Advice

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

In the digital age, where innovation happens at lightning speed, it’s hard to believe that only about 15% 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 a global study on the state of hotel revenue management from the perspective of the revenue manager – and the results are telling.

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% of their time collating information, leaving limited time to analyse and execute decisions that ultimately make a well-reasoned 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 study found, often they are asking themselves, “In this fluid market, how do we determine where our property fits? What’s the competitive set?”

There was a consensus among respondents 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. 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 accommodation providers. 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.

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.

The real breakthrough for 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.

Vivek Bhogaraju, director of revenue management platform solutions at Expedia Group

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