The marketing manager in a marketing-driven company in the manufacturing industry is responsible for generating revenue, and the marketing department is the only revenue-generating department in the company. All other departments are cost centers. In addition, marketing, along with production and finance are considered to be the “line managers”. The line management decisions are critical to the company’s business and affect survival of the organization. The rest of the departments are supporting staff. Because marketing performance fundamentally affects the success or failure of a company, the marketing manager, who possesses customer knowledge and marketing expertise, is given a high status to pull the company resources and support together, focusing on satisfying customer needs and generating revenue. Consequently, in addition to planning and determining distribution, promotion and pricing strategies, the marketing manager is either heavily involved in or has considerable influence on new product development, from the concept development stage to the production stage. In addition, marketing also takes the lead on product improvement and management. This is because perceived product value is one of the major determinants on product price and demands. In essence, to ensure a company’s competitiveness in generating revenue, the marketing department drives the company’s offer, reflected in the marketing of four Ps (product, place or distribution, promotion and price).
In the hotel industry, although sales and marketing are responsible for generating sales, its managers are not responsible for generating total revenue. The difference is fundamental: Generating sales is more concerned with increasing occupancy rate to fill the rooms, whereas generating total revenue involves considerations in gaining healthy room rate in combination with occupancy rate. This point can be demonstrated in the following example:
Assuming Hotel Blue has 100 rooms. It could sell 100 rooms at €50 per room night or 50 rooms at €100 per room night. Which would be a better solution?
A sales-oriented approach would prefer the first solution with high occupancy rate, whereas a revenue-oriented approach would prefer the second solution. While both scenarios promise to generate €5,000 revenue, the second solution offers potential to generate more than €5000 revenue because it still has 50 more rooms which the hotel could sell. Nevertheless, historically speaking, hotels were and some still are more concerned with filling the rooms rather than maximizing revenue.
In addition, traditionally, the sales and marketing department in the hotel industry is considered to be a cost center, although it is the department that is responsible for bringing in the guests and their spending dollars. The operations departments such as rooms, F&B and banqueting are seen as the revenue-generating departments --- despite the fact that their expertise is in producing goods and services. Further, while operations departments are line managers --- and rightly so --- sales and marketing, on the other hand, has a staff function. At the same time, the G.M., who does not necessarily have the marketing and sales expertise nor is able to devote his/her entire time in generating revenue, the GM is seen responsible for generating revenue. This fragmented and conflicting approach reflects a fundamental and industry-wide organizational design flaw.
The confusion is partially due to common misunderstanding in the industry about the difference between “functional specialization” and the overall responsibility of an organization’s top-ranking officer. While the GM is ultimately responsible for the total revenue, it does not mean that the GM has to perform the necessary and specialized functions to generate revenue. The GM’s job is to delegate such functions and the accompanied responsibility to the most competent employee to perform such functions. In term of human resources, it is through effective delegation of responsibility that the GM achieves revenue maximization. The functional responsibility rests with the specialist.
Prior to the development of revenue management, a specialist in maximizing revenue did not exist in many hotels. The hotel industry desperately needed a job role that possesses the necessary expertise and at the same time has the clout to pull the company resources together focusing on generating revenue. In addition, rapid information technological development and wide use of Internet by travelers have made the contemporary hotel business increasingly complicated, not to mention businesses opportunity windows are becoming smaller and require speedy responses. The need to compensate the organizational design flaw became inevitable and ever more urgent. Consequently, the revenue management position was born out of necessity. Today, the development of advanced revenue management software with the ability to accommodate vast amount of data and real time information as well as seamless connectivity with other systems makes it possible to derive effective revenue management decisions and boosts the credibility and influence of the revenue management role. Still, the revenue management function is far from being ideal and the position will most likely continue to evolve. For example, currently, RM is primarily responsible for distribution and pricing issues, whereas sales and marketing is responsible for promotion. For many hotels, neither RM nor sales and marketing is responsible for product and service development and improvements. In fact, RM sees rooms as inventory instead of a potential source for increasing revenue via design changes and room improvements. Consequently, further integration and alignment in RM function and responsibility will be necessary. This, of course, will lead to more hotel management structure changes.
Nevertheless, the concept of revenue management has already brought on one of the most important organizational changes in the hotel industry. Indeed, it is foreseeable that during the next 10 years, RM and its functions or whatever the new job title the hotel industry decides to bestow upon, will become more central to the hotel operations and one of the most influential management positions in hotel organizations, from local properties to headquarters. At the same time, the more technology advances, the more it will require revenue managers to possess sophisticated knowledge and skills in order to deal with vast amount of real time information and increasing responsibility in an evermore complicated business environment.
What will RM looks like five years from now and what kind of education will students need? In October 2010 Cornell University
What will RM Looks like Five Years from Now?
Ø Technology will continue to play an important role. As technology advances, the role of revenue management will become increasingly strategic instead of tactical.
Ø RM will encompass all revenue streams within the hotel.
Ø Organization-wise, RM will become a separate department reporting directly to the GM. It may even become more centralized or more regionalized.
Top Four Challenges Facing RM in the Next Five Year
Ø A shortage of qualified revenue managers
Ø Changes in the global economy
Ø Increasing competition
Ø Pressure from owners to cut costs
RM Applications in the Future
Not only the concept of RM will be widely adopted in generating room revenue, it is foreseeable that the concept can also be utilized in the following areas:
Ø Function space
Ø Restaurant
Ø Spa
Ø Retail
Ø Golf
Ø Parking
What Courses should Universities and Colleges Teach?
On a 5-point scale with 5 being the most important, Cornell’s research shows the most important courses are:
- Data analysis
- Pricing
- Distribution
- Economics
- Website optimization
- Social media
Characteristics of Future Revenue Managers
On a 5-point scale with 5 being the most important, the top five most important characteristics for future revenue managers are:
- Analytical skills
- Leadership skills
- Communication skills
- A formal RM education
- Negotiation skills
*A formal RM education means university degree with RM specialization.
Lily Lin, MBA, Ph.D.
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