Recent Revenue Management related activity on Twitter reinforces the various ways we discuss demand as an industry.
From how to forecast hotel demand to tweets such as #revenuestrategyfordummies, the common thread of these posts is that Revenue Managers must estimate consumer demand across multiple distribution channels to inform their pricing and yield strategies.
Increasingly, discussion revolves around the concept of “Unconstrained Demand” and how this concept could be the Holy Grail for hotel forecasting.
Unconstrained Demand Defined.
The term Unconstrained Demand immediately conjures a meaning informed by each of our own unique experiences. When speaking with top Revenue Management or Marketing executives, everyone has their own variation of what Unconstrained Demand means. If there is a data set that is thought to be the Holy Grail, then there ought to be more consensus around the meaning.
A quick Google search tells us that the concept of Unconstrained Demand is a hotel-centric metric despite the concept originating as a sales and operations planning tool for production based businesses, e.g., how many widgets could the assembly line produce if demand was unconstrained.
For hoteliers the definition of Unconstrained Demand is still evolving. The concept as applied in our industry does have some generally accepted thematic components, namely that:
- Total demand is a measurement of all potential purchasers (sales and denials) for a given period
- The constraints on total demand are typically a lack of available room inventory
- Historical data is the key input for developing unconstrained demand
- Best practices have the demand stratified by lead time for better practical application of the information (aka pick-up)
A classic application of the Unconstrained Demand concept would be to develop an estimate of total demand by applying either imputed or statistical methods to historical data sets and compare that to remaining inventory to assist in making pricing and channel management decisions.