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Everything you need to know about Hospitality Revenue Management – and how to select the right solution and/or services for your organization.
The 2016 Smart Decision Guide to Hospitality Revenue Management
TM
Independently produced and distributed by:
Underwritten, in part, by:
2
Introduction pg. 3
Chapter 1: Topic Overview and Key Concepts pg. 5
Chapter 2: Buying Considerations and Evaluation Checklist pg. 13
Chapter 3: Must-Ask Questions pg. 20
Chapter 4: Roadmap and Recommendations pg. 25
Chapter 5: Inside Voices and Outside Voices pg. 30
Appendix pg. 33
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Table of Contents
3
Introduction
Hospitality Revenue Management has gone from being an uncertain undertaking with financial upside potential to being a strategic imperative.
Yield management is hardly a new concept. Airlines have been using supply
and demand data to maximize their revenues and profitability for decades. A
fast-growing number of hotels, resorts and other lodging properties have
followed suit with their own variation of the game. In most cases, their efforts
have been a resounding success and their technology investments in what is
commonly known as Hospitality Revenue Management have paid off in spades.
Hospitality Revenue Management is fueled by the rapid growth of big data
processing, advanced analytics, demand forecasting and pricing optimization
models and next-generation technology platforms. These combined
capabilities and technologies are helping to automate the pricing
recommendations and decision-making processes that enable not only better
inventory management and increased room occupancy, but higher revenues
and profitability across all parts of the hotel, resort or other lodging property.
In recent years, Hospitality Revenue Management has gone from being an
undertaking with uncertain financial upside potential to being a strategic
imperative with predictable revenue outcomes. Indeed, when properly
executed, the practice can be used to deliver very substantial increases in top-
line revenue growth and profitability. In fact, according to research conducted
for this Smart Decision Guide, the implementation of Hospitality Revenue
Management results in a 9 percent average increase in revenue per available
room (RevPAR) for large and very large hotels. That percentage increase can
translate into millions of dollars in additional profit on an annual basis.
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4
Introduction
The nuts and bolts of how to apply capacity management and duration control or use displacement analysis to calculate group rates or develop rate fences is not the focus of this guide.
This Smart Decision Guide seeks to educate hotel and resort owners,
operators, property managers and others who aim to bring the science of
next-generation Hospitality Revenue Management to their businesses. Just
to be clear, the goal is not to teach pricing strategies or forecasting
techniques. The nuts and bolts of how to apply the principles of capacity
management and duration control or use displacement analysis to calculate
group rates or develop rate fences is not the focus of this Smart Decision
Guide. There are educational programs specially designed for that purpose,
some offering a large curriculum of related coursework. There is also a
sizable body of literature on the topic authored by industry practitioners,
solution providers, consultants and academics, many of them sporting PhDs
in statistical analysis and computational and behavioral science. That said,
gaining expertise in Hospitality Revenue Management generally requires
that one not only acquire the requisite knowledge base but also actually
spend time practicing revenue management in a real-life hotel environment.
So what is the purpose of this Smart Decision Guide? As the name suggests,
it is intended to provide a roadmap for achieving increased hotel revenue
and profitability by leveraging next-generation revenue management
technologies and capabilities. The key takeaways include insights for
evaluating and selecting the right solution and/or services in the context of a
hotel or resort’s specific needs. It also includes practical advice for putting
the right organizational resources, business processes and performance
metrics in place to help ensure continuous performance improvement.
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5
Topic Overview and Key Concepts
Chapter 1
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6
Effective market segmentation lays the foundation for Hospitality Revenue Management while at the same time benefiting other hotel function areas.
Chapter 1: Topic Overview
What is Hospitality Revenue Management? It begins with a basic concept that
nowadays we take for granted: market segmentation. The concept was
formalized in the 1950s by a little-known economist named Wendell Smith,
who viewed market segmentation as “a heterogeneous market as a number of
smaller homogeneous markets in response to differing product preferences.”
When it comes to hospitality, different categories of guests should be viewed
as having differing wants, needs and behaviors. Families generally have
different requirements than guests traveling alone. Business travelers behave
differently than leisure travelers. First-time guests tend to have different
expectations than repeat guests. Guests who book through a discount site,
who purchased a package deal or who took advantage of a special rate
promotion may be grouped together for price sensitivity. Length-of-stay can
be another useful segmentation criteria. So can the extent to which guests
utilize the spa, casino and other hotel facilities. Effective market segmentation
lays the foundation for revenue management. It can also benefit a range of
other departments and functions, including sales, marketing and distribution.
Another key concept is price elasticity of demand. Demand is sensitive to
changes in price and price is sensitive to changes in demand. Of course, some
products and services have more elasticity than others. Revenue management
techniques are fairly useless when consumers are willing to pay full price to
purchase, for example, the latest electronic gadget. Most lodging properties,
on the other hand, have a significant amount of elasticity, given that the
product in demand is fixed in capacity and perishable.
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7
Hospitality Revenue Management has evolved to the point that it is no longer just about increasing guest room occupancy rates, with no consideration for the implications.
