Description
Technological innovation and the increasing importance of digital are creating a shifting consumer landscape for the travel industry.
Efective Revenue Management
in the Hospitality Industry
White Paper
E?ective Revenue Management in the Hospitality Industry | 2 www. eyefortravel.com
Efective Revenue Management
in the Hospitality Industry
White Paper
Disclaimer
The information and opinions in this document were prepared by EyeforTravel Ltd and its
partners. EyeforTravel Ltd has no obligation to tell you when opinions or information in
this document change. EyeforTravel Ltd makes every e?ort to use reliable, comprehensive
information, but we make no representation that it is accurate or complete. In no event shall
EyeforTravel Ltd and its partners be liable for any damages, losses, expenses, loss of data, loss
of opportunity or pro?t caused by the use of the material or contents of this document.
No part of this document may be distributed, resold, copied or adapted without
prior written permission from EyeforTravel Ltd.
© EyeforTravel Ltd. 2013
EyeforTravel Ltd is a registered company in England and Wales - Registered Number
06286442. 7-9 Fashion Street, London, E1 6PX, UK
Author
Morag Cuddeford-Jones
Editor
Carlos Márquez Salazar
[email protected]
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E?ective Revenue Management in the Hospitality Industry | 3 www. eyefortravel.com
Acknowledgments
EyeforTravel would like to thank the following individuals and organizations for providing inputs for this White Paper.
Josep Bernat, Chief Revenue O?cer, Odigeo
Tom Botts, EVP and Chief Customer O?cer, Denihan
Jeremie Catez, Regional eCommerce Manager, Novotel North America
Ash Kapur, Vice President Revenue Management, Starwood Capital Group
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E?ective Revenue Management in the Hospitality Industry | 4 www. eyefortravel.com
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Overview
T
echnological innovation and the increasing
importance of digital are creating a shifting
consumer landscape for the travel industry. Not
only is there disruption in how customers choose to
research and interact with travel brands but traditional
purchasing behaviors are evolving. Revenue managers
are having to look afresh at their modeling to improve
outcomes. For example, assumptions about last-minute
pricing are being challenged as a surge in use of
the mobile channel reveals a shift away from price-
sensitivity and towards convenience and availability.
Reliant on volumes of customer data to make accurate
revenue predictions, revenue management systems
(RM) should be enjoying the start of a halcyon period.
Yet fewer than 20% of North American hotels use them.
The reasons behind slow RM implementation are as
varied as the hotel industry itself. In many ways, the
highly fragmented nature of the North American
hotel sector is to blame. Sole operators with wafer-
thin margins simply do not have the capital or
experienced executives to implement such a system.
Other hotels bene?t from umbrella group brands and
yet are still considered lone operatives, responsible for
their individual revenues. For those who do bene?t
from centralized operations within the group brand,
organizational silos prevent the seamless ?ow of
information and expertise across departments that is
needed to optimize RM outputs.
Hotels whose structure and ?nancing allow for RM
implementation face further hurdles. The emergence
of much more detailed customer data from digital
channels in particular is undoubtedly a boost to their
RM strategies. However, the vast array of channels
delivering this information results in data that is
duplicated, inaccurate and confusing. Far from
delivering a clearer picture of future customer journeys,
‘big data’ is obscuring it.
This white paper draws on information exclusive
to Eyefortravel regarding executive’s opinions on
customer channel choice as well as data from travel
customers themselves revealing channel choice and
booking behavior. This is supported by interviews with
key executives within the RM space, highlighting the
challenges they face and how they propose to address
these. This white paper will reveal where the future of
RM lies and what travel executives need to consider
now to maximize its returns.
E?ective Revenue Management in the Hospitality Industry | 5 www. eyefortravel.com
Revenue management systems (RM) when deployed
correctly have been proven to directly generate a 5-10%
uplift in sales. Its limited adoption so far indicates there
are a number of challenges yet to be overcome before
it can fully demonstrate its worth to a wider audience.
Of these, there are ?ve key elements that must be
considered:
? Return on investment
? Clean data
? Strategic insight into the use of that data
? Organizational consensus
? Constantly changing customer landscape
Return on investment
Of the ?ve elements, the ?rst and simplest to address is
that of return on investment (ROI). RM systems present
a ?xed cost to the hotel. While this varies depending on
supplier and level of technical sophistication, it can be
measured against the potential returns it might deliver –
the 5-10% mentioned above.
That said, smaller hotels with lower potential revenues
are not excluded from bene?ting from RM. Access
to RM is one of the attractions of becoming part of a
larger group and should be a point of consideration for
any hotel director when considering joining such an
alliance.
As will be discussed later in this brie?ng, access to such
a system is not the only consideration as RM works best
when its variables are tailored precisely to the property
involved. A ‘vanilla’ RM solution covering a variety of
diverse properties serving di?ering customer groups
may be worse than none at all.
Clean data
It is a common complaint from travel brand marketers
that they don’t need more data, they need insight. The
multichannel environment has undoubtedly increased
the volume of data available to travel brands and looks
set only to increase as channel owners, particularly
those in the social sphere, look to emphasize the
bene?ts their increasingly deep pro?ling can provide.
But for useful insights to be drawn, work still needs to
be done on the raw data. Speci?cally the high volume
of inaccurate data swirling around customer ?les. There
is an abundance of clean data available – data emerging
from transactions and travel partners such as airlines
where accuracy is a result of tight controls (passport and
?nancial data being two of the most likely to be correct).
