Upgrading Your Hotel Revenue Management Capabilities? These Considerations Will Help Ensure Success

Research and recommendations based on the experiences of hundreds of top-performing hotel operators

By Jeff Zabin - Research Director at Starfleet Research

8 March 2018
  • Upgrading Your Revenue Management Capabilities? Here Are a Few Considerations

Zabin

The following is excerpted from The 2018 Smart Decision Guide to Hospitality Revenue Management, which is now available for complimentary download.

Most hotel operators, particularly those with properties in popular destinations, have a lot to celebrate. In the United States, the industry has enjoyed eight straight years of RevPAR growth. Industry analysts agree that the party may be far from over. STR and Tourism Economics predict that U.S. hotel occupancy rates this year will increase to 66 percent, ADR will rise 2.4 percent, and RevPAR will increase 2.7 percent. The luxury and independent chain segments are expected to report the largest increases in occupancy, according to these research firms, while independent hotels are forecasted to see the most substantial growth in ADR and RevPAR. PwC forecasts occupancy to reach the highest level in more than 35 years.

The steady climb in hotel occupancy rates and record-breaking RevPAR growth continues, albeit at a slower rate, even despite the emergence of some very real challenges to the hotel industry. These include the onerous commission structures imposed by online travel agencies (OTAs) and the effect of Airbnb and smaller online marketplaces operating in the so-called sharing economy.

In addition, there is the simple fact that, in many markets, supply consistently outpaces demand, reducing hotels' pricing power. Many hotels have been hampered by internal challenges, as well, not the least of which, in some cases, is the limited number of rate codes imposed by legacy property management systems, constraining the number of price points a hotel can offer potential customers.

The widespread adoption of data-driven revenue management strategies and advanced technologies no doubt deserve a lot of the credit. These capabilities make it possible for hotel operators to yield rates more aggressively than ever before. Data is the new oil, as they say, and analytics is the engine that converts the data into increased profitability, as evidenced by these record levels of RevPAR growth.

Until recently, the idea of a revenue manager gazing into the dashboard equivalent of a crystal ball and generating precise demand forecasts for every night of the year across every room type and every guest segment was the stuff of fiction. Now, revenue managers have the tools to generate millions of new forecasts based on analysis of demand forecasts, competitor rates, market conditions, price sensitivities and demand drivers like seasonality, day-of-week differences and market dynamics.

A state-of-the-art solution is capable of generating tens of thousands of optimal pricing decisions on a daily basis, and there is reason to believe that revenue management capabilities will get even better as the analytics continue to evolve. In fact, according to research conducted for The 2018 Smart Decision Guide to Hospitality Revenue Management, more than half (53 percent) of today's hotel operators believe that revenue management will become even more automated with further advances in data analytics capabilities.

So, which technology solution is the right one? How can a hotel operator be assured that the solution they implement will best meet the needs of th hotel and enable revenue managers to achieve optimal results? The following are just a few key buying considerations to keep in mind.

Technology interoperability and data integration

Hotel operators today can gain a deep, unprecedented understanding of their guests —who they are, what they do, what their preferences are, and how much they spend across the property. Combining the platform capabilities of a next-generation property management system (PMS) and an advanced revenue management solution, hotels can automate decision-making processes in ways that can make a world of difference in terms of pricing and inventory management.

Technology integration is key to revenue management success. The PMS, the central reservations system (CRS) or channel manager, and the revenue management solution all need to seamlessly connect and share data —preferably, in a real-time manner. Inventory-related data needs to flow into all distribution channels, including direct booking platforms and call centers, as well as the global distribution system (GDS) and OTAs. The CRS needs to publish optimal pricing decisions and channel recommendations based on input from the revenue management system.

In short, no revenue management solution can be treated as a standalone application. It needs to seamlessly integrate with multiple data streams. It needs to integrate with marketing, sales and distribution systems as well as with OTAs and other third-party channels.

Internally, point of sale (POS) data needs to integrate with PMS data to provide a holistic view of a guest's stay, including their ancillary spending on food and beverages, guest services, spa visits, etc. Buyers need to know that all technology components and data sources are compatible with the solution and also that all historical PMS data can be readily extracted and validated.

