The science of supply and demand: is your hotel maximising room revenue?

The theory of supply and demand is one of the fundamental principles of economics.

However, it’s not something constrained to leading economists. And when it comes to maximising your hotel’s revenue, supply and demand is a principle that should be cleverly implemented. For those less familiar with the theory – or if swotting in school is nothing but a distant memory – let’s use ice cream as a refresher (pun definitely intended)… Demand is the measure of how much a certain item is wanted. The demand for ice cream is typically weather-dependent. So, in the winter demand for ice cream goes down.

Supply, on the other hand, is the measure of how available a certain item is. The supply of ice cream is fully-dependent on demand. So, in the winter demand for ice cream goes down, and therefore the supply goes up.
The next piece in the supply and demand puzzle is price. There’s absolutely no point in monitoring supply and demand if you’re not going to use the fluctuations to your advantage.

Price has a big role to play and is the connector in the supply and demand theory. Let’s look at ice cream again as an example – but this time in the summer months. Demand for ice cream in the summer is high, causing the supply to become limited. So, an ice cream vendor can charge higher prices during peak times.

How can hoteliers use the principle of supply and demand for revenue management?

Measuring and monitoring the supply and demand of your hotel rooms is the number one tactic you should employ when it comes to boosting your revenue growth. Here are 5 important things to consider in order to maximize bookings and revenue at your hotel at any time of the year:

1) Generate demand – don’t just manage it

Strategic control of your hotel’s inventory is the name of the game to engage revenue management disciplines. Your aim with revenue management should go beyond increasing room rates or occupancy – you should be working towards maximizing your hotel’s average nightly room revenue using the principle of supply and demand. By making smart pricing decisions with the available data, you’ll be able to generate demand instead of simply managing it.

2) Consult your sales and marketing staff

You can’t boost your hotel’s revenue on your own. You’ll need to enlist the help and support of your sales and marketing team if you’re to achieve great things and surpass your targets. Figures from show that hotels integrating marketing and revenue strategies and departments benefit from a 6% uplift in revenue. Take a holistic approach to revenue management and include your sales and marketing experts in daily, weekly, and monthly revenue forecasts. It’ll go a long way towards giving you the competitive edge if you can collaborate to attract new and repeat guests.

3) Break down your analysis to forecast correctly

All the best revenue management strategies are primarily based on market intelligence and forecasts of supply and demand.

Analysing your competitor set, and combining that information with powerful room distribution technology, can help you build a reliable forecast picture. Combining the data from both a channel manager and a revenue management system can be an influential tool for your analysis. Think about breaking down the data further looking at booking channels, room types, average length of stay, booking behaviour, and traveller segment. It will help you to create accurate forecasts and will give you the ammunition you need to adapt your pricing based on supply and demand.

4) Pay attention to your local competition and react

Do you know the pricing strategies of your nearest five hotels? It’s entirely possible for you get access to this information quickly and accurately. Using a pricing intelligence solution that analyses your local competition in real-time will save you hours. Once you have access to this valuable data, you can then begin to react to the local market intelligence and make more meaningful room pricing decisions to put your hotel ahead.

5) Choose the right technology for your hotel

Just because you can afford a super-sophisticated piece of technology, it doesn’t mean you always need it. When choosing hotel technology, such as a pricing intelligence solution, it’s important that it suits your property’s needs and size. Look for features and benefits that speak to your hotel’s requirements. For example, technology that can offer data which is pulled in real-time will be much more beneficial to your competitor and pricing analysis.

Don’t create more work for yourself by choosing complex technology – something smart and simple that helps you take the guesswork out of your pricing strategy will give you all the control you need.

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