However data supplied by the customer or gathered in
by person to person contact must be examined more
carefully.
Ash Kapur, Vice President, Revenue Management,
Starwood Capital Group insists: “Clean data is
the challenge from the get-go. Strong revenue
management can provide codes and market segments
that are clean but there is still a struggle. Front of house
sta? under pressure are often required to ?ll in data
from guests’ passports but, when faced with a line, are
tempted to check the ?rst entry on the list. We seemed
to have an awful lot of guests from Afghanistan.”
Data arising from location-based services or historical
purchase activity can be indicative of customer behavior
but is not guaranteed accurate. Purchases can be made
on behalf of others, location-based data from mobile
phones can be wrong simply by dint of another party
borrowing the device. But these are elements over
which the travel brand has no direct control.
The Challenges for Revenue Management
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Person to person contact can however be more tightly
managed. The check-in process remains central to the
revenue manager’s ability to garner data. In a digital
age, there is a temptation to ascribe more importance
to automated information than personal interaction and
yet the latter is where the detailed information so critical
to determining customer preference can be found.
Revenue managers will have to work with both their
human and technological resources to ensure clean
data can support their RM strategies.
Strategic insight
Eradicating contaminated data is critical to providing
a strong foundation on which to run RM programs
however the correct oversight is also vital if systems are
to deliver the desired outcome.
Tom Botts, Denihan’s EVP and Chief Customer O?cer
notes that some providers are moving in this direction.
“We partnered with Duetto and are in the process
of rolling out its strategic RM system. We chose it for
a couple of reasons: We wanted a more analytical,
systemized approach that was more sophisticated than
spreadsheets and we needed additional control. The
system lets us observe how decisions are made across
the company and means we are able to bring in new
thinking and new ways of doing things.”
“The main issue is that most people are using a RM
system that was designed 50 years ago. You didn’t have
as much data or the facilities that we have today,” Bernat
states.
Revenue managers have to understand the importance
of ?exibility and supplementary information that will
inform how they interpret the ?nancial data delivered
by RM systems. Increasing availability of real time data
means managers must decide what are the critical
pieces of information to focus on and ensure any
systems or processes they use are able to deliver them
in a timely manner.
“You need to know the limit of the machine,” Odigeo’s
Bernat states. “The question on the table is ‘what is the
long term strategy?’ You need to understand that there
are some things the computer cannot know.”
Skilled people also have to have the capability to
combine these inputs with information not so easily
incorporated and much more situational such as the
impact local events and external macro in?uences such
as economic conditions will have on their business.
For companies questioning the value of investment in
RM systems, the realization that such investment must
be supported by a dedicated strategy and suitably
skilled sta? resource can prove o?-putting. This is
particularly the case when previous attempts have not
incorporated a joined up approach between strategic
RM leadership and technologies, leading to the belief
that RM systems do not deliver the value against cost
some resellers claim.
Historically, RM has been a long sell, as it's been
challenging to prove value is created by the tool and
not just a competitor having a bad day.
It's clear that an approach that brings together the latest
in technology with usability in an RM system, would go
a long way to alleviating such doubts.
Organizational consensus
The lack of joined up approach has been central to
the lack of uptake of RM systems to date. The North
American hotel sector is highly fragmented. From
geographic location to segmentation to internal
structure, there are a number of hurdles that RM must
overcome to be deployed seamlessly – and e?ectively.
Even within groups that enjoy centralized marketing,
sales and revenue functions the need for inter-
departmental cooperation for e?ective management
is still a struggle. At the C-suite level, RM is viewed as a
cost that has yet to prove signi?cant returns, a Catch-22
situation where it must be run well and widely to prove
its worth yet in many cases, hotels’ internal cultures
need to change for this to happen.
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E?ective Revenue Management in the Hospitality Industry | 7 www. eyefortravel.com
Changing consumer landscape
Perhaps the biggest challenge for RM systems is
the constantly changing consumer landscape. The
multichannel environment is presenting two distinct
problems:
? Data
? Purchasing behavior
Data is a challenge, as mentioned above, simply because
of the volumes the multichannel environment produces.
As mobile accounts for 20% of travel transactions
(eyefortravel, 2013), the volume of data needing to be
analyzed and processed has also grown. While an increase
in social media interactions is yet to generate a signi?cant
rise in bookings through this channel, it already provides
a wealth of information about location, preference,
customer segment and advocacy (see ?gure 1).
As a result, RM systems need to not only process more
data but data of di?erent types from a wide variety of
sources, often in real time. The burden on less ?exible
systems is great and their ability to process such
an abundance of information is limited. This is then
transferred to revenue managers who are faced with a
growing number of daily reports that they are unable to
analyze meaningfully or rapidly.
Purchasing behavior is also evolving, creating entirely
new customer segments and windows of opportunity.
Both managers and RM systems are having to frequently
reassess their pricing strategies in line with these
new customer paradigms. Mobile again is driving a
large portion of these new behaviors, particularly in
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Source: EyeforTravel Supplier and Intermediary barometers, 2013; “how
important has the social media channel been for your organization in the
last three months? Please rate on the scale below against each of the
following:” 455 respondents
9.5
18.6
35.9
37.8
25.9
31.7
10
15.2
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5.2
? Intermediary
Marketing
? Supplier Marketing
Figure 1. Using social media as a marketing tool, June 2013
(eyefortravel, 2013)
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the last minute segment where it is much more the
transactional channel of choice than in longer term
travel purchases (see table 1).