Chapter 1: Topic Overview
Managing pricing in a way that dynamically responds to changes in demand
for guest rooms and optimizes profitability based on a deep understanding of
elasticity gets to the essence of Hospitality Revenue Management. The classic
definition of revenue management is: Sell the right space at the right price at the
right time to the right customer. In this case, space generally refers to guest
rooms (large, full-service hotels may have a dozen room types). Price refers to
the room rate, which is influenced by any number of factors, including time
(e.g., how far in advance the reservation is made) and market conditions (e.g.,
how much competitors are charging). As discussed, guests (including groups)
can be segmented using multiple factors, including geo-demographic
attributes, price sensitivity, purpose of the visit and length of the stay.
Hospitality Revenue Management has evolved to the point that the goal is no
longer just about increasing guest room occupancy rates, with no
consideration for the implications of the pricing decisions. Nor, again, for that
matter, is it just about rooms. Revenue streams such as conference hosting,
recreational facilities, restaurants and spas – which, taken together, typically
account for one-quarter of a full-service hotel’s revenues – also now factor into
the equation. Yet another consideration is the optimization of profitability and
not just revenue. This means analyzing ancillary revenue streams (e.g., food
and beverage as well as golf, spa, etc.) along with the related cost data to
understand profit contributions by customer segment. For hotels with casino
operations, even the “theoretical loss” (the amount of money a player can be
expected to lose during their stay) can be incorporated into the pricing model.
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Chapter 1: Topic Overview
76%
81%
88%
97%
0 20 40 60 80 100
Gain competitive intelligence and market insights
Improve marketing and sales activities
Reduce time and costs associated with tradition pricing tactics
Increase hotel revenue and profits
Research Data Point What are the biggest benefits one can expect to gain with Hospitality Revenue Management?
Ideally, a hotel, resort or other lodging property would be able to generate precise demand forecasts for
every night of the year across every room type, every season and day of the week and every customer
segment. For a hotel chain that numbers a few thousand rooms, that would mean generating some fifty
million new forecasts on a nightly basis. While the number crunching can be tremendous, so, too, can the
payoff. Consider: a mere $2 reduction in the average daily rate (ADR) for a 500-room hotel with a 75 percent
occupancy rate would cost a hotel more than a quarter million dollars in lost profit in a single year.
Increasing hotel revenue and profitability is obviously the primary benefit of Hospitality Revenue
Management. It’s not the only one, however. Other major benefits include improving marketing and sales
efficiency and effectiveness, generating competitive intelligence and market insights into occupancy trends
and guest demographics, and benchmarking overall performance against competitors in the same market.
Increase revenue Increase profitability Maximize occupancy Increase ancillary revenue
Improve marketing and sales efficiency Reduce time associated with traditional pricing
Gain reliable expectations (occupancy, arrivals, etc.) Generate accurate reports Identify key patterns
Research findings are derived from the Q4 2015 survey on Hospitality Revenue Management.
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Hospitality Revenue Management has its own extensive vocabulary consisting of terms like capacity management, duration control and displacement analysis.
Chapter 1: Key Concepts
Hospitality Revenue Management has its own jargon. It consists of terms like
capacity management, duration control, overbooking practices and displacement
analysis. These terms describe practices and considerations related to
maximizing revenue and profitability from a perishable product in a market
where supply (i.e., guest rooms) is fixed while demand (i.e., travelers in need of
guest rooms) can greatly fluctuate. Although obviously important to the day-
to-day practice of revenue management, these terms aren’t necessarily useful
when it comes to understanding how Hospitality Revenue Management is
evolving today or to evaluating the enabling technology solutions and services
currently available to hotel operators. Given the focus of this Smart Decision
Guide, this section on key concepts is limited to providing an overview of
pricing analytics (“intelligent pricing”), explaining the importance of capturing
and integrating relevant data, and taking a look at the key metrics that are
commonly used today to track and measure success with Hospitality Revenue
Management to drive performance improvement. Let’s start with the latter.
Revenue management metrics. The metric most commonly used today to
assess how well a hotel , resort or other lodging property is managing its
inventory and rates to improve revenue performance is revenue per available
room (RevPAR ). RevPAR is calculated in one of two ways: by either multiplying
the average daily rate(ADR) by occupancy or by dividing the total guest room
revenue by the total number of available rooms and then dividing that number
by the number of days in a given time period. Just to be clear, occupancy refers
to the percentage of guest rooms that are occupied during a given time period
while ADR refers to the average revenue per occupied room. Some hotel
operators still make the mistake of focusing their promotional efforts solely on
increasing room occupancy, no matter that higher occupancy can, in some
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Without knowing the operating costs, it becomes difficult to calculate actual profit margin or, for that matter, determine the target optimal occupancy.
