While going through old books the other day, I came across a textbook from my Ancient Greek class in high school. Thumbing through the book, an interesting word jumped out at me: “tautology,” which comes from the Greek “tauto” (the same) and “logos” (word or idea). A tautology is a figure of speech to describe an unnecessary repetition of meaning, basically using more than one word to say the same thing.
Immediately I thought of the most evident example of tautology in my day-to-day life: unconstrained demand.
The term “unconstrained demand” has been a pet peeve of mine since I began learning hotel revenue management a decade ago. Demand, by default, is an unconstrained concept. A property should always start its hotel Revenue Strategy by viewing the entire universe of available travelers, regardless of how much supply you have (rooms to fill). It isn’t until you begin measuring and making decisions based on your hotel’s capacity that your demand becomes “constrained.”
Once you’re at this stage, I’d say you’ve moved from estimating demand to building a forecast.
How Did We Get Here?
Many hotels today still either do not estimate demand or only forecast up to the physical capacity of their hotel. Because anticipating total available demand provides a much clearer picture and more opportunities to improve pricing, the ability of a revenue manager or revenue management system to add in data sets that look at “unconstrained” demand is on the surface innovative and appealing.
So here’s what hoteliers have tried thus far.
Through statistics classes and Excel modeling, revenue management students are learning to calculate and measure demand through “synthetic unconstraining.” It’s similar to how ski jumpers forecast their takeoffs or how military personnel use data to predict the trajectory of a missile. The faster and farther out the pickup, the larger the demand estimate.