Pricing strategy itself is being impacted by multichannel
as online travel agencies (OTA), metasearch and
price consistency begin to a?ect how hotels target
customers. Discounting is no longer the preserve of
the last-minute segment, indeed often this customer is
happy to pay a premium for convenience and choice.
Revenue management systems in the future will not
only have to accommodate large volumes of data
and process them in an easy-to-manage format for
revenue managers but will have to be ?exible enough
to take into account changes in consumer behavior as
purchasing trends remain in a constant state of ?ux.
Table 1. Devices and websites customers are most likely to use to make a last-minute booking
(eyefortravel, 2013)
Source: EyeforTravel consumer research in association with WAYN, May 2013; "On which device and website are you most likely to make a last-minute booking?"
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1 week
before
2-3 days
before
1 day
before
On the day Never Responses
Travel provider on a desktop computer 57.6% 13.1% 3.9% 2.5% 22.9% 15,176
Travel agency on a desktop computer 53.0% 15.7% 4.4% 2.1% 24.7% 15,173
Travel provider on a tablet computer 45.6% 13.8% 5.3% 2.6% 32.7% 15,168
Travel agency on a tablet computer 45.0% 13.4% 4.5% 3.1% 34.0% 15,169
Travel provider on a mobile 43.9% 12.7% 5.7% 3.5% 34.2% 15,168
Travel agency on a mobile 43.6% 12.8% 5.3% 3.5% 34.8% 15,167
I would call the travel provider personally 47.8% 13.2% 6.7% 4.9% 27.3% 15,169
E?ective Revenue Management in the Hospitality Industry | 9 www. eyefortravel.com
An example of revenue management adapting to
the shifting consumer paradigm is El Cortez Hotel &
Casino in Las Vegas. After the economic downturn in
2008, casino revenues were struggling. Far from being
a temporary blip, the downturn had permanently
changed the way casino customers were spending and
the business needed to adapt.
The system
Working with revenue management consultants, El
Cortez’s strategy was to generate incremental cash
business through transient and wholesale channels.
The hotel installed Duetto’s cloud-based revenue
management system (RMS) that delivered market
intelligence, forecasting, pricing recommendations
and historical data comparison. Using an alerts feature,
key dates were ?agged up, a process often missed in
traditional RM systems.
To understand shopping behavior on a daily basis, the
RMS tracked a JavaScript tag on the hotel’s booking
engine that monitored lost business. As a result, the
hotel could then assess how a day’s pricing strategy
impacted the website’s booking conversion rate.
New pricing approach
With more dynamic pricing the hotel was yielded much
more frequently however pricing wasn’t just increased
across the board. Data from the RMS revealed that
lower room rates were required midweek to be more
competitive while prices could be raised during certain
high pressure periods. Its discounting strategy was also
reassessed, critically removing them during periods
where the hotel could achieve capacity without them.
Discounts still ran through third parties, generating
exposure and the cash average day rate (ADR) rose 10%
with an average occupancy rise of 6.3%.
Novotel’s regional ecommerce manager, Jeremie Catez,
notes that the move from rates to price elasticity is
a key component of the new revenue management
paradigm: “Everyone is talking about rate but we could
do better with price elasticity. What is the customer’s
behavior if we lower the room by 10 bucks? How we can
measure this is also a critical issue.”
El Cortez also used the RMS to identify customer
segments within the casino, noting that the lowest
worth player segments were receiving complimentary
or discounted cash rooms that were unpro?table.
The result was a standardized casino yielding process
that included variable casino cash and comp pricing.
The hotel’s occupancy by casino players was lowered,
freeing these rooms up to be marketed to more
pro?table paying guests.
The hotel’s ability to remain competitive had been
a?ected by its attitude to price consistency and
overselling. Until deploying the RMS it had failed to
maintain consistency with OTAs driving custom away
from direct sales and incurring 25% commission
margins. In addition, its cheapest room rates only
accounted for 10% of inventory and once sold, rates
increased by at least $10 making El Cortez less attractive
in the price sensitive downtown Las Vegas market.
To solve both these issues, the RMS ensures price
consistency with OTAs increasing direct room night
sales by 10,000 or 130% and instituted a policy of
limited overselling of cheaper rooms during non-critical
occupancy periods. Having solved its price consistency
issues, El Cortez actually extended its OTA network to
extend its reach to new customer bases.
The strategy has delivered a cash revenue increase year
on year of more than 30% in the ?rst seven months of
2013.
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Revenue Management in Action –
Case Study: El Cortez Hotel and Casino
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Table 2. Key Performance Figures at El Cortez after RM Strategy Overhaul
YoY Change (Jan - July 2013 vs. 2012)
Number increase % increase
Cash room nights (1) 7,122 18%
Direct room nights (2) 9,975 130%
Cash ADR 10%
Occupancy 6.3%
Cash revenue 30.1%
Source: Duetto
Having proven the utility of the RMS by modifying
existing pricing strategies, El Cortez’s next phase is to
extend the program’s reach. The three main areas it
hopes to exploit are:
? Customer lifetime value
? Increase ADR
? Enhance digital presence
Customer lifetime value – by calculating the total
patron worth by customer through all revenue centers
including gaming and non-gaming, their pro?t
contribution can be integrated into future revenue
management decisions.
Increase ADR – using a dynamic room pricing by day for
upgraded room types and promoting upgrades during
the guest experience. Internal resources and hotel
partners can be deployed at four stages: Pre-booking
through o?ers; at the time of booking; post-booking
and at check-in.
Enhanced digital presence – Expanding the hotel’s
social media presence and using it for targeted
marketing as well as managing online content and
managing reviews through OTAs and TripAdvisor.
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To ensure the success of revenue management
strategies, hotel owners must be both convinced of
its ability to deliver return on investment as well as
made aware of the resources required to maximize its
potential.
Signi?cantly, hotels need to ensure that their
organizational structure supports a revenue
management policy. While wholesale reorganization is
not required, there must be a cultural understanding
that core departments such as marketing, sales and
revenue work together to share information critical to
RM success.
“The way companies were organized is dead. Today, if I
change the price, it a?ects marketing and production’s
bottom line ?nancials. I need to know what the impact
will be and I need that answer immediately. New
systems give you that vision,” Bernat reveals.
Denihan’s Botts notes that movements are being
made in this direction: “We’re working on combining
marketing, sales and revenue management all under
one leader who has an overall understanding of these
things. A common decision-making platform is critical.
That doesn’t exist today in many cases and it’s going to
have to change.”
A clean data palate
As multichannel puts a much greater focus on data,
hotels need to be able to manage their information
well. This means investing signi?cantly in data cleansing,
without which RM predictions will be at best inaccurate.
The single customer view is a pressing issue in all
sectors, not just travel, and brings with it questions of
data protection, management and storage. Hotels will
be looking to RM systems providers for assistance in
identifying and managing the most bene?cial streams
of information.
Starwood’s Kapur notes: “There’s a lot more comfort
now in knowing that we don’t need to drop rates last
minute because we know there’s a segment that books
on mobile.”
The ability to bring together and meaningfully analyze
quantitative and qualitative data is a necessity as the
in?uence of social media and user-generated content
such as reviews are recognized to impact customers’
decision-making processes more than price di?erential
in many cases. Interviewees for this report noted that
few RM systems are able to bring these two streams of
information together e?ectively but those that do are
creating demonstrable gains (see El Cortez case study).
“If one day we can mix data streams and have CRM and
loyalty and customer information in the same system, it
will be fantastic,” Catez predicts.
Minimal information, maximum
e?ectiveness
The outputs generated by RM systems are no less
voluminous and revenue managers interviewed for this
brie?ng noted that reporting was becoming a critical
issue.
Novotel’s Catez notes: “You can’t expect one human to
look at 25 reports. The reports are no longer fresh by
the time the managers get around to them. The world
is quicker and a lot of these things, even Twitter for
example, in?uence the pricing.”
To deliver truly e?ective RM support, systems providers
must work to minimize the outputs managers have to
analyze on a daily basis. The risk of ‘information paralysis’
is otherwise too great. The rise of the last-minute
segment along with booking services active 24/7 means
dynamic pricing is no longer a 9-5 job and pro?tability
will be increasingly dependent on the manager’s ability
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The future of revenue management
E?ective Revenue Management in the Hospitality Industry | 12 www. eyefortravel.com
to make swift decisions from timely and easily-digested
information.
Successful RM providers will be those whose systems
are robust enough to not only aggregate data from
various customer touch points, across multiple channels
and di?erent points in the customer journey – but to
make it usable and accessible to managers at all times.
The growing ability to host RM systems in Software as a
Service (SaaS) or ‘Cloud’ technology will greatly increase
managers’ ability to use dynamic pricing and react to
real-time changes in the marketplace.
An industry evolution
Technological advances have proven both a boon and a
bugbear to revenue managers. As customers make use
of all the channels and devices available to them, the
tsunami of data provides tantalizing opportunity but
also demands a great deal of resources to derive bene?t
from it. But hotel managers should look at using the
same technologies to support their RM tools.
“We’re asking our partners to get on the same
technological page. Some are better than others. We still
have wholesalers faxing reservations and systems not
processing them in real time. We need to have an overall
understanding about what the connectivity strategy
is for partners,” Botts insists. Indeed, the ability to keep
up with real-time RM systems may prove a clincher for
working partnerships in the future: “If they’re not willing
to participate in a realistic format, is that something the
industry should be participating in? I hope others are
pressuring their partners to keep up,” he adds.
From a data cleanliness perspective, introducing
mobile check-ins removes pressure from front desk
sta? to gather the detailed, accurate customer data
required for one-to-one pricing strategies that will
ultimately become possible. However Kapur cautions:
“In some cases technology has helped for pre-check
in and getting guests to enter in their data but I still
think getting clean data in general is the fundamental
problem.”
From a marketing perspective, the ability to use data
to market through social channels, while not currently
a strong distribution channel, will become critical to
enhancing reputation and market position.
Revenue management systems must evolve to keep
pace with hotel needs however hotels themselves must
also evolve to maximize the potential revenue growth
that these tools can provide.
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E?ective Revenue Management in the Hospitality Industry | 13 www. eyefortravel.com
R
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eyefortravel (2013) Social Media and Mobile in Travel Distribution Report: Online strategies, consumer and industry
trends 2013. London: Eyefortravel.
References
doc_318380552.pdf
Technological innovation and the increasing importance of digital are creating a shifting consumer landscape for the travel industry.
