Clarity. Confidence. Control.Clarity. Confidence. Control.

Revenue management developments in hospitality industry

Hotel Website Marketing Conference

Uli Pillau

Amsterdam

25th March 2010

Discussion Topics

• Revenue Management history & foundation

• The Revenue Management Cycle

• Hospitality Trends

• Dynamic Pricing & Best Available Rate developments

• Technology limitations and restrictions

• Examples from transaction / reservation systems

Today’s challenges of hotels and hotel groups

• 20 years ago revenue management for hotels was much simpler• Initially a hotel reservation department was the point of sale for all clients - PMS• Subsequently hotel groups added CRO’s and the GDS came along (CRS)• The first Internet third party channels started to play a role• Today there are hundreds of channels customers can use to evaluate hotels and

do hotel reservations• In parallel the pressure on hotel groups, owners, management increased• Technology became more complicated• Less time and resources available to make more difficult decisions• The Internet makes pricing more transparent• Rate Shopping and Channel Management were invented• Scientific Revenue Management helps to some extend, but….

• Automation and next generation technology developments will become the key to success!

Yield/Revenue Optimization

•Successful Revenue Optimization is made up of different important components:

• Revenue Optimization culture• Accurate Forecasting • Close cooperation and agreement on selling strategies between

Sales and Rooms Division• Tools such as Rate Shopping, Channel or Revenue Management • Good restrictions and controls in all reservations systems and

distribution channels• Following the Revenue Management Cycle

The Revenue Management Cycle

Forecast

Monitor

Optimize

Control

€€ Profits €€

€€ Revenues €€

0

50

100

150

200

250

Sun Mon Tue Wed Thu Fri Sat

0

50

100

150

200

250

Sun Mon Tue Wed Thu Fri Sat

Unconstrained Demand

Historical Occupancy Data

Room

s

Observed Demand

Unconstrained

Demand

Optimize

Forecasting Overview

• The objective of demand forecasting is to ensure the ability to make / deliver optimal yield decisions• Historical plus on books demand• Detailed length of stay forecasts – transient and group• Separate analysis of periods of abnormal demand (S.E.)• Separate analysis of cancellations and no show patterns by

market segment• Accurate measurement of uncertainty of the forecast• Self Learning – Auto Correcting

• Any forecasting method not taking all of this into account will provide sub optimal yield decisions / decision support

Forecast

Optimize

ControlMonitor

What needs to be Optimized?

• Unconstrained Demand• taking into account the volume and value of the demand

• Accounting for the cost of accepting different types of demand• e.g. Channel Costs

• Inventory Availability• Overbooking levels which account for group and transient wash

ControlMonitor

Forecast

Optimize

Controls

Forecast

Optimize

Monitor

Control

• The foundation of Revenue Management has always been• Length of Stay Management• Rate Management• Overbooking Management

• Controls in form of Last Room Value/Hurdle Rates and OB by hotel and room type

• In addition, Revenue Management must also address the following:• Best-Available-Rate, Dynamic Pricing• Channel Management • Group decisions – total value• Cluster decisions

Hospitality Trends

Forecast

Optimize

Monitor

Control

• There has been a shift in RM caused by pricing transparency (Internet) and change in market activity

• Automated RM should be a high level combination of Inventory Control – LOS, OB, Rate as well as Pricing & Channel Controls

• Business intelligence in setting pricing and resetting that pricing, based on rapidly changing market demand is critical

Forecast

Optimize

Monitor

Control

• Reference Channel • Positioning of the hotel against

the competitors• Skip hotels on certain dates

It adds consistency and a structured approach to the integration of rate shopping data into the decision process

Factoring in Competitive Rate Shopping Data

Channel Management

Forecast

Optimize

Monitor

Control

• Series of decisions required• Consistency ? • Rate or Revenue Parity per Channel ?• Cost of business per channel ?

• Pricing assistance is going to help the deployment of the right price to the right channel

• Automatically (or not) open and close the channels based on their value to the hotel and the demand to come through that channel

• Dynamic, auto-correcting, pattern-based

forecasting (unconstrained by LOS)

• Senses new demand patterns which might

evade human eye, both transient and group

• Quantifies uncertainty

• Relies more on recent trends than stale

history

• Produces valid decisions within 60-90 days of

installation

• Separately analyzes special events, without

ignoring underlying trends

• Considers competitive set

• Integrates closely with Channel Management

• Welcomes user input to the forecast

Scientific Forecasting in today‘s world

• Includes all previous requirements

• “Hybrid” forecasting elements

• Considers competitive set AND other

market relevant data

• Considers more data from different

sources (or ideally one)

• Next generation platform will add

components such as integrated campaign

management, CRM, sales & marketing

• Need for new technology generation in

hospitality industry – one data source and

stronger selling systems

Scientific Forecasting in tomorrow‘s world

RevenueOptimization and PricingSolution

PMS/CRS

Room Inventory Data

Updating all channels at the same time

CRS Restrictions and PricingFor GDS/Internet Channels

WWW

Restric

tion & O

verbookin

g

Controls

GUI, ALERTS

& REPORTS

Da

ta E

xtra

ct

De

cis

ion

s/P

ricin

g U

plo

ad

Web Shopping Engine

Internet channels

ChannelManagement

tool

e.g. Integration between RMS and Channel Management

Restrictions in the reservation process…e.g. Opera PMS

IDeaS – Integrating Decisions and Systems

Global

Regional

Resorts / Casinos / Convention Hotels