We have been inundated with calls to trust the science since the pandemic began.
NB: This is an article from Duetto
Similarly, we consistently hear from hotel commercial teams that they have significantly fewer resources available these days. This requires them to rely more on technology and automation than they have in the past. Thus, GMs, directors, and managers of sales and revenue management are urged to trust the science behind the systems that they use. But let’s explore what is necessary for them to take this leap of faith, specifically in their use of a revenue management system (RMS).
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User Forecast = System Forecast + Overrides
Data is of paramount importance to the revenue teams that leverage an RMS platform to optimize hotel performance. Information is progressing at an accelerated pace, always faster. Internal and external factors, disparate data sources, and trends must be thoroughly evaluated before they are incorporated into a forecast. That ordinarily requires data insight skills – turning data into knowledge and knowledge into action. That is where the human element is most important. Fancy charts, dashboards, and visualization platforms are great, but they do not interpret the data. While they support storytelling, they do not tell the story. It is the revenue manager that must correctly interpret results, communicate what went right or wrong, and collaborate with the wider commercial team to plan a course of action.
Likewise, an RMS’ primary function is to produce an accurate forecast based on predictive analytics that includes a variety of subject hotel and market data inputs. The COVID-19 shutdown skewed many of these sources, but it did not change the RMS’ intended function. If you know your history, then you know RMS inventory selling and pricing capabilities were born out of the central reservation system (CRS). What drives these capabilities today is the system and user forecast. The user forecast equals the system forecast plus overrides. This key RMS function encapsulates the symbiotic relationship between human and machine, much like that between Eddie Brock and Venom, for Marvel comic fans out there like me.
A previous boss of mine, Greg Cross, who is a pioneer in hospitality revenue management, once asked me – what was the first hotel revenue management system? After I provided a few technology guesses, he simply smiled and joked that it was the neon ‘No Vacancy’ sign. It is amazing how far revenue management technology has come in such a short amount of time. The point is that the more things change, the more they stay the same. For example, while technology advances and big data sets have evolved the hotel pricing function, that does not replace the critical thinking and analytical skillset required by revenue managers to succeed. Similarly, did the varying industry cycles impacted by different uncontrollable variables in the environment, like COVID-19, 9/11, or the great recession change hotel operating fundamentals? No, it simply causes commercial strategy teams to adapt and respond with the systems that they use expected to do the same.
This adaptation shook the confidence of many commercial strategy leaders during the pandemic, so much so that some refrained from producing a 2021 budget and even temporarily ceased forecasting altogether. But, as the uncertainty fades, commercial strategy teams have resumed measuring KPIs and handing out bonuses and incentives.
The two most important measures of a revenue manager’s success are:
- Forecast accuracy – did you do what you said you were going to do?
- Performance versus competitors – typically measured by RevPAR index change.
Seeing how the RMS system forecast is a key input into the user’s forecast, their success or failure are intertwined.
Property Versus Market Performance
Therefore, commercial teams must learn to trust the science but need an understanding of why the system is recommending what it is and how to verify. Coupled with the right people and process, an RMS platform must prove its capabilities through results.
One such way is to understand the property versus market performance benchmark. STR is the preeminent benchmarking product for the hospitality industry. I caught up with Chris Crenshaw, Vice President, Product Design at STR, who told me: “In the hotel industry, we benchmark all the time. We compare our performance against budgets, forecasts, prior years, peers, and competitors. All benchmarking analysis brings value and clarity to the simple question: ‘How did we do?’ If we cannot answer that question, we are flying in the dark with no lights.”
A hotel can have exceptional performance and it’s not always a green light, or a hotel could have bad performance and it’s not always a red light. Strategy and execution are harmonious in evaluating results. For example, you need to understand was it something I did or didn’t do or was it something the competitors did or didn’t do, that resulted in the win or loss. RMS user trial and error is warranted to ensure all pieces of the performance puzzle come together.
Testing the execution of different revenue strategies and studying corresponding system reactions reinforces RMS user trust. This consistent investigation builds an understanding of how the system works so concerns can be addressed and confidence can grow. User understanding of how the RMS operates cannot be undervalued; education and training undertaken by revenue managers is key, both in the principles of revenue management and systems training. For example, a moderate amount of system price recommendation overrides is an indication of both engagement and sophistication. Forecast accuracy and pricing recommendation adoption are the two most important RMS measures for engendering trust.
Embrace The Science
I wish I had a dollar for every time I’ve heard a revenue manager refer to an RMS as a black box or ask if they were automated out of a job yet. To dispel these misconceptions, an RMS seeks to train expert drivers of their machine and disclose what goes into the algorithms through displaying those data elements in the UI as decision support.
Revenue managers might not know the specific advanced analytics going on behind the scenes, but they can assess data points one by one so that it is not such a big mystery how recommendations are reached. This will change the focus of the conversation from just “trust the science” to “embrace the science” instead.
Since big data and machine learning surpass human capacity to consume, commercial strategy leaders are freed to focus on strategy or the art component of revenue management without being blinded by science. With both the art and science of revenue management working together in the RMS, in the words of the Johnny Tillotson song: “It’s poetry in motion!”