NB: This is a viewpoint by Rich Maradik, founder of nSight for Travel.
The leading hotel revenue management systems (RMSs) essentially use a hotel’s own past data to predict the future. This technology must evolve in order to help hotels better manage the complexities of distribution and marketing tomorrow.
RMS tools fall short in four areas that are essential to hotelier profitability — from providing views beyond proprietary data to delivering correlations between demand and rate.
The good news is that since most transient consumers shop for hotel purchases online across thousands of third-party and branded websites, a massive amount of data exists showing how hotels stack up against their competition.
With transient business being so competitive and most of it materializing well inside 30 days of the stay, this data is invaluable to hotels as they make all-important pricing and marketing decisions in order to gain share versus competitive hotels – and the OTAs.
The challenge is accessing this fragmented data and integrating it with a hotel’s own historic data that populates RMS tools. In addition, that data must be presented in a way that makes current revenue management practices smarter and existing marketing programs better.
1) No View of “Unconstrained Demand”
Today’s RMS tools help hotels forecast overall occupancy and rate for future arrival days largely based on historical data from previous years.
That’s where current tools come up short. They don’t go beyond the hotel to see the bigger picture of market opportunity. Right now, many RMSs provide no insight regarding true demand available from the significant transient segment, including both leisure and unmanaged business travel.
“Unconstrained demand” is a revenue management term, which means the total demand for rooms on a specific date if you could in fact provide rooms for all of that demand.
Obviously, the concept cannot be taken too literally as GMs and revenue managers have to put some reasonable boundaries around what is possible, and even desirable, with constraints such as number of available rooms.
RMSs do a good job of constructing this historical view of opportunity costs from the past data on various demand channels:
Additionally, RMS platforms account for factors such as on-the-books production by channel, destination-specific demand drivers and changes in supply as additional inputs.
But what if this year is different than last year? What if there is new political/economic unrest in the market? Or new competitors, such as Airbnb, that change the market dynamics?
Then hotels need revenue management solutions that look at what’s happening in the market right now to capture the broader opportunity inherent in unconstrained demand:
Having this type of information helps hotels make smarter rate and distribution decisions for future dates.
Example: if a hotel knows from forward-looking shopping data that market demand is strong – even higher than last year or last month – and competition is lowering rate in a panic because lead times are shorter than in the past, the hotel can opt to hold rate and ultimately increase ADR in the long run.
Insight into unconstrained demand helps hoteliers increase profitability based on the following advantages:
In a new environment, hotels have to make decisions in new ways. No more relying on trends based on historic data, but putting unconstrained demand – or your forward-looking opportunity — into the mix.
2) No Link to Marketing
A big opportunity for RMSs is to provide marketing teams with the information they can use to do a better job of capturing demand. Enhancing marketing information has massive potential for RMS providers to yield properties at an even higher level.
Indeed, revenue management and marketing need to do a better job of working together. One way they can do this is not only evaluating booking pace to forecast together but also observing future demand trends. That includes a full range of forward-looking insights on the market and hotel level such as: