the 2016 smart decision guide to hospitality revenue...

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Everything you need to know about Hospitality Revenue Management – and how to select the right solution and/or services for your organization.

The 2016 Smart Decision Guide to Hospitality Revenue Management

TM

Independently produced and distributed by:

Underwritten, in part, by:

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Introduction pg. 3

Chapter 1: Topic Overview and Key Concepts pg. 5

Chapter 2: Buying Considerations and Evaluation Checklist pg. 13

Chapter 3: Must-Ask Questions pg. 20

Chapter 4: Roadmap and Recommendations pg. 25

Chapter 5: Inside Voices and Outside Voices pg. 30

Appendix pg. 33

The 2016 Smart Decision Guide to Hospitality Revenue Management Entire content © 2016 Starfleet Media, LLC. All rights reserved. Unauthorized use of reproduction is prohibited.

Table of Contents

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Introduction

Hospitality Revenue Management has gone from being an uncertain undertaking with financial upside potential to being a strategic imperative.

Yield management is hardly a new concept. Airlines have been using supply

and demand data to maximize their revenues and profitability for decades. A

fast-growing number of hotels, resorts and other lodging properties have

followed suit with their own variation of the game. In most cases, their efforts

have been a resounding success and their technology investments in what is

commonly known as Hospitality Revenue Management have paid off in spades.

Hospitality Revenue Management is fueled by the rapid growth of big data

processing, advanced analytics, demand forecasting and pricing optimization

models and next-generation technology platforms. These combined

capabilities and technologies are helping to automate the pricing

recommendations and decision-making processes that enable not only better

inventory management and increased room occupancy, but higher revenues

and profitability across all parts of the hotel, resort or other lodging property.

In recent years, Hospitality Revenue Management has gone from being an

undertaking with uncertain financial upside potential to being a strategic

imperative with predictable revenue outcomes. Indeed, when properly

executed, the practice can be used to deliver very substantial increases in top-

line revenue growth and profitability. In fact, according to research conducted

for this Smart Decision Guide, the implementation of Hospitality Revenue

Management results in a 9 percent average increase in revenue per available

room (RevPAR) for large and very large hotels. That percentage increase can

translate into millions of dollars in additional profit on an annual basis.


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Introduction

The nuts and bolts of how to apply capacity management and duration control or use displacement analysis to calculate group rates or develop rate fences is not the focus of this guide.

This Smart Decision Guide seeks to educate hotel and resort owners,

operators, property managers and others who aim to bring the science of

next-generation Hospitality Revenue Management to their businesses. Just

to be clear, the goal is not to teach pricing strategies or forecasting

techniques. The nuts and bolts of how to apply the principles of capacity

management and duration control or use displacement analysis to calculate

group rates or develop rate fences is not the focus of this Smart Decision

Guide. There are educational programs specially designed for that purpose,

some offering a large curriculum of related coursework. There is also a

sizable body of literature on the topic authored by industry practitioners,

solution providers, consultants and academics, many of them sporting PhDs

in statistical analysis and computational and behavioral science. That said,

gaining expertise in Hospitality Revenue Management generally requires

that one not only acquire the requisite knowledge base but also actually

spend time practicing revenue management in a real-life hotel environment.

So what is the purpose of this Smart Decision Guide? As the name suggests,

it is intended to provide a roadmap for achieving increased hotel revenue

and profitability by leveraging next-generation revenue management

technologies and capabilities. The key takeaways include insights for

evaluating and selecting the right solution and/or services in the context of a

hotel or resort’s specific needs. It also includes practical advice for putting

the right organizational resources, business processes and performance

metrics in place to help ensure continuous performance improvement.


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Topic Overview and Key Concepts

Chapter 1


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Effective market segmentation lays the foundation for Hospitality Revenue Management while at the same time benefiting other hotel function areas.

Chapter 1: Topic Overview

What is Hospitality Revenue Management? It begins with a basic concept that

nowadays we take for granted: market segmentation. The concept was

formalized in the 1950s by a little-known economist named Wendell Smith,

who viewed market segmentation as “a heterogeneous market as a number of

smaller homogeneous markets in response to differing product preferences.”

When it comes to hospitality, different categories of guests should be viewed

as having differing wants, needs and behaviors. Families generally have

different requirements than guests traveling alone. Business travelers behave

differently than leisure travelers. First-time guests tend to have different

expectations than repeat guests. Guests who book through a discount site,

who purchased a package deal or who took advantage of a special rate

promotion may be grouped together for price sensitivity. Length-of-stay can

be another useful segmentation criteria. So can the extent to which guests

utilize the spa, casino and other hotel facilities. Effective market segmentation

lays the foundation for revenue management. It can also benefit a range of

other departments and functions, including sales, marketing and distribution.

Another key concept is price elasticity of demand. Demand is sensitive to

changes in price and price is sensitive to changes in demand. Of course, some

products and services have more elasticity than others. Revenue management

techniques are fairly useless when consumers are willing to pay full price to

purchase, for example, the latest electronic gadget. Most lodging properties,

on the other hand, have a significant amount of elasticity, given that the

product in demand is fixed in capacity and perishable.


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Hospitality Revenue Management has evolved to the point that it is no longer just about increasing guest room occupancy rates, with no consideration for the implications.