Chapter 1: Key Concepts
cases, actually lead to lower profits. Hotels that have yet to do so need to shift
their focus from occupancy to RevPAR — which, again, combines occupancy
and ADR into a single metric that has become the industry standard. Yet while
RevPAR provides a far more accurate picture of a hotel’s overall performance,
it fails to measure actual productivity. That’s because RevPAR doesn’t take into
account costs per occupied room (CPOR). Without knowing the operating
costs, it’s not possible to calculate the actual profit margin or, for that matter,
determine target optimal occupancy. Hence the emergence of another metric,
called gross operating profit per available room (GopPAR), which takes into
account not only the amount of revenue generated but also the actual
operational costs. Still, there remains a problem. Neither RevPAR nor GopPAR
look at non-room revenue streams such as restaurants, casinos, parking, spas,
golf courses, etc. This shortcoming is glaring. It helps explain the advent of
additional metrics — as if there weren’t enough already — designed to
measure economic performance in a more comprehensive manner. Revenue
Generating Index (RGI), also known as RevPAR Index (RPI), looks at relative hotel
revenue performance, by measuring the extent to which a hotel is achieving
its “fair share” of revenue in comparison to a defined group of hotels. RGI is
calculated by dividing the hotel’s RevPAR by the RevPAR of the competitive
set (the data for which can be obtained through a third-party provider).
Similarly, Average Rate Index (ARI ) measures the extent to which the hotel is
achieving its “fair share” of ADR. It is calculated by dividing the ADR of the
hotel by the ADR of the competitive set. RGI and RPI — and, also, market
penetration index (MPI) — provide a solid basis for performance comparison.
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Revenue management data. Just as a soup is only as good as the
ingredients that go into it, a revenue forecast is only as good as the
information that goes into it. And like a soup, which may require only a few
select ingredients to achieve the desired taste, accuracy in forecasting is not
necessarily a case of “the more the merrier” when it comes to volume of data
or number of data sources. Revenue managers may be excited about the
ever-growing number of data sources available to them. But they should
exercise caution in incorporating every last bit of data into their models.
More data can simply mean more noise. At a certain point, there are bound
to be diminishing returns. In fact, new data that may seem highly relevant at
first glance may, in fact, create integration headaches while failing to move
the needle on forecasting accuracy. The volume and depth of clean historical
data related to occupancy, rate and revenue figures (including bookings
dates, rate codes, arrival dates, departure dates and revenue by day) provide
the strongest basis for forecasting accuracy. All this data should reside in the
Property Management System (PMS). The greater the number of years for
which a hotel has data, the more accurate the forecast is likely to be. Market-
level data, including competitive pricing, future flight demand, weather
reports and geographical information (where guests are arriving from), may
also be used for forecasting purposes. Web shopping data (the number of
consumers booking rooms and at what price, as well as the percentage of
visitors abandoning the hotel website) may also provide some insights into
current and future room demand as well as price sensitivity. The number of
website visitors tends to correlate to the frequency of last-minute arrivals.
Like a tasty soup, which may require only a few select ingredients, accuracy in forecasting is not necessarily a case of the more “the merrier” when it comes to the volume of data.
Chapter 1: Key Concepts
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Intelligent pricing. With Hospitality Revenue Management, timing is
everything. Forecasting demand for available rooms — and dynamically
pricing room rates based on demand and capacity as well as competitor
activity — needs to happen in a near-real-time manner. Starfleet Research
defines intelligent pricing as making decisions for how to maximize room
occupancy at the best possible price while factoring in all the related revenue
questions in a real-time or near real-time manner. These questions include:
What is the optimal price to charge in order to maximize revenue, accounting
for the fact that demand will change as the price changes? What is the best
possible rate the hotel can hope to get for a guest room, taking into account
the type of room as well as the length of stay? How can a hotel ensure that
discounted price promotions won’t dilute revenue and profits in the long
run? Intelligent pricing addresses these questions by analyzing demand
forecasts, competitor rates, price sensitivities and various other inputs and
factors, including demand drivers like seasonality, day-of-week differences
and market dynamics. Here it’s worth noting that, until recently, the standard
approach to pricing strategy has been a fixed-tier approach based on one
overall best available rate (BAR) for each room and also on the expected
supply and demand of rooms for a particular date. Ideally, when pricing
multiple products, solutions should account for different room types and also
for the impact of multiple public products on one another –e.g. advanced
purchase versus BAR. Some hotels are now adopting a pricing strategy based
on the idea is that different prospective guests should be offered different
rates depending on which guest segment they fall into as well as which
channel they’re using for booking their reservation. As technology innovation
makes it possible for hotels to price their room types, channels and dates
independently of each other, the approach would seem to hold promise.
Intelligent pricing means being able to forecast demand for available rooms in a real-time manner and being able to maximize occupancy at the best possible price.
Chapter 1: Key Concepts
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Chapter 2
Buying Considerations and Evaluation Checklist
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14
Chapter 2 Chapter 2: Buying Considerations
The tools are continuously evolving in response to the growth of OTAs with differing pricing and commission structures, shrinking booking windows and refined pricing strategies.
