The Revenue Strategy Dilemma: Boutique vs. Branded Hotels

Michael McCartan, area VP EMEA at IDeaS, explores the differing revenue management strategies between boutique and branded hotels.

Boutique hoteliers have historically been hesitant to invest in advanced revenue management solutions compared to their larger, branded counterparts. While the value of improved pricing and revenue performance is evident, some boutique hoteliers view these solutions as suitable only for big market players with centralized revenue management teams and extensive property portfolios.

Larger branded properties have swiftly adopted revenue management automation on a broad scale. However, this mindset among some boutique hoteliers misses the larger picture: it’s not the number of rooms you have, but the number of rooms in your market that matters.

Revenue management decisions are influenced by competitors, regardless of whether they use an RMS or market themselves as “boutique.” Navigating demand fluctuations and responding appropriately is essential for any effective modern revenue strategy.

For boutique hotels, a poor revenue strategy can result in significant revenue loss due to ineffective demand forecasting and pricing decisions. The impact is disproportionately high for smaller hotels because of their limited scale.

Consider a boutique hotel with 20 rooms and a large hotel with 200 rooms. If both reduce their typical room rate from £200 to £160 for 10 rooms, the boutique hotel’s revenue drops from £4,000 to £3,600, a 10% decrease. The larger hotel’s revenue falls from £40,000 to £39,600, a 1% decrease. Although the absolute revenue loss is the same (£400), the percentage loss is much higher for the boutique hotel due to its smaller inventory. Poor pricing strategies have a more significant impact on smaller hotels, while larger hotels can better absorb these losses due to economies of scale.

Smaller hotels cannot afford to make rate mistakes. Any incorrect pricing or inventory decision that undercuts the market can severely damage operating profit. Additionally, boutique hotel managers have fewer options during off-seasons or when demand softens if they haven’t maximized revenue during peak periods. This can lead to reluctance to lower rates during quieter periods, lacking the necessary revenue buffer to experiment with promotions and demand-generating efforts.

Despite this, fewer boutique hotels use revenue management tools compared to larger properties. Boutique hotels have a long way to go to match the bigger players in capturing valuable demand across arrival dates, market segments, and lengths of stay year-round.

While everyone knows when major events like Taylor Swift concerts are happening, smaller hotels with busy teams can miss local events that spike area interest, leading to full occupancy but suboptimal revenues. Larger hotels, using revenue management software, can automatically implement revenue-maximizing pricing and inventory decisions.

With advanced revenue management systems, hoteliers can:

• Forecast demand accurately: Effective demand forecasting uses historical demand, business on the books, booking pace, and market pricing fluctuations to predict future demand at the room or product level. These forecasts are the foundation for numerous revenue optimization measures.
• Minimize gap nights: Gap nights between bookings can significantly impact revenue. Each unbooked room represents lost revenue opportunities, including ancillary services like dining and spa services. Advanced RMS can automatically minimize gap nights through pricing and inventory controls, such as requiring minimum lengths of stay for high-demand room types.
• Adopt flexible pricing strategies: Advanced forecasting capabilities enable boutique hoteliers to adopt flexible pricing strategies responsive to market conditions. Identifying lower-demand segments that may benefit from marketing promotions or expanded booking channel options is also possible.

With the right revenue management tools, boutique hotels can better compete in a market with numerous big brand properties and resources.