Forecasting plays a key role in any hotel revenue management (RM) strategy, helping hoteliers make important pricing decisions that significantly impact profitability.
NB: This is an article from Rainmaker
It’s a sophisticated process that reduces uncertainties, better equipping managers to optimize financial results by anticipating future demand and business performance. Until recently, however, a key element has been missing from the forecasting process. And that’s forecasting for group business.
The Problem
Group business can substantially influence hotel profits, affecting not only transient business but ancillary spend. Revenue management science has traditionally concentrated on yielding transient business, not putting any real focus on groups. But effective yielding must include analysis of all consumer behavior and future demand. When you don’t consider both transient and group business in your revenue management strategy, you can’t truly solve the problem of optimizing your entire property and maximizing profits.
Both the transient and group segments essentially “compete” for a fixed inventory of sleeping rooms. But beyond this, groups also utilize function space, making RM decisions for groups much more complex. The booking windows for transient and groups create challenges as well, with groups typically booking earlier in the process and transient booking later. Groups can produce constraints on available sleeping rooms, providing opportunities for hotels to capture a higher rate from transient customers or other groups. Problems may arise, however, if a hotel books too many rooms at a negotiated rate, displacing higher-value customers later on in the booking window.
Relying on traditional methods such as transient displacement analysis alone won’t help you optimize your bottom line. It only accounts for what you need in group revenue to break even with displaced transient bookings. Transient displacement analysis also doesn’t consider the possibility that groups can – and will – displace other groups. Further complicating this issue is the fact that the majority of RM solutions are designed exclusively for transient business, therefore they lack the sophistication and agility required for group forecasting.
The Solution
An accurate group forecasting solution with well-crafted segmentation can resolve these issues, and help a hotel achieve an optimal business mix. With an effective group forecasting tool, you can evaluate a proposed group against forecasted transient business as well as other forecasted groups that have not yet booked. A group forecast helps you better understand what inventory you have left for transient segments. You can optimize your transient forecasts against capacity that is already adjusted for anticipated group bookings. And you can proactively price your transient business for bookings that may come far in advance. Moreover, transient and best available rate (BAR) pricing that reflects your group forecast also helps your sales team negotiate better rates from groups.
Another benefit of group forecasting is that you’re able to predict whether the expected demand from a request for proposal (RFP) will actually occur. Because group business won’t necessarily use all the rooms in their block, a good group RM system can handle those fluctuations in group demand, dynamically updating rates across market segments as needed.
By including group forecasting in your RM strategy, you’ll find the best strategic mix for your hotel across both transient and group segments. And you’ll optimize availability and pricing for guestrooms and meeting rooms. State-of-the-art group RM software underpins a solid RM system that not only factors in transient business displacement, but empowers you to maximize your group business potential.
