Hotel revenue management: is there a breakthrough on the horizon?

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    In the digital age, where innovation happens at lightning speed, it’s hard to believe that only about 15 per cent of lodging properties globally leverage revenue management (RM) technology, even though hotel revenue management practices and technology have been around for more than 30 years.

    Using this baffling industry statistic as a motivation, we commissioned Phocuswright to conduct a global study on the state of hotel revenue management from the perspective of the revenue manager – and the results are telling.

    THE CHALLENGES OF TODAY

    Information overload, disparate hospitality systems, and the increasing complexity of online distribution: I know, it’s not getting easy any time soon.

    The prevalence of the internet, online travel agents and travel aggregators and the resulting price transparency has made it almost impossible for revenue managers to do what they used to be good at – managing room inventory and making pricing decisions in a timely fashion to drive revenue performance.

    Inundated with the sheer volume of data from various distribution channels, revenue managers have to spend 50 per cent of their time collating information, leaving limited time to analyse and execute decisions that ultimately make a well-reasoned RM strategy stand out from the rest.

    Larger properties and chain properties are also not immune. The study found that although most large chain properties and management companies have access to revenue management technology, many property-level revenue managers override system recommendations either because of local knowledge or “lack of faith in the recommendations” made by their brand-prescribed RM solution.

    Many revenue managers believe that “other important information is lacking”. For example, type of booking – whether it’s room only or event space is required too; or if loyalty program status of guests is relevant to the process. And, that’s not even the end of it.

    The rise of short-term vacation rentals and alternative accommodation (which is not ‘alternative’ anymore!) has added a new complexity that forces revenue managers to rethink their pricing and forecasting decisions. As the research study found, often revenue managers are asking themselves: “In this fluid market, how do we determine where our property fits? What’s the competitive set?”.

    THE OPPORTUNITIES FOR THE FUTURE

    1. Less RM technology, more RM capabilities

    There was a consensus among research participants that industry action is needed to create information standards and open architectures to support RM tech adoption. Revenue managers are looking to have a truly integrated, cloud-based RM technology, or an insights solution that is capable of integrating data from the universe of hotel systems, validating data and sharing actionable recommendations.

    However, only a handful of properties relying on RM technology is not the way for moving the industry forward. We need to see RM capabilities separate from RM technology solutions, so there is widespread adoption of data-driven pricing and forecasting decisions. Unfortunately, traditional RM technology solutions mean hurdles such as cost, complexity and the need for a RM specialist to manage the solution. We know that this does not work for the vast majority of lodging properties.

    What if we were to remove these hurdles and enable every hotel, irrespective of their size or geo-location, to make better pricing and forecasting decisions every single day? Not only would we make our respective markets perform better, but as an industry, we would be better served with rational, consistent and timely decisions.

    2. Travel intermediaries to step up, filling the information gap

    As consumers’ path to purchase has shifted online, travel intermediaries are being increasingly called upon to provide more information, such as destination demand data, traveler purchase insights, that is simply not available elsewhere.

    Indeed, if you look at how hotel revenue management works in the current environment, it tends to focus more on demand for rooms and event space at property-level. With the evolving distribution landscape, travel intermediaries can unlock valuable insights such as destination demand data, price-response attributes, conversion rates and real-time competitive set data.

    Closer to home, at Expedia Group, we see over three billion search combinations for our travellers every day; 20,000 lodging price and availability changes every second; and over two billion exchanges of data between lodging partners on our platform on a daily basis. Our lodging partners tell us that when they incorporate Expedia Group demand insights into their revenue management decision-making, they can preempt where the market is going.

    In the study, one senior level chain RM executive also noted: “With improved destination demand info, there’s a possibility to reduce forecast error from 10 per cent to two per cent.”

    3. Prescriptive Storytelling: Human and AI are joining forces

    The real breakthrough of RM technology lies in the machine learning capability of aggregating and analysing data, making clear and prescriptive recommendations, while still enabling users to understand the outcomes of their actions. Simply put, revenue managers yearn for receiving recommendations in a simple storytelling format.

    In this AI-driven world, where RM technology is racing to harness the data and build on its strengths, let’s not forget that ultimately it will be up to humans to act on that data. A future when people and machines truly unlock revenue growth opportunities is what we should all aspire to as an outcome.

    Wouldn’t it be great if RM technology speaks your language? Wouldn’t it be valuable if RM capabilities could simulate what would occur if particular actions were taken; what would happen if those actions were not taken?

    CALL FOR INDUSTRY COLLABORATION

    Mark Twain once said: “The secret of getting ahead is getting started.”

    With new opportunities on the horizon in the competitive landscape, it’s high time for the best minds in the industry to come together and start building a new and collaborative platform for hotel revenue management practice.

    At Expedia Group, we are committed to democratising access to RM technology and help our lodging partners drive revenue performance. However, we cannot do this alone. I would personally like to hear from you if there are opportunities for our teams to collaborate on adoption of revenue management practices for all lodging properties – no matter the location or size. I’m convinced that together, as an industry, we can make this happen. Let’s go!

    Download the Phocuswright report here to learn more.

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