A Tale of Two Strategies

IN-DEPTH: An insight into contrasting boutique and chain hotel revenue management approaches

Published: 07 Jun 2010

IN-DEPTH: An insight into contrasting boutique and chain hotel revenue management approaches

Boutique hotel properties and even boutique hotel chains have been enjoying a surge in popularity over the past few years. Consumers are increasingly seeking unique, tailored lodging experiences, and boutique hotels are well positioned to provide those experiences to them. Boutiques, not saddled with the same cost structures as chain-managed properties, present an attractive investment option for hotel owners.

Of course, the large chains still dominate the lodging landscape in the US. But the rise of boutiques and boutique chains affords an interesting opportunity to compare and contrast the revenue management strategies that work best for each class of hotel.

Any examination of contrasting revenue management strategies will highlight the differences between boutique and chain properties; in fact, the differences inherent to each of these types of hotel help determine which revenue management strategy is most effective.

Two differences, though, shine through. Let’s begin with one of the more glaring differences between a large chain property and a boutique: distribution.

GDS vs. OTA?

Inventory distribution and sales channel management are strikingly different in boutiques as compared to large chain hotels, hinging completely on the presence (or not) of a global distribution system, or GDS. Large chains have developed and employed these since the time before the internet, while boutique properties have typically not had the resources to develop a proprietary distribution system. In the age of the online travel agency and rampant internet bookings (more than 40% of all leisure hotel stays are booked online), the importance of a GDS is waning, but the difference in terms of the strategies behind distribution and channel management remain. Because boutiques rely more heavily on online distribution channels, their revenue management strategies have to be tightly focused on this area. This may mean using an automated revenue management system that can effectively maintain strong average daily rate and occupancy levels across multiple online channels, and paying close attention to the inventory allocated to each channel.

Chain hotels can also benefit from this kind of automated revenue management system- in fact, it can be argued that a GDS is simply another sales channel that must be managed along with all of the online sales channels- but the presence of a dedicated, proprietary GDS in chain hotels serves as insurance against the variability of online sales.

More Urgency

The lack of a GDS safety net is only one reason boutique hotels face more urgency than their chain counterparts. A large chain has the advantages of size and scope behind it: an established management company with group purchasing power, a long history of tried operating practices, the sales advantage of a recognized brand. Boutiques may share one or two of these advantages, but in general they have less room for error. Low RevPAR numbers for a week or a month at a large chain property may not be the end of the world, but for a boutique it could make the difference between profitability and insolvency. Boutiques face more pressure to maximize every financial metric, and that starts at the top line: maximizing RevPAR. By using sound revenue management strategy- which often includes leveraging advanced technology and software design to optimize ADR and occupancy-boutiques can stay ahead of their chain counterparts.

Unfortunately, just because boutiques face challenges and urgencies that chain hotels do not doesn’t necessarily mean that all boutique hotels are proactive in their revenue management strategies. Many boutiques simply employ ad-hoc methods of revenue management, to their detriment. (Many others do engage in forward-thinking strategies, including investments in automated revenue management systems, a trend which can account for the flourishing of boutiques in many markets.) If boutiques are going to make significant market share gains on their chain counterparts, they will have to embrace comprehensive revenue management strategies on a large scale.

Then, and only then, will it be the best of times for boutiques.

(The article has been contributed by Jean Francois Mourier, CEO of RevPar Guru)


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