.
Market segmentation is one of the most important of the three factors to consider because without fully understanding this concept, you cannot establish prices or distribute your hotel among the different channels. Market segmentation refers to the demands, preferences and how much people are willing to pay across the market. For example, the price someone is willing to pay to stay at a five-star hotel in Mexico isn’t the same as what they would pay in New York City for the same hotel.
Understanding the market allows you to establish prices that are relevant to that particular market and distribute your rooms across the appropriate channels. Furthermore, hoteliers must be able to adapt to their customers and their preferences in order to encourage brand loyalty and increase revenue.
How to efficiently manage hotel inventory to maximize revenue
Now that you understand the three main factors of hotel inventory management, let’s take a look at how to efficiently manage hotel inventory in order to maximize revenue.
Collect and use data to make decisions
Data-driven decisions are key to maximizing revenue. When hotels set rates and allocate inventory, these decisions should be made by analyzing data by using key metrics such as ADR and revPAR, among others. Hoteliers must use this data together with customer segmentation, booking trends, seasonality, special events, setting rates based on the competition, which allows you to create pricing and promotions based on different customer segments by forecasting demand.
In this way, hoteliers can determine which are the most important channels and choose a price point for each target market, and make decisions about rates and distribution in order to maximize revenue streams and the overall performance of the hotel.
Hoteliers can use this data to choose the distribution channel according to the customer segment. For example, if you are trying to appeal to millennial travelers in the UK, find the OTAs and boutique agencies that attract those types of guests. By gathering the right data, you can make decisions that positively impact revenue.
Have an integrated system
A hotel property management system is a fundamental tool in order to successfully keep tabs on all aspects of your hotel, from room rates, to inventory, as well as the overall performance of your hotel. This tool should be integrated with a channel manager and a revenue management system so that you can manage supply in real-time and take care of room bookings, rates and distribution across the channels.
Having an integrated system allows you to optimize supply while maximizing occupancy and revenue by systemizing all the different processes behind running a hotel. A properly integrated channel manager helps you avoid human error, such as reservation errors or double bookings while at the same time ensures that room rates, inventory and availability are simultaneously updated across all distribution channels. You can then optimize prices in order to reach ideal occupancy levels and revenue.
Use OTAs to your advantage
Having a strong online presence is fundamental to revenue. While ideally you would promote direct bookings to avoid losing the 15-25% of revenue that is generally paid to OTAs in commissions, the truth is you can use OTA’s hefty marketing budgets to your advantage. As they say, “if you can’t beat them, join them”.
Many OTAs use an algorithm where the more availability you give them, the more visibility they give you. So, instead of splitting your inventory between different booking channels, giving a certain amount of rooms to each channel for distribution, you can try the pooled inventory method. The pooled inventory method allows you to sell all your rooms on all channels at the same time, so you can work with as many channels as you want to at any given time.
Broadened distribution increases your visibility and targets different segments and markets at once, thereby increasing bookings. With the right technology you can maximize return, increasing the hotel’s revenue using strategies such as re-marketing. By remarketing, you can turn third-party bookings into direct clients eventually without having to increase your marketing budget. It’s a win-win situation.
Embrace mobile technology
A cloud-based mobile PMS allows you to view live performance access key reports and monitor operations from wherever you are. Revenue managers can also use this tool to make decisions instantly about rates and inventory and adapt to the market trends in real time. By embracing mobile technology, information is available at the click of a finger and communication is streamlined so that you can manage inventory easily, quickly, and efficiently, maximizing revenue.
Encourage direct bookings
As we discussed earlier, OTAs, while offering a lot of advantages in the way of visibility, offer a lot of disadvantages to your total revenue. You can mitigate these disadvantages by capitalizing on the OTA’s marketing channels and then encouraging those interested in your hotel to visit your hotel directly.
You could think of the OTAs as a search engine during the pre-trip phase. Once potential clients do their research, and land on your website or social media channels, make sure it’s easy to book, and reward them for doing so. It’s a lot easier to keep a client than attract a new one, so make it worth their while to book directly with you.
As we’ve discussed in this article, the three main pillars of hotel inventory management are price, distribution and market segmentation. By keeping in mind these factors, and utilizing software to make informed and data-driven decisions, you can effectively manage inventory and create more demand for your hotel.
Managing the hotel inventory is not an easy task but by following the strategies laid out in this article, such as encouraging direct bookings, using OTAs to your advantage, having an integrated system, making data-driven decisions, and embracing mobile technology, you can be sure to maximize revenue and improve the overall success of your business.
9 March 2021
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