Efective Revenue Management
in the Hospitality Industry
White Paper
E?ective Revenue Management in the Hospitality Industry | 2 www. eyefortravel.com
Efective Revenue Management
in the Hospitality Industry
White Paper
Disclaimer
The information and opinions in this document were prepared by EyeforTravel Ltd and its
partners. EyeforTravel Ltd has no obligation to tell you when opinions or information in
this document change. EyeforTravel Ltd makes every e?ort to use reliable, comprehensive
information, but we make no representation that it is accurate or complete. In no event shall
EyeforTravel Ltd and its partners be liable for any damages, losses, expenses, loss of data, loss
of opportunity or pro?t caused by the use of the material or contents of this document.
No part of this document may be distributed, resold, copied or adapted without
prior written permission from EyeforTravel Ltd.
© EyeforTravel Ltd. 2013
EyeforTravel Ltd is a registered company in England and Wales - Registered Number
06286442. 7-9 Fashion Street, London, E1 6PX, UK
Author
Morag Cuddeford-Jones
Editor
Carlos Márquez Salazar
[email protected]
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Acknowledgments
EyeforTravel would like to thank the following individuals and organizations for providing inputs for this White Paper.
Josep Bernat, Chief Revenue O?cer, Odigeo
Tom Botts, EVP and Chief Customer O?cer, Denihan
Jeremie Catez, Regional eCommerce Manager, Novotel North America
Ash Kapur, Vice President Revenue Management, Starwood Capital Group
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E?ective Revenue Management in the Hospitality Industry | 4 www. eyefortravel.com
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Overview
T
echnological innovation and the increasing
importance of digital are creating a shifting
consumer landscape for the travel industry. Not
only is there disruption in how customers choose to
research and interact with travel brands but traditional
purchasing behaviors are evolving. Revenue managers
are having to look afresh at their modeling to improve
outcomes. For example, assumptions about last-minute
pricing are being challenged as a surge in use of
the mobile channel reveals a shift away from price-
sensitivity and towards convenience and availability.
Reliant on volumes of customer data to make accurate
revenue predictions, revenue management systems
(RM) should be enjoying the start of a halcyon period.
Yet fewer than 20% of North American hotels use them.
The reasons behind slow RM implementation are as
varied as the hotel industry itself. In many ways, the
highly fragmented nature of the North American
hotel sector is to blame. Sole operators with wafer-
thin margins simply do not have the capital or
experienced executives to implement such a system.
Other hotels bene?t from umbrella group brands and
yet are still considered lone operatives, responsible for
their individual revenues. For those who do bene?t
from centralized operations within the group brand,
organizational silos prevent the seamless ?ow of
information and expertise across departments that is
needed to optimize RM outputs.
Hotels whose structure and ?nancing allow for RM
implementation face further hurdles. The emergence
of much more detailed customer data from digital
channels in particular is undoubtedly a boost to their
RM strategies. However, the vast array of channels
delivering this information results in data that is
duplicated, inaccurate and confusing. Far from
delivering a clearer picture of future customer journeys,
‘big data’ is obscuring it.
This white paper draws on information exclusive
to Eyefortravel regarding executive’s opinions on
customer channel choice as well as data from travel
customers themselves revealing channel choice and
booking behavior. This is supported by interviews with
key executives within the RM space, highlighting the
challenges they face and how they propose to address
these. This white paper will reveal where the future of
RM lies and what travel executives need to consider
now to maximize its returns.
E?ective Revenue Management in the Hospitality Industry | 5 www. eyefortravel.com
Revenue management systems (RM) when deployed
correctly have been proven to directly generate a 5-10%
uplift in sales. Its limited adoption so far indicates there
are a number of challenges yet to be overcome before
it can fully demonstrate its worth to a wider audience.
Of these, there are ?ve key elements that must be
considered:
? Return on investment
? Clean data
? Strategic insight into the use of that data
? Organizational consensus
? Constantly changing customer landscape
Return on investment
Of the ?ve elements, the ?rst and simplest to address is
that of return on investment (ROI). RM systems present
a ?xed cost to the hotel. While this varies depending on
supplier and level of technical sophistication, it can be
measured against the potential returns it might deliver –
the 5-10% mentioned above.
That said, smaller hotels with lower potential revenues
are not excluded from bene?ting from RM. Access
to RM is one of the attractions of becoming part of a
larger group and should be a point of consideration for
any hotel director when considering joining such an
alliance.
As will be discussed later in this brie?ng, access to such
a system is not the only consideration as RM works best
when its variables are tailored precisely to the property
involved. A ‘vanilla’ RM solution covering a variety of
diverse properties serving di?ering customer groups
may be worse than none at all.
Clean data
It is a common complaint from travel brand marketers
that they don’t need more data, they need insight. The
multichannel environment has undoubtedly increased
the volume of data available to travel brands and looks
set only to increase as channel owners, particularly
those in the social sphere, look to emphasize the
bene?ts their increasingly deep pro?ling can provide.
But for useful insights to be drawn, work still needs to
be done on the raw data. Speci?cally the high volume
of inaccurate data swirling around customer ?les. There
is an abundance of clean data available – data emerging
from transactions and travel partners such as airlines
where accuracy is a result of tight controls (passport and
?nancial data being two of the most likely to be correct).
However data supplied by the customer or gathered in
by person to person contact must be examined more
carefully.