The tools and services that enable revenue management are evolving rapidly
in response to a number of factors. These include the proliferation of online
travel agencies (OTAs) with differing pricing and commission structures,
shrinking booking windows, the emergence of more advanced pricing
strategies, and ever-more intense hotel competition. Leading solution
providers are investing heavily in R&D and running agile software
development and release cycles to try to say ahead of the competition. The
flurry of change can make selecting the right solution a daunting task. The
buying considerations are sure to depend to a large extent on a hotel’s specific
needs and situation. That includes category, size and typology (including the
number and types of non-room revenue streams) as well as the team’s level of
experience (including whether it has one or more dedicated revenue
managers and the right corporate culture in place). Should the hotel hire an
outside firm to conduct an assessment of current pricing practices? Should it
use a BAR approach or should each channel and segment be priced
independently? Should it price by arrival date or length of stay? For these and
countless other questions, the answer is: it depends. Still, for most buyers, there
are a number of key considerations to keep in mind, including the following.
Technology integration capabilities. Hotels, resorts and other lodging
properties have always had extensive technology integration requirements. A
revenue management solution, especially, can’t be treated as a standalone
application. Rather, it needs to integrate as seamlessly as possible with
multiple data streams, starting with the Hotel Property Management System
(PMS) to provide for unified bookings, analytics and reporting. It also needs to
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15
Chapter 2 Chapter 2: Buying Considerations
It quickly becomes clear that Hospitality Revenue Management is a big data challenge; to be successful means having a solution that can address that challenge head-on.
integrate with systems used for marketing, sales and distribution as well as
OTAs and any number of other third-party technologies and channels. For
integrations to work optimally, technology partners need to independently
test and certify data and functionality. They need to ensure that systems are
compatible and that all historical data has been extracted and validated.
Internally, within the organization, point of sale (POS) data needs to integrate
with PMS data to provide a holistic view of a guest’s overall stay, including
their ancillary spending on food and beverages, guest services, spa visits, etc.
Data processing power. Hotels are importing increasingly large volumes of
data into their pricing models. For a large property, the data set may include
dozens of customer segments, a dozen or more room types, several years of
historical booking and reservations data, and upwards of a dozen length-of-
stay types. Add to the mix competitive rate data, demand data, multi-market
economic data, and even air traffic and weather predictions. Combining all
these data sets for just one hotel could easily amount to 200 million-plus
observations. Generating the pricing recommendations for that property
could require more than 15 gigabytes. Multiply that number for a hotel chain
with dozens of properties and it quickly becomes clear that, more than
anything, revenue management is a big data challenge. Until recently, the
technologies have underperformed by most measures, partly because they
were unable to overcome the data processing constraints and optimize the
needed calculations in highly compressed timeframes. Today, however, most
revenue management solutions are able to address that challenge head-on.
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16
Hotels should be able to automatically identify and track their most profitable channels, factoring in the associated costs, including commissions, transaction fees and SEM expenses.
Channel management and optimization. With pricing recommendations
in a continuous state of flux, its imperative that rates and inventory
information gets updated as quickly, and with as few errors, as possible
across all OTA and other distribution channels (including the hotel’s own
website). Otherwise, unfortunate situations can arise. The prices being
presented to prospective guests on some channels may be lower than
desired, for example. Or rooms presented on some channels as available
may, in reality, be overbooked. The potential fallout could be damaging,
generating a flurry of negative online reviews. Inputting room rate and
availability changes manually can, at the least, result in money being left on
the table. Channel management capabilities help ensure that a hotel’s
room rates as well as its inventory are up-to-date across all OTAs and other
partner- and guest-facing channels. An important buying consideration,
therefore, is the extent to which room change updates are handled
automatically rather than manually, and what the average lag time is to
implementing channel updates. Although not yet achievable in many
markets, including the United States, advanced channel optimization
capabilities should be used when possible to identify the most profitable
channels, factoring in the associated costs, including commissions,
transaction fees and search engine marketing (SEM) expenses, and
dynamically adjust the pricing on a channel-by-channel basis.
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Chapter 2: Buying Considerations
17
Hotels should be able to automatically identify and track their most profitable channels, factoring in the associated costs, including commissions, transaction fees and SEM expenses.
Cloud versus on-premise hosting. Another important decision criteria to
consider is whether the Hospitality Revenue Management solution is an
on-premise installation or cloud-based, with a software-as-a-service (SaaS)
model that allows for continuous software updates. The main downside of
on-premise installation lies in the fact that the lodging property is
responsible for installing and maintaining the hardware and providing IT
support and data security. As with most enterprise technology solutions,
most Hospitality Revenue Management systems are moving to the cloud,
and hotels are benefiting from the global scale and distributed access to
interfaces and information. Other benefits include reduced stress on hotel
technology infrastructures, and, in some cases, more seamless integration
with other applications, including Hotel Property Management Systems. A
big advantage of “true SaaS” is that software updates and bug fixes can be
pushed as they become available, meaning that every user is always on the
most recent version of the software.
User experience. A good user experience begins with an interface that is
well-designed and flexible. Revenue managers and other users should be
able to define dashboards to meet their needs and suit their styles. While
notifications should drive the workflow, users should be able to look under
the hood to, for example, dive into price sensitivity data and quickly see
what inputs are behind the pricing recommendations at a detailed level.
