A discipline best known for its usage within accommodation, revenue management has been gaining traction as a business practice in hospitality with the help of CRM software and other technologies. Here’s how larger groups have begun using it, and where one globally renowned revenue management academic sees the possibilities for pub operators in this space.
Two recent events held by leading POS and op tech suppliers have shone a light on how harnessing data and using systems can help inform operational practices, decrease wastage and expense, as well as increase productivity and revenue.
Last month, SevenRooms held its annual Shift conference – the second ever and the first one to be held in Australia – to a room of 250 hospitality and accommodation operators. One of the topics explored on the day was revenue management, and the role it can play in pubs and restaurants. Researcher and leading revenue management expert, Professor Sherri Kimes from Cornell University, set out how hospitality operators can best employ revenue management tools and strategies in operations that are generally smaller than accommodation businesses. She was joined by leading operators in the Sydney hospitality scene who shared their insights.
Yesterday, Tyro held a Hospitality Partner Powerhouse at its offices in Sydney, discussing loyalty management, as well as reducing costs and maximising profits with its hospitality clients as well as tech partners.
Here are some of the key tools and insights that were shared by operators, suppliers and researchers:
Dynamic pricing
While dynamic pricing is a universal practice in accommodation, with room rates changing constantly, the practice isn’t as universally applied in pubs and restaurants. But Kimes – who has done a lot of research on the implementation of dynamic pricing in quick-service restaurants (QSR), says it absolutely can and should be.
“I like to think of it as happy hour on steroids.”
Effectively, Kimes argues that all your prices – for F&B, events etc – should be set at the ‘rack rate’ for the busiest periods of your trade such as Friday night to Sunday afternoon, and then outside of those times, you can selectively discount meals, drinks, functions bookings and the like, and push that messaging out. It’s nothing revolutionary, but it’s more about the framing of the messaging.
“[Accommodation] hotels always have their rack rate, and then everything else is a discount – that’s the psychology of it. For restaurants, you can apply the same kind of concept. Here are the regular prices, but if you come on these days there are qualified discounts.”
Professor Sherri Kimes, Cornell University
Sebastian Khouri, general manager of MISC Parramatta, said the venue had introduced specialty nights on quieter nights of the week – like a Steak and Frites night – where the meal was offered at a cheaper rate. The strategy had helped bring more people through the door on those less busy mid-week nights, as well as converted casual guests into repeat customers.
High value customers and segmentation
At Shift, Justin Wei, head of UX and customer marketing at Solotel; as well as Kim McDiarmid, head of marketing and PR for Liquid and Larder group, both discussed the importance of high-value customers – both from a revenue point of view as well as a marketing tool.
“High-value guests are your raving fans,” Wei explained.
He said these are the customers who will recommend your venues to their own personal networks, creating a marketing channel with a very low acquisition cost.
McDiarmid agreed, stating that guest advocacy was a powerful marketing tool. But in terms of revenue, he said it was important for each business to define what a high-value customer was for them. As an example, he said the group recently had a party of three friends come to their restaurant, The Gidley, and spend over $14,000 in one sitting, but who they will likely not see again. Instead he says their high-value customers are those who come back repeatedly and spend far less per visit, but cumulatively spend more.
Investing in, managing and engaging with those guests is critical – and made easier through the use of CRM tools. Having a VIP database, holding on to some inventory/tables for those guests, as well as giving them a first-hand look or access to events and activations can be game-changing.
Removing the loyalty system blind spot
An increasing number of businesses are offering loyalty programs to generate personalised offers and experiences for their customers, but there’s one blind spot preventing operators from capitalising fully on their customers’ repeat buying behaviours.
Speaking at Tyro’s Hospitality Partner Powerhouse, Impact Data’s Sarah Franklyn said too many hospitality loyalty programs rely on the customer self-identifying as a loyalty member, which is a friction point causing operators to miss the full revenue opportunity of those customers.
“What we’re seeing is that currently on average only 8 per cent of a business’s loyalty database is identifying themselves, if the process involves self-identifying as a loyalty customer via showing a card or providing membership details at the point of sale. This means that small businesses are blind to the buying habits of more than 90 per cent of their engaged loyalty program customer base,” stated Franklyn.
“This is a huge, missed opportunity for businesses who could be tailoring offers, experiences and new products to existing repeat customers, missing out on so much potential revenue from customers who already love what you’re selling.”
Ensuring loyalty programs are embedded into a business’s existing tech stack is essential to realising the potential of your loyalty program, says Franklyn.
“In order to reduce this friction, loyalty needs to be embedded into operational systems and this is where card matching technology is game changing.”
“Businesses really need to explore the existing loyalty program capabilities of their current POS system and their other existing technology partners. I see business owners going to a new partner for loyalty and paying more for this or causing integration issues with existing systems, when it’s likely already available to them through their existing tech stack,” Franklyn said.
Simply start, start simply
The vast array of software and technologies that can be used for different revenue management practices can be overwhelming – it can feel like you need specialised qualifications or an in-house CTO. But researcher Sherri Kimes suggests the biggest mistake she sees operators make is doing nothing at all.
“People are afraid to experiment, and they think it’s going to be really complicated, and there’s all these things they should do – and then what happens is they say ‘Well, I just won’t do anything.’”
Conversely, she sees operators jumping in, trying to do too much at once. Kimes advocates for starting off very simply – picking one strategy or tool, and building from there.
“The quickest win I’ve always found is to do something with the menu: menu design and menu pricing.”
The easiest way to start with revenue managment is to note down how to operate your business when its busy, and what to do and what to implement when its not.
The point, though, is to simply start.
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