Ash Kapur, Vice President, Revenue Management,
Starwood Capital Group insists: “Clean data is
the challenge from the get-go. Strong revenue
management can provide codes and market segments
that are clean but there is still a struggle. Front of house
sta? under pressure are often required to ?ll in data
from guests’ passports but, when faced with a line, are
tempted to check the ?rst entry on the list. We seemed
to have an awful lot of guests from Afghanistan.”
Data arising from location-based services or historical
purchase activity can be indicative of customer behavior
but is not guaranteed accurate. Purchases can be made
on behalf of others, location-based data from mobile
phones can be wrong simply by dint of another party
borrowing the device. But these are elements over
which the travel brand has no direct control.
The Challenges for Revenue Management
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E?ective Revenue Management in the Hospitality Industry | 6 www. eyefortravel.com
Person to person contact can however be more tightly
managed. The check-in process remains central to the
revenue manager’s ability to garner data. In a digital
age, there is a temptation to ascribe more importance
to automated information than personal interaction and
yet the latter is where the detailed information so critical
to determining customer preference can be found.
Revenue managers will have to work with both their
human and technological resources to ensure clean
data can support their RM strategies.
Strategic insight
Eradicating contaminated data is critical to providing
a strong foundation on which to run RM programs
however the correct oversight is also vital if systems are
to deliver the desired outcome.
Tom Botts, Denihan’s EVP and Chief Customer O?cer
notes that some providers are moving in this direction.
“We partnered with Duetto and are in the process
of rolling out its strategic RM system. We chose it for
a couple of reasons: We wanted a more analytical,
systemized approach that was more sophisticated than
spreadsheets and we needed additional control. The
system lets us observe how decisions are made across
the company and means we are able to bring in new
thinking and new ways of doing things.”
“The main issue is that most people are using a RM
system that was designed 50 years ago. You didn’t have
as much data or the facilities that we have today,” Bernat
states.
Revenue managers have to understand the importance
of ?exibility and supplementary information that will
inform how they interpret the ?nancial data delivered
by RM systems. Increasing availability of real time data
means managers must decide what are the critical
pieces of information to focus on and ensure any
systems or processes they use are able to deliver them
in a timely manner.
“You need to know the limit of the machine,” Odigeo’s
Bernat states. “The question on the table is ‘what is the
long term strategy?’ You need to understand that there
are some things the computer cannot know.”
Skilled people also have to have the capability to
combine these inputs with information not so easily
incorporated and much more situational such as the
impact local events and external macro in?uences such
as economic conditions will have on their business.
For companies questioning the value of investment in
RM systems, the realization that such investment must
be supported by a dedicated strategy and suitably
skilled sta? resource can prove o?-putting. This is
particularly the case when previous attempts have not
incorporated a joined up approach between strategic
RM leadership and technologies, leading to the belief
that RM systems do not deliver the value against cost
some resellers claim.
Historically, RM has been a long sell, as it's been
challenging to prove value is created by the tool and
not just a competitor having a bad day.
It's clear that an approach that brings together the latest
in technology with usability in an RM system, would go
a long way to alleviating such doubts.
Organizational consensus
The lack of joined up approach has been central to
the lack of uptake of RM systems to date. The North
American hotel sector is highly fragmented. From
geographic location to segmentation to internal
structure, there are a number of hurdles that RM must
overcome to be deployed seamlessly – and e?ectively.
Even within groups that enjoy centralized marketing,
sales and revenue functions the need for inter-
departmental cooperation for e?ective management
is still a struggle. At the C-suite level, RM is viewed as a
cost that has yet to prove signi?cant returns, a Catch-22
situation where it must be run well and widely to prove
its worth yet in many cases, hotels’ internal cultures
need to change for this to happen.
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E?ective Revenue Management in the Hospitality Industry | 7 www. eyefortravel.com
Changing consumer landscape
Perhaps the biggest challenge for RM systems is
the constantly changing consumer landscape. The
multichannel environment is presenting two distinct
problems:
? Data
? Purchasing behavior
Data is a challenge, as mentioned above, simply because
of the volumes the multichannel environment produces.
As mobile accounts for 20% of travel transactions
(eyefortravel, 2013), the volume of data needing to be
analyzed and processed has also grown. While an increase
in social media interactions is yet to generate a signi?cant
rise in bookings through this channel, it already provides
a wealth of information about location, preference,
customer segment and advocacy (see ?gure 1).
As a result, RM systems need to not only process more
data but data of di?erent types from a wide variety of
sources, often in real time. The burden on less ?exible
systems is great and their ability to process such
an abundance of information is limited. This is then
transferred to revenue managers who are faced with a
growing number of daily reports that they are unable to
analyze meaningfully or rapidly.
Purchasing behavior is also evolving, creating entirely
new customer segments and windows of opportunity.
Both managers and RM systems are having to frequently
reassess their pricing strategies in line with these
new customer paradigms. Mobile again is driving a
large portion of these new behaviors, particularly in
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Source: EyeforTravel Supplier and Intermediary barometers, 2013; “how
important has the social media channel been for your organization in the
last three months? Please rate on the scale below against each of the
following:” 455 respondents
9.5
18.6
35.9
37.8
25.9
31.7
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15.2
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? Intermediary
Marketing
? Supplier Marketing
Figure 1. Using social media as a marketing tool, June 2013
(eyefortravel, 2013)
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E?ective Revenue Management in the Hospitality Industry | 8 www. eyefortravel.com
the last minute segment where it is much more the
transactional channel of choice than in longer term
travel purchases (see table 1).