They should not have to wait for actual booking numbers to become
available to understand the impact of their overrides and determine
whether they made the right “re-optimization” decisions. Of course, users
have differing needs, depending on the characteristics of the hotel, resort
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Chapter 2: Buying Considerations
18
Chapter 2: Buying Considerations
The impact of the cloud has been enormous, empowering physicians, office managers and others with anytime, anywhere access to all patient and operational activities.
or other lodging property as well as their own personal preferences. Any solution, therefore, is likely to
require at least some degree of customization. Users should be able to create notifications as well as
define the data inputs and specific needs around analytics and performance reporting. Flexibility in
configuration is needed to not only mine the right data, based on selected parameters, but also generate
actionable insights. Users should not be spending the bulk of their time extracting and manipulating
data, as is often the case today. Rather, they should be making strategic decisions that can be used to
drive revenue growth and increased profitability.
Research Data Point “How would you rate your company’s success in terms of utilizing revenue management to improve financial performance?”
Midsize and Limited Service Hotels
21% 24% 17%
27% 32% 26%
Large and Full-Service Hotels
Very successful Successful Somewhat successful
Research findings are derived from the Q4 2015 survey on Hospitality Revenue Management.
• Have utilized revenue management for 8.5 years, on average • Have increased RevPAR by 7% on average • 25% have one or more revenue managers
• Have utilized revenue management for 10-plus years, on average • Have increased RevPAR by 9% on average • 75% have one or more revenue managers
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Chapter 2: Evaluation Checklist
This Evaluation Checklist offers a framework for conducting an apples-to-apples comparison of
technology solutions for Hospitality Revenue Management using the buying considerations outlined
previously. Other key considerations can be added based on individual buyer priorities. Relative
weightings can be assigned on a scale of 1 (“This buying consideration has no bearing on our purchase
decision”) to 10 (“This buying consideration is a very important factor in our purchase decision”).
Buying Consideration Weighting Vendor 1 Vendor 2 Vendor 3
1. Technology integration
2. Data processing and analytics
3. Pricing management
4. Channel (OTA) optimization
5. Customizability to property needs
6. Cloud (SaaS) / on-premise hosting / hybrid
7. Flexibility in data analysis and reporting
8. User experience
9. Other features and functionality
a. Demand forecasting management
b. Group pricing management
c. Multiple property management
e. Non-room (e.g. function space) rev. mgmt
f. Competitive rate shopping management
e. Other _____________________________
10. Support, training and consulting services
11. Reputation / install client base
12. Cost (TCO)
Overall Rankings N/A
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Must-Ask Questions
Chapter 3
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Chapter 3: Must-Ask Questions
Every hotel, resort and other lodging property naturally
wants to ensure that any technology investment that it
makes will ultimately drive increased financial success.
On that basis, the business case for upgrading to next-
generation revenue management capabilities tends to
be one that is easy to make. But which solution is the
right one for the organization? By asking the right
questions, prospective buyers can quickly rule out
some options while narrowing down others. Just as the
buying considerations are bound to vary depending on
property size, category and other factors, so, too, are
the “must-ask” questions. In fact, even hotels within the
same category or typology (e.g., single-property luxury
beach resorts) often have different customer demand
patterns, different profile mixes, different room
inventory and different ancillary revenue streams. The
information they will want to ascertain from solution
providers is therefore also likely to vary amongst them.
That said, they are also likely to have many questions in
common. Following are just a few of the questions they
may wish to explore with solution providers to help
ensure that, once implemented, they will be better
able to identify patterns, forecast demand changes,
make rapid and accurate pricing decisions, and so on,
resulting in positive revenue outcomes — and leaving
no doubt that the technology investment was money
well spent.
97%
91%
87%
82%
Integrating revenue management activities with sales and marketing activities
Performing an “audit” or assessment of existing pricing activities and practices
Research Data Point Percentages of lodging properties that view each of the following success factors as “important” or “very important.”
Creating the right revenue management culture within the organization
Importing all historic booking, reservation, competitive and other relevant data into the solution
Research findings are derived from the Q4 2015 survey on Hospitality Revenue Management.
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Chapter 3: Must-Ask Questions
Compile a comprehensive list of anticipated pricing questions and verify that the solution will be able to address the questions in a relatively rapid and automated manner.
Will the solution provide the answers we need to our pricing questions?
Ideally, given access to the requisite data, a revenue manager or other
qualified user of a next-generation solution should be able to answer all of the
day-to-day questions that are needed to maximize the company’s financial
performance. Such questions might include: By how much should we increase
or decrease our rates for a given type of room? How many customer groups,
and what size groups, should we accept on a given day? How much should we
charge walk-in customers? What should be the floor and ceiling for our rate
range? Are the changes in demand and bookings likely to represent a short-
term or long-term pattern – and, if the latter, what actions should we take in
response? To what extent should we discount negotiated rates? What should
be our rack rates for the coming year? What discounts and promotions, and to
what target customer segments, are likely to perform well right now and in the
near-future? What discounts would likely dilute profits and should we
therefore avoid? To what extent should we mark up our premium rooms,
based on the current and near-term demand patterns? What, if any,
competitors’ price moves would likely affect these demand patterns and how
should we respond should those possible moves become reality? How can we
counteract cancellations and no-shows, group wash, extensions and early
departures to capture optimal profitability? Tip: Compile a comprehensive list of
pricing questions and verify that the solution will be able to address these
questions in a straight-forward manner. Make sure the solution provides for
flexibility, which is important when it comes to setting pricing rules, flagging
special events, adjusting segmentation schemes, etc.. Also, make sure it’s able to
apply the most optimal techniques to not only price but also manage the business
and that it understands contract elements such as Last Room Availability (LRA).
