Guest Post: RMS vs Revenue Managers… Who will come out on top?

Marvin Speh, COO & co-founder of RoomPriceGenie, talks us through the battle

We’ve all seen those post-apocalyptic movies where robots take over the world, and with the pace of advancement in AI technology, it seems like this eventuality could happen sooner, rather than later. (After all, Arnold Schwarzenegger did say “I’ll be back”....)

One area in which many hoteliers worry about this science fiction scenario becoming reality is in revenue management; today, every article and industry expert seems to be recommending that hotels implement a revenue management system (RMS) to “revolutionise their pricing” and claiming “it’s the only way for hoteliers to remain competitive in today’s online marketplace.”

With all those claims, I can understand why it may seem to revenue managers that RMS are their competition, rather than a useful tool to help them be more effective in their role. It's completely normal to wonder: “If my property implements an RMS, what will happen to my role, responsibilities and, ultimately, my job?”

In addition to the fear factor about what the future holds, revenue managers also often claim that an RMS can’t be as effective because computers can’t understand the subtleties of revenue management that only comes with experience and an understanding of human psychology (and its impact on the guest booking journey).

Like every good debate, there’s another side to the story: algorithm and technology enthusiasts claim computers can make better pricing decisions (than humans) because of their ability to process and analyse data in real-time and make logical pricing decisions based on those complex and constantly evolving data sets, eliminating risk of human error.

Both sides have some good points but I’m here today to facilitate the duel of a lifetime, and finally come to a decision about who is right: revenue managers or RMS.

But before we get started, let’s do a quick recap about what an RMS is and the value that it provides to hotels, and what the traditional revenue manager role entails.

In one corner, we have the RMS…

An RMS automatically updates your prices in real-time, based on local demand, market insights and hotel data, ensuring you are always charging the right amount. It takes care of the time-consuming, complicated data analysis so you can focus on what you do best: providing the best possible guest experience for every guest. 

And in the other corner, we have the very worthy competitor: the revenue manager… 

Traditionally, revenue managers are the masterminds behind pricing strategies, manually collecting and analyzing data, forecasting demand and monitoring market trends and competitor pricing. Revenue managers are good with numbers, super organised, strategic thinkers, and effective communicators who can motivate the hotel team to support revenue strategies. 

Now that we’re all caught up, prepare yourself for the showdown of the century…

RMS vs. Revenue Manager… Who will come out on top? 

ROUND 1: THE DATA DUEL

Revenue Management System (RMS):

• Analyses vast amounts of data 24/7
• Forecasts demand
• Segments customers easily
• Adjusts prices in real-time based on market conditions
• Automatically updates rates across all online distribution channels

Revenue Manager: 

• They are the masterminds behind effective pricing strategies
• They manually collect and analyze data, constantly monitoring market trends and competitors
• They keep a vigilant eye on the hotel’s internal data to ensure that goals are met

So, which challenger comes out on top in this round?

While revenue managers are meticulous in their work, it’s nearly impossible to track every change in real time without the aid of a machine. After all, computers never sleep, eat or take vacations but even the most super revenue manager needs a day off once in awhile!

Especially in today’s highly competitive online marketplace, demand can change rapidly and without an RMS constantly monitoring it, you might miss the opportunity to the react by updating your pricing accordingly. As a result, rooms may be sold at lower prices or remain unsold, leading to missed revenue opportunities or leaving money on the table.

An RMS can alleviate these challenges by providing real-time data analysis and dynamic pricing adjustments, ensuring revenue managers can focus on strategic decisions without getting bogged down by the daily grind. Both from a financial or from an efficiency point of view, there is a huge advantage to having all data collection and analysis done for you, automatically, without you lifting a finger.

This makes the RMS the winner of Round 1, bringing our score to:

RMS = 1 / Revenue Manager = 0

ROUND 2: STRATEGIC THINKING 

RMS: An RMS provides real-time data and insights, but it can’t think creatively or strategically. Its strength is automating data collection and analysis (routine tasks) and providing accurate pricing recommendations based on that data, but it lacks an understanding of human psychology which is very important in understanding what makes guests choose a particular property (as it’s not all about the price for the majority of customers!).

Revenue Manager: Here’s where the Revenue Manager shines. By having an RMS manage the data analysis, revenue managers can focus on high-level oversight and work with other internal departments to develop strategic plans to better meet the property’s business goals. They can easily identify new revenue opportunities and adjust strategies accordingly.

A bonus: revenue managers can oversee the price recommendations provided by the RMS to ensure that they align with the hotel’s goals; this strategic oversight allows revenue managers to leverage an RMS’ full potential while maintaining control over pricing strategies.

So, which challenger comes out on top in this round? 

This round goes to the revenue manager, bringing our score at the end of Round 2 to:

RMS = 1 / Revenue Manager = 1

ROUND 3: EFFICIENCY & PRODUCTIVITY 

RMS: The RMS adjusts pricing and inventory in real-time as the market changes, making the data analysis part of revenue management completely hands-free. This gives revenue managers more time to tackle other essential pricing-related duties.

Revenue Manager: Doing the same calculations and analysis would take the revenue manager hours, days or maybe even years to accomplish what an RMS can do it in seconds.

So, which challenger comes out on top in this round?

Once again, this round goes to the RMS, bringing our score at the end of Round 3 to:

RMS = 2 / Revenue Manager = 1

ROUND 4: COLLABORATION AND SYNERGY 

RMS: Think of the system as a trusty sidekick that provides valuable data and insights, streamlining your operations and enabling data-based decisions; however, RMS are not able to work in collaboration with the other internal departments to develop more effective ways to capture potential demand and maximise revenue opportunities.

Revenue Manager: Revenue managers can and do use their expertise to interpret and apply the RMS data, working with other commercial departments (i.e., marketing, sales, etc.) to develop strategic promotions to more effectively target potential guests and convert more lookers into bookers. This important second step is hugely valuable in going beyond basic revenue management to really stand out from the competition. 

So, which challenger comes out on top in this round? 

The revenue manager comes back swinging, winning Round 4, leaving us with final score of: 

RMS = 2 / Revenue Manager = 2

Well folks, it’s officially a tie… Collaboration between the RMS and the revenue manager is the ultimate win/win for all types and sises of hotels!

Here’s why:

The human brain is incredible at recognizing complex situations, understanding context, and making long-term decisions (strategic activities). Strategy includes (but is not limited to):

• Examining the overall picture of your hotel’s position in the market and how that affects price
• Deciding what packages and rate types to offer
• Identifying the ideal length of stay to prioritise to maximise revenue
• Deciding whether you should match competitors’ price reductions or avoid the race to bottom

Human experience and other societal, psychological and social context – all of which is outside the computer’s scope of understanding – is the data upon which this type of strategic decision needs to be made, and only a skilled revenue manager can accomplish that.

On the other hand, computers excel at performing fast, accurate calculations and handling repetitive tasks (tactical activities). These tactical activities are the day-to-day grind of implementing the strategy. This is the area of revenue management where no human, no matter how smart, could beat the processing power of an RMS.

So, here’s the most important takeaway from this epic duel: your revenue manager isn’t being replaced by an RMS; they’re being empowered to take your property’s financial performance to the next level. Together, the RMS and revenue manager forms a powerful partnership that will drive your hotel’s ongoing success!