Pricing strategy itself is being impacted by multichannel
as online travel agencies (OTA), metasearch and
price consistency begin to a?ect how hotels target
customers. Discounting is no longer the preserve of
the last-minute segment, indeed often this customer is
happy to pay a premium for convenience and choice.
Revenue management systems in the future will not
only have to accommodate large volumes of data
and process them in an easy-to-manage format for
revenue managers but will have to be ?exible enough
to take into account changes in consumer behavior as
purchasing trends remain in a constant state of ?ux.
Table 1. Devices and websites customers are most likely to use to make a last-minute booking
(eyefortravel, 2013)
Source: EyeforTravel consumer research in association with WAYN, May 2013; "On which device and website are you most likely to make a last-minute booking?"
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1 week
before
2-3 days
before
1 day
before
On the day Never Responses
Travel provider on a desktop computer 57.6% 13.1% 3.9% 2.5% 22.9% 15,176
Travel agency on a desktop computer 53.0% 15.7% 4.4% 2.1% 24.7% 15,173
Travel provider on a tablet computer 45.6% 13.8% 5.3% 2.6% 32.7% 15,168
Travel agency on a tablet computer 45.0% 13.4% 4.5% 3.1% 34.0% 15,169
Travel provider on a mobile 43.9% 12.7% 5.7% 3.5% 34.2% 15,168
Travel agency on a mobile 43.6% 12.8% 5.3% 3.5% 34.8% 15,167
I would call the travel provider personally 47.8% 13.2% 6.7% 4.9% 27.3% 15,169
E?ective Revenue Management in the Hospitality Industry | 9 www. eyefortravel.com
An example of revenue management adapting to
the shifting consumer paradigm is El Cortez Hotel &
Casino in Las Vegas. After the economic downturn in
2008, casino revenues were struggling. Far from being
a temporary blip, the downturn had permanently
changed the way casino customers were spending and
the business needed to adapt.
The system
Working with revenue management consultants, El
Cortez’s strategy was to generate incremental cash
business through transient and wholesale channels.
The hotel installed Duetto’s cloud-based revenue
management system (RMS) that delivered market
intelligence, forecasting, pricing recommendations
and historical data comparison. Using an alerts feature,
key dates were ?agged up, a process often missed in
traditional RM systems.
To understand shopping behavior on a daily basis, the
RMS tracked a JavaScript tag on the hotel’s booking
engine that monitored lost business. As a result, the
hotel could then assess how a day’s pricing strategy
impacted the website’s booking conversion rate.
New pricing approach
With more dynamic pricing the hotel was yielded much
more frequently however pricing wasn’t just increased
across the board. Data from the RMS revealed that
lower room rates were required midweek to be more
competitive while prices could be raised during certain
high pressure periods. Its discounting strategy was also
reassessed, critically removing them during periods
where the hotel could achieve capacity without them.
Discounts still ran through third parties, generating
exposure and the cash average day rate (ADR) rose 10%
with an average occupancy rise of 6.3%.
Novotel’s regional ecommerce manager, Jeremie Catez,
notes that the move from rates to price elasticity is
a key component of the new revenue management
paradigm: “Everyone is talking about rate but we could
do better with price elasticity. What is the customer’s
behavior if we lower the room by 10 bucks? How we can
measure this is also a critical issue.”
El Cortez also used the RMS to identify customer
segments within the casino, noting that the lowest
worth player segments were receiving complimentary
or discounted cash rooms that were unpro?table.
The result was a standardized casino yielding process
that included variable casino cash and comp pricing.
The hotel’s occupancy by casino players was lowered,
freeing these rooms up to be marketed to more
pro?table paying guests.
The hotel’s ability to remain competitive had been
a?ected by its attitude to price consistency and
overselling. Until deploying the RMS it had failed to
maintain consistency with OTAs driving custom away
from direct sales and incurring 25% commission
margins. In addition, its cheapest room rates only
accounted for 10% of inventory and once sold, rates
increased by at least $10 making El Cortez less attractive
in the price sensitive downtown Las Vegas market.
To solve both these issues, the RMS ensures price
consistency with OTAs increasing direct room night
sales by 10,000 or 130% and instituted a policy of
limited overselling of cheaper rooms during non-critical
occupancy periods. Having solved its price consistency
issues, El Cortez actually extended its OTA network to
extend its reach to new customer bases.
The strategy has delivered a cash revenue increase year
on year of more than 30% in the ?rst seven months of
2013.
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Revenue Management in Action –
Case Study: El Cortez Hotel and Casino
E?ective Revenue Management in the Hospitality Industry | 10 www. eyefortravel.com
Table 2. Key Performance Figures at El Cortez after RM Strategy Overhaul
YoY Change (Jan - July 2013 vs. 2012)
Number increase % increase
Cash room nights (1) 7,122 18%
Direct room nights (2) 9,975 130%
Cash ADR 10%
Occupancy 6.3%
Cash revenue 30.1%
Source: Duetto
Having proven the utility of the RMS by modifying
existing pricing strategies, El Cortez’s next phase is to
extend the program’s reach. The three main areas it
hopes to exploit are:
? Customer lifetime value
? Increase ADR
? Enhance digital presence
Customer lifetime value – by calculating the total
patron worth by customer through all revenue centers
including gaming and non-gaming, their pro?t
contribution can be integrated into future revenue
management decisions.
