The history of revenue management reads more like legend than reality. Airlines were the first to understand the power of segmented pricing for their seats, allowing them to yield more revenue than they would with fixed pricing across the board.
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The airlines used the term “yield management” to maximize revenue by providing the right product to the ideal customer for the best price. The process was about getting the highest “yield,” or most seats filled, by creating conditions and systems that more intelligently price available inventory.
Using Big Data to Create the Perfect Customer at the Right Time and Price
Big data can be defined as structured or unstructured information that contains greater depth and variety than traditional data gleaned within an organization. Arriving in increasing volume and velocity, it is typically richer and more complex, relying on a variety of sources that combine traditional consumer data with external information such as flight activity, car rentals and other outside indicators.
The primary value of this massive volume of information is to help business solve problems. Although big data is a relatively new concept in the field of leisure and hospitality, the widespread use of cloud-based IT systems has created an interconnected environment with the ability to store extensive information at minimal cost. But big data is only as good as the people and platforms businesses invest in to analyze it.
In a hotel environment, big data management squares up nicely with the revenue management team. Internal and external factors affecting consumer demand must be continually evaluated in order to attract high-value customers. Hotel property management systems offer a gauge of customers’ historical interest, tendencies and experiences, determining the elasticity of room rates and amenities applicable to each individual. In most cases, hotel systems have data that can be evaluated to also optimize price elasticity for revenue management in operations; however, in many cases, the structure does not exist to correlate relationships in data points to determine the future tendencies of existing or potentially high-value consumers.
That’s where external data adds value. Considering that hotels are effectively the end game of other complementary components of travel including flights, car rentals and taxi services, data from these sources are typically a strong indicator of consumers’ short-term travel plans. Both Transportation Security Administration throughput (an output publicly available for tracking) and airline reservations (a leading indicator) act in tangent to provide a short-term vantage point for viewing potential customers in the lodging pipeline.
For example, the return of business travel has been a hotly contested issue as the economy recovers during the pandemic. Although predictions early in the summer were hopeful of a more robust return of business travel, the signs from various external data sources are pointing otherwise. “I’d say it’s a pause, as compared to continued growth,” Delta Air Lines CEO Ed Bastian told an industry conference on Sept. 9. Delta had been predicting a 60% uptick in corporate travel by September, but based on case data from the delta variant and corresponding sentiment from firms about office re-openings, Bastian backed off the robust outlook. Other data points that tell a similar story of reduced current and future travel include OpenTable reservations, Google Trends on travel-related search terms and even vaccine distributions by city, state and region.
US Hospitality Spending
In addition to hard data, it’s been widely accepted that consumer sentiment, or soft data, has often indicated the state of recovery. In a recent survey by the American Hospitality and Lodging Association of more than 400 business travelers, 67% are likely to take fewer trips, while more than 50% are likely to cancel existing scheduled travel with no plans to re-book. Leading indicators such as this have shown that the reduction in business travel- both temporary and permanent-will cost the hotel industry approximately $59 billion in 2021.
The lack of certainty around the return of business travel, combined with a stark reduction of leisure travel as schools reopen and the inability to predict the future impact of COVID-19, make it imperative that hotel businesses deploy optimal revenue management strategies rooted in empirical data to find and attract high-value customers.