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Chapter 3: Must-Ask Questions
Revenue management is a quantitative puzzle with an ever-changing palate of numbers, patterns and results and a need for continuous adjustment and refinement.
To what extent does the revenue management solution offer depth and
flexibility in data analysis and reporting? Revenue management is not like
assembly line work. Rather, it is a quantitative puzzle with ever-changing
numbers, patterns and results and a need for continuous refinement. Delving
into the data, testing different if/then scenarios, and collating actual results
requires a high degree of flexibility. Not all data queries can be anticipated. A
significant percentage of pricing questions may, in fact, need to be investigated
on an ad hoc basis. Out-of-the-box functionality may satisfy the needs of
beginners or small properties with relatively simple needs. But it is likely to be
insufficient for more sophisticated revenue managers and larger properties
with multiple room types, customer segments and ancillary revenue streams. A
solution should make it easy to accommodate virtually any need, including the
need to monitor and measure individual property, portfolio, and departmental
performance, the need to create customizable hierarchies for different geo-
markets, channels, room types, time periods, loyalty programs, and the need to
do manual overrides of the automated rates suggestions for OTA channels.
Important questions might include: Once problem areas are identified, can the
solution guide users on how to take appropriate action? Can tactical decisions,
including the overall impact, be tested live? Can the dashboards provide
exception reporting, identifying areas needing the most attention, and be led
to taking the most appropriate action. Tip: Verify that the solution is flexible in
terms of keys areas of functionality, including custom reporting, and validate all of
the vendors’ claims. If customized reporting is possible, find out what is involved in
the process of filtering and sorting data according to a specified set of parameters.
Make sure reports can be exported to Excel and other formats that may be needed.
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24
What is the solution provider’s track record for stability, reliability and continuous innovation? As with any technology solution purchase,
reputation and customer satisfaction are important factors in the decision-
making process. Nobody wants to purchase and implement a revenue
management solution that falls short of expectations due to known
shortcomings in stability, reliability or promised benefits. No input may be
more important to the buying decision than that which can be gleaned from
existing clients, preferably lodging properties that share some commonalities
in terms of size, typography and existing technology infrastructure. A solution
provider or consultant may be willing to provide one or more client
references. And some clients, particularly those operating in noncompetitive
markets, may be willing to share their experiences and perhaps even disclose
results in terms of percentage increases in RevPAR, for example. Client
testimonials and success stories can also be valuable sources of information.
Tip: Seek information about what performance issues may arise though
conversations with existing clients, preferable ones that are similar in size and
existing technology infrastructure. Ask about the product roadmap for the future.
What type of customer support is included? It’s important to have a clear
set of expectations around customer support and problem resolution as well
as the training that may be needed to get up to speed. More than three-
quarters (78%) of survey respondents agree that user training ranks as a key
success factor in ensuring that a solution is utilized as effectively as possible.
Does the solution provider or a certified subcontractor offer online or in-
person training programs? Does it offer an assigned point of contact? How
quickly will questions be answered and problems get resolved? Unexpected
interruptions in revenue management activities can be costly. Tip: Make sure
that resources will be available to resolve issues in a timely manner.
Chapter 3: Must-Ask Questions
No input may be more important to the buying decision than that which can be gleaned from existing clients, preferably lodging properties that share some commonalities.
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Roadmap and Recommendations
Chapter 4
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26
Chapter 4: Roadmap
According to estimates, less than 15% of the approximately 175,000 hotels worldwide have
implemented revenue management solutions to date. That percentage is increasing rapidly, however.
Hotel operators that rely on Excel spreadsheets or even basic software solutions for their revenue
calculations will be hard pressed to compete against those with pricing optimization capabilities. The
diagram below illustrates the migration path that revenue management solutions are taking as they
evolve in sophistication and accuracy and as the scope of applicability continues to broaden.
Best-available-rate pricing only Dynamic and flexible approaches to pricing to optimize profits
Increased room occupancy as the primary goal
Increased net revenue as the primary goal
Manual calculation, or only partial automation, of pricing and
inventory recommendations
Complete automation of pricing, inventory and all other
recommendations
Manual distribution of rates to OTAs and other online channels
Automated channel management and channel optimization
Revenue management separate from marketing & sales activities
Revenue management integrated with marketing and sales activities
Revenue management applied to guest rooms only
Revenue management applied to all property revenue streams
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Legacy Systems Next-generation Systems
Uncertain ROI and financial upside potential
Proven ROI and predictable (and substantial) revenue outcomes
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Chapter 4: Recommendations
Calculating price sensitivity of customer demand and deriving an analytical solution to competitive price effects is no small feat, and not something that can be easily done in Excel.