Increase ADR – using a dynamic room pricing by day for
upgraded room types and promoting upgrades during
the guest experience. Internal resources and hotel
partners can be deployed at four stages: Pre-booking
through o?ers; at the time of booking; post-booking
and at check-in.
Enhanced digital presence – Expanding the hotel’s
social media presence and using it for targeted
marketing as well as managing online content and
managing reviews through OTAs and TripAdvisor.
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To ensure the success of revenue management
strategies, hotel owners must be both convinced of
its ability to deliver return on investment as well as
made aware of the resources required to maximize its
potential.
Signi?cantly, hotels need to ensure that their
organizational structure supports a revenue
management policy. While wholesale reorganization is
not required, there must be a cultural understanding
that core departments such as marketing, sales and
revenue work together to share information critical to
RM success.
“The way companies were organized is dead. Today, if I
change the price, it a?ects marketing and production’s
bottom line ?nancials. I need to know what the impact
will be and I need that answer immediately. New
systems give you that vision,” Bernat reveals.
Denihan’s Botts notes that movements are being
made in this direction: “We’re working on combining
marketing, sales and revenue management all under
one leader who has an overall understanding of these
things. A common decision-making platform is critical.
That doesn’t exist today in many cases and it’s going to
have to change.”
A clean data palate
As multichannel puts a much greater focus on data,
hotels need to be able to manage their information
well. This means investing signi?cantly in data cleansing,
without which RM predictions will be at best inaccurate.
The single customer view is a pressing issue in all
sectors, not just travel, and brings with it questions of
data protection, management and storage. Hotels will
be looking to RM systems providers for assistance in
identifying and managing the most bene?cial streams
of information.
Starwood’s Kapur notes: “There’s a lot more comfort
now in knowing that we don’t need to drop rates last
minute because we know there’s a segment that books
on mobile.”
The ability to bring together and meaningfully analyze
quantitative and qualitative data is a necessity as the
in?uence of social media and user-generated content
such as reviews are recognized to impact customers’
decision-making processes more than price di?erential
in many cases. Interviewees for this report noted that
few RM systems are able to bring these two streams of
information together e?ectively but those that do are
creating demonstrable gains (see El Cortez case study).
“If one day we can mix data streams and have CRM and
loyalty and customer information in the same system, it
will be fantastic,” Catez predicts.
Minimal information, maximum
e?ectiveness
The outputs generated by RM systems are no less
voluminous and revenue managers interviewed for this
brie?ng noted that reporting was becoming a critical
issue.
Novotel’s Catez notes: “You can’t expect one human to
look at 25 reports. The reports are no longer fresh by
the time the managers get around to them. The world
is quicker and a lot of these things, even Twitter for
example, in?uence the pricing.”
To deliver truly e?ective RM support, systems providers
must work to minimize the outputs managers have to
analyze on a daily basis. The risk of ‘information paralysis’
is otherwise too great. The rise of the last-minute
segment along with booking services active 24/7 means
dynamic pricing is no longer a 9-5 job and pro?tability
will be increasingly dependent on the manager’s ability
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The future of revenue management
E?ective Revenue Management in the Hospitality Industry | 12 www. eyefortravel.com
to make swift decisions from timely and easily-digested
information.
Successful RM providers will be those whose systems
are robust enough to not only aggregate data from
various customer touch points, across multiple channels
and di?erent points in the customer journey – but to
make it usable and accessible to managers at all times.
The growing ability to host RM systems in Software as a
Service (SaaS) or ‘Cloud’ technology will greatly increase
managers’ ability to use dynamic pricing and react to
real-time changes in the marketplace.
An industry evolution
Technological advances have proven both a boon and a
bugbear to revenue managers. As customers make use
of all the channels and devices available to them, the
tsunami of data provides tantalizing opportunity but
also demands a great deal of resources to derive bene?t
from it. But hotel managers should look at using the
same technologies to support their RM tools.
“We’re asking our partners to get on the same
technological page. Some are better than others. We still
have wholesalers faxing reservations and systems not
processing them in real time. We need to have an overall
understanding about what the connectivity strategy
is for partners,” Botts insists. Indeed, the ability to keep
up with real-time RM systems may prove a clincher for
working partnerships in the future: “If they’re not willing
to participate in a realistic format, is that something the
industry should be participating in? I hope others are
pressuring their partners to keep up,” he adds.
From a data cleanliness perspective, introducing
mobile check-ins removes pressure from front desk
sta? to gather the detailed, accurate customer data
required for one-to-one pricing strategies that will
ultimately become possible. However Kapur cautions:
“In some cases technology has helped for pre-check
in and getting guests to enter in their data but I still
think getting clean data in general is the fundamental
problem.”
From a marketing perspective, the ability to use data
to market through social channels, while not currently
a strong distribution channel, will become critical to
enhancing reputation and market position.
Revenue management systems must evolve to keep
pace with hotel needs however hotels themselves must
also evolve to maximize the potential revenue growth
that these tools can provide.
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E?ective Revenue Management in the Hospitality Industry | 13 www. eyefortravel.com
R
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eyefortravel (2013) Social Media and Mobile in Travel Distribution Report: Online strategies, consumer and industry
trends 2013. London: Eyefortravel.
References
doc_318380552.pdf