Cloud computing data processing power

Advances in data processing power, largely enabled by the rapid growth of cloud computing, are enabling solution providers to develop capabilities that revenue managers have been striving towards for more than a decade. Advanced revenue management solutions are able to process increasingly large volumes of data, and faster than ever.

With the advent of a next-generation hospitality platform built for the cloud, the grand movement to unify the disparate and fragmented technologies and data silos has become an achievable goal. Hotels can connect and seamlessly share data in the cloud across all parts of the property or properties and across all of the various hospitality solutions.

For a large property, the totality of the data set may include dozens of guest segments, a dozen or more room types, several years of historical booking and reservations data, and upwards of a dozen length-of-stay buckets. Advanced processing power makes it possible to include real-time integration of customer lifetime value (CLV) into pricing and availability, modeling consumer behavior from click-stream data, and integrating loyalty and total property spend data.

Add to the mix competitive rate data, demand data, multi-market economic data, and even air traffic and weather predictions, if desired. Combining all of these data sets for just one hotel could amount to several hundred million observations. Generating the pricing and distribution recommendations could easily require result in thousands of decisions being generated each day for every day into the future. 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.

As an example, one major hotel brand recently revealed that it generates more than 45 million forecasts nightly for each hotel, segment, room type, and channel for the next 365-day period. Needless to say, the processing and algorithms require an enormous amount of data storage and processing capacity to accomplish this task. While even global hotel brands may not have data processing requirements that are in the same league as Amazon, Apple, Facebook or Google, their data processing needs are certainly large enough to constantly stretch the limits of on-premise data storage and computing capacity, hence the need for cloud-based deployment. Prospective buyers need to know that any revenue management solution under consideration can handle the rigors of big data processing and optimize pricing calculations in highly compressed timeframes.

Channel management and optimization

Rates and inventory information need to be reflected accurately across all systems and touchpoints, including OTAs and other partner- and guest-facing channels. Otherwise, the prices that are presented to prospective guests on some channels may be lower than desired or rooms presented on some channels as available may, in reality, be unavailable, and the property may be overbooked. Inputting room rate and availability changes manually can result in errors that damage the brand's reputation and lead to revenue loss. It is important to understand the extent to which room change updates are handled automatically rather than manually and what the average lag time is in implementing channel updates.

Customization to user and property needs

Because users have differing needs, any solution will invariably require some degree of customization. Revenue managers should be able to create notifications based on their own predefined triggers. They should be able to define the data inputs and dashboard views based on their own priorities and display preferences. Flexibility in configuration is needed to mine the right data and generate actionable insights. Prospective buyers should have a high level of confidence that any solution under consideration has flexibility and customization capabilities to meet the needs of the property as well as those of the revenue manager(s) and other end-users.

Group sales optimization

Buyers with group business goals should check that any solution under consideration provides group sales optimization. This means being able to evaluate group requests by forecasting the impact and displacement of transient guests while calculating ideal group rates. Some solutions offer pricing recommendations by room type to maximize inventory and can provide meeting planners with a blended price quotation. Some solutions suggest alternate dates for flexible groups based on projected demand and availability to drive business to dates where the hotel stands to gain the most profit. Some solutions offer simultaneous evaluation of multiple properties to identify which one would be the most profitable for the entire enterprise. Having profit-based price evaluation capabilities enables sales teams to understand unsold and undersold meetings and events space as well as less-than-optimal displacement of group business.

Just published by Starfleet Research, The 2018 Smart Decision Guide to Hospitality Revenue Management is currently available for complimentary download.

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Jeff Zabin

Jeff Zabin is Research Director at Starfleet Research, the IT market research arm of Starfleet Media, which benchmarks best practices in hospitality technology and publishes the popular Smart Decision Guides on hotel-related topic areas. He also serves as managing editor of Hotel Technology News (hoteltechnologynews.com) and as Uhrverkäufer at HotelClocks.com, authorized distributor of the world's most exquisit timepieces to luxury hotels and resorts.

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