Next-generation revenue management solutions harness the power of big
data. They calculate price sensitivity of customer demand, taking into
consideration such factors as season, lead time and room type, and derive an
analytical solution to competitive price effects. That’s no small feat, and not
something that can be easily done in Excel. Given the ability to improve
financial performance by upwards of 10%, it’s no wonder that properties are
looking to take their existing capabilities to the next level. That means not
only implementing the right technology solution and using the right data set
(again, it’s important to be able to demonstrate the value of a data source in
improving forecast accuracy or pricing decisions), but also creating a revenue-
maximizing culture. Following are a few recommendations for buyers to keep
in mind as they look to upgrade their revenue management capabilities.
Hire a revenue manager. The hotel booking ecosystem is complex and
optimizing financial results across channels requires specialized skills, no
matter that pricing recommendations are becoming increasingly automated.
The role of the revenue manager has never been more important. According
to estimates, there are currently only about 10,000 hotel revenue managers
worldwide. Some industry observers contend that revenue managers should
be highest paid employees, given their potential contribution level. Of course,
the revenue manager and general manager are oftentimes one and the same,
particularly in smaller hotels with limited budgets. Indeed, many revenue
decisions today are being made by general managers who may have little or
no formal training in the science of demand forecasting and price
optimization. Needless to say, the results are bound to be suboptimal.
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Chapter 4: Recommendations
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Build a revenue management strategy and culture. What is a revenue
management strategy? Simply put, it’s a blueprint for improving financial
performance over a specific period of time. The strategy should incorporate all
of the revenue streams from across all parts of the hotel as well as all of the
revenue drivers, from the sales department to the online distribution channels.
The strategy should be built upon a solid foundation of revenue goals using
targeted RevPAR, ARI and other relevant metrics for tracking progress. It should
include a timeline with key milestones and spell out the tactics for achieving
success. The strategy should be as specific as possible, detailing, for example,
how the property approaches pricing – e.g., whether it is dynamically pricing
the best available rate based on forecasted demand (BAR) or on actual
demand. Ideally, the strategy will instill a revenue strategy culture, creating
cognitive alignment amongst all employees regarding the value of Hospitality
Revenue Management and communicating —and celebrating — the results.
Think in terms of Total Revenue Management. Until recently, most revenue
optimization algorithms managed room price and nothing else. But next-
generation Hospitality Revenue Management means also taking into account
the ancillary spending that takes place in hotel restaurants, bars, conference
centers, banquet rooms, golf courses, etc. For larger, upscale hotels and
resorts, these revenue sources typically account for one-quarter of total
company revenue. Thinking in terms of Total Revenue Management and not just
revenue management as it pertains to guest rooms can mean leaving a lot less
money on the table and significantly boosting revenue and profitability.
Thinking in terms of Total Revenue Management and not just revenue management as it pertains to guest rooms can mean leaving a lot less money on the table.
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Chapter 4: Recommendations
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Partner with the sales and marketing departments. The pricing
recommendations and market insights generated by revenue managers can
be valuable across multiple parts of the organization. Access to the tools and
dashboards should be made available to marketers, in particular, who are
charged with demand generation activities. Insights, such as those that
forecast periods of high demand versus low demand and that reveal which
customer segments are planning to book rooms for a certain period, should
inform every campaign. The insights should inform how aggressive to be with
marketing offers and promotions, toward which customer segments the offers
and promotions should be directed, and when, exactly, to present the offers
and promotions, and which marketing tactics are most likely to elicit the
desired responses. To achieve optimal results, it’s imperative that revenue
managers work hand-in-hand with the sales and marketing functions and
integrate all of their customer acquisition strategies.
Track and measure progress. A whole alphabet soup of metrics is now
available for tracking revenue performance. These metrics , defined in Chapter
1, should be used diligently. Many of the metrics have moved beyond RevPAR
and ADR, and also beyond just guest rooms. Consider banquet room revenue
performance, which can be measured in terms of function space utilization,
profit per available space/time (ProPAST) and profit per occupied space/time
(ProPOST). As discussed, it’s important to benchmark performance against the
competitive market, using such metrics such as MPI, ARI and RGI, all of which
are also becoming standard revenue management measurements.
To achieve optimal results, it’s imperative that revenue managers work hand-in-hand with the sales and marketing functions and integrate all of their customer acquisition strategies.
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Inside Voices and Outside Voices
Chapter 5
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31
It seems to me that the revenue management function is combining with the sales and marketing functions. To be truly successful at this game, you have to eliminate the traditional walls that stand
between these different functions. Everyone across the organization benefits when they work cooperatively to optimize
revenue. Using a centralized technology that everyone can access can help a lot.
A luxury resort like ours has a lot of different revenue levers. lt’s really
important that we’re able to look at all of these levers in a single dashboard. Having a holistic view of all the OTAs
and all the channels and all of the data that feeds into the model is the only
way to optimize revenue performance.
It’s hard to know when demand is going to shift. It’s just as harder to act on that
knowledge in real-time and make the appropriate pricing adjustments. Demand is
in a constant state of flux. It can turn on a dime. It takes an advanced revenue
management solution to detect change and immediately implement pricing decisions.
Hotels need to have a standard approach to market segmentation. Revenue managers and employees
need to adhere to it. Everyone needs to use the same rate and channel
codes. Everyone needs to follow the same operational procedures. Success requires consistency.
Chapter 5: Inside Voices
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Revenue managers, hotel executives and managers with first-hand experience in the art and science of
Hospitality Revenue Management tend to have a lot to say about the topic. Following are a few
perspectives gleaned from individuals who participated in the survey that produced the research
findings included in this Smart Decision Guide.
Senior executive, full-service hotel
Marketing manager, full-service hotel
Senior executive, mid-size hotel
Revenue manager, full-service hotel
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Following are a few additional perspectives from industry observers, including trade magazine editors and
research analysts, with insights into next-generation Hospitality Revenue Management.
Train strategic thinkers and think total revenue
management; not just rooms revenue. Don’t allow revenue managers to rely on automated tools so
much that they forget to use their own experiences. Adopt new dynamic pricing tactics. Also, determine whether the collection of big data is worth the cost. Work with the marketing team to streamline how to
test and measure the data, then evaluate whether what’s being collected is actually being used.
Bob Gilbert, President, The Hospitality Sales and Marketing Association International
Ahmed Mahmoud, founder, RevenueYourHotel.com
Pamela Whitby, editor, EyeforTravel.com
Choosing the right people or partners and tracking, managing and acting on
data (while staying on top of all aspects of traditional
revenue management such as managing rates, yielding,
forecasting, visibility etc) remains crucial in today’s
hotel environment.
Hotels can better manage their revenue by taking
advantage of various technologies that make it
easy to monitor the current state of the economy, the
hotel industry itself and the historical performance of the
hotel.
As the market evolves, capabilities that were once cutting edge become default and new
functionality becomes differentiating. Customer segmentation and rate fencing have become
Table Stakes capabilities and should no longer be used to differentiate solutions. Instead focus on
seamless integration with other systems to build a guest profitability view in order to get the best fit
for your requirements.
Chapter 5: Outside Voices
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Vendor Landscape: Revenue Management Systems, Info-Tech Research Group
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Research Notes and Underwriters
Appendix
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Appendix: Research Notes
47% 35% 16%
Staff Managers Senior executives
Small hotels (including motels and
bed & breakfasts)
Large and full service hotels and resorts
14% 49% 37%
Midsize and limited service hotels
North America Other
66% 28% 6%
Europe
Job level / role of survey respondents
Size / category of survey respondents’
hotel (or other lodging property) employers
Geographic location of survey
respondents
In Q4 2015, Starfleet Media conducted an online survey, consisting of both multiple choice and open text
questions, to capture the perspectives of industry practitioners with firsthand experience with Hospitality
Revenue Management. Some of the research findings are highlighted in this publication. Following is some
basic information about the 137 qualified survey respondents who participated.
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Appendix
RateGain is a leader in hospitality and travel technology solutions for revenue optimization, rate intelligence, electronic distribution and brand engagement helping customers around the world to streamline their operations and sales. The company provides Cloud based solutions to Hotels, Airlines, Online Travel Agencies, Car Rental Companies, Cruise Liners and Tour/Wholesale Operators. Unity by RateGain, is an revenue optimization suite that helps hotels streamline their rate intelligence, reputation management, pricing optimization and distribution systems into one unified box by combining all the above in a easy to use single cloud platform. Unity delivers optimized prices by considering multiple factors such as competitive pricing, reviews and ratings, market compression, Occupancy data etc and the same system helps hotels distribute those optimized prices to over 600 channels globally. Hotels can also access various components such as competitive pricing or reviews and ratings as a standalone module to help them with their day to day strategy or prepare for that important meeting! Unity helps hotels increase Revpar by up to 15%. www.rategain.com Contact: Devonshire House 60 Goswell Road London EC1M 7AD [email protected] +44 2035141419
Appendix: Underwriter
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This Smart Decision GuideTM is the result of primary and secondary research conducted by Starfleet Research, which is the IT market research arm of Starfleet Media. It was independently produced, without editorial involvement from the company underwriters. Our approach to content production provides for unbiased, fact-based information. It represents the best and most comprehensive information, analysis and recommendations available at the time of publication. Starfleet Media assumes no liability for the use or interpretation of any information contained in this Smart Decision Guide. Purchase decisions based on the information contained herein are the sole responsibility of the individual decision maker(s) and/or the companies they represent. Unless otherwise noted, the entire content of this publication is copyrighted by Starfleet Media. It may not be reproduced, distributed, archived, or transmitted in any form or by any means without the prior written consent by Starfleet Media, except by the company underwriters that have secured perpetual licensing rights to the content. For additional information, please contact Starfleet Media at [email protected].
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