Managing pricing in a way that dynamically responds to changes in demand

for guest rooms and optimizes profitability based on a deep understanding of

elasticity gets to the essence of Hospitality Revenue Management. The classic

definition of revenue management is: Sell the right space at the right price at the

right time to the right customer. In this case, space generally refers to guest

rooms (large, full-service hotels may have a dozen room types). Price refers to

the room rate, which is influenced by any number of factors, including time

(e.g., how far in advance the reservation is made) and market conditions (e.g.,

how much competitors are charging). As discussed, guests (including groups)

can be segmented using multiple factors, including geo-demographic

attributes, price sensitivity, purpose of the visit and length of the stay.

Hospitality Revenue Management has evolved to the point that the goal is no

longer just about increasing guest room occupancy rates, with no

consideration for the implications of the pricing decisions. Nor, again, for that

matter, is it just about rooms. Revenue streams such as conference hosting,

recreational facilities, restaurants and spas – which, taken together, typically

account for one-quarter of a full-service hotel’s revenues – also now factor into

the equation. Yet another consideration is the optimization of profitability and

not just revenue. This means analyzing ancillary revenue streams (e.g., food

and beverage as well as golf, spa, etc.) along with the related cost data to

understand profit contributions by customer segment. For hotels with casino

operations, even the “theoretical loss” (the amount of money a player can be

expected to lose during their stay) can be incorporated into the pricing model.


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76%

81%

88%

97%

0 20 40 60 80 100

Gain competitive intelligence and market insights

Improve marketing and sales activities

Reduce time and costs associated with tradition pricing tactics

Increase hotel revenue and profits

Research Data Point What are the biggest benefits one can expect to gain with Hospitality Revenue Management?

Ideally, a hotel, resort or other lodging property would be able to generate precise demand forecasts for

every night of the year across every room type, every season and day of the week and every customer

segment. For a hotel chain that numbers a few thousand rooms, that would mean generating some fifty

million new forecasts on a nightly basis. While the number crunching can be tremendous, so, too, can the

payoff. Consider: a mere $2 reduction in the average daily rate (ADR) for a 500-room hotel with a 75 percent

occupancy rate would cost a hotel more than a quarter million dollars in lost profit in a single year.

Increasing hotel revenue and profitability is obviously the primary benefit of Hospitality Revenue

Management. It’s not the only one, however. Other major benefits include improving marketing and sales

efficiency and effectiveness, generating competitive intelligence and market insights into occupancy trends

and guest demographics, and benchmarking overall performance against competitors in the same market.

Increase revenue Increase profitability Maximize occupancy Increase ancillary revenue

Improve marketing and sales efficiency Reduce time associated with traditional pricing

Gain reliable expectations (occupancy, arrivals, etc.) Generate accurate reports Identify key patterns

Research findings are derived from the Q4 2015 survey on Hospitality Revenue Management.


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Hospitality Revenue Management has its own extensive vocabulary consisting of terms like capacity management, duration control and displacement analysis.

Chapter 1: Key Concepts

Hospitality Revenue Management has its own jargon. It consists of terms like

capacity management, duration control, overbooking practices and displacement

analysis. These terms describe practices and considerations related to

maximizing revenue and profitability from a perishable product in a market

where supply (i.e., guest rooms) is fixed while demand (i.e., travelers in need of

guest rooms) can greatly fluctuate. Although obviously important to the day-

to-day practice of revenue management, these terms aren’t necessarily useful

when it comes to understanding how Hospitality Revenue Management is

evolving today or to evaluating the enabling technology solutions and services

currently available to hotel operators. Given the focus of this Smart Decision

Guide, this section on key concepts is limited to providing an overview of

pricing analytics (“intelligent pricing”), explaining the importance of capturing

and integrating relevant data, and taking a look at the key metrics that are

commonly used today to track and measure success with Hospitality Revenue

Management to drive performance improvement. Let’s start with the latter.

Revenue management metrics. The metric most commonly used today to

assess how well a hotel , resort or other lodging property is managing its

inventory and rates to improve revenue performance is revenue per available

room (RevPAR ). RevPAR is calculated in one of two ways: by either multiplying

the average daily rate(ADR) by occupancy or by dividing the total guest room

revenue by the total number of available rooms and then dividing that number

by the number of days in a given time period. Just to be clear, occupancy refers

to the percentage of guest rooms that are occupied during a given time period

while ADR refers to the average revenue per occupied room. Some hotel

operators still make the mistake of focusing their promotional efforts solely on

increasing room occupancy, no matter that higher occupancy can, in some


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Without knowing the operating costs, it becomes difficult to calculate actual profit margin or, for that matter, determine the target optimal occupancy.


cases, actually lead to lower profits. Hotels that have yet to do so need to shift

their focus from occupancy to RevPAR — which, again, combines occupancy

and ADR into a single metric that has become the industry standard. Yet while

RevPAR provides a far more accurate picture of a hotel’s overall performance,

it fails to measure actual productivity. That’s because RevPAR doesn’t take into

account costs per occupied room (CPOR). Without knowing the operating

costs, it’s not possible to calculate the actual profit margin or, for that matter,

determine target optimal occupancy. Hence the emergence of another metric,

called gross operating profit per available room (GopPAR), which takes into

account not only the amount of revenue generated but also the actual

operational costs. Still, there remains a problem. Neither RevPAR nor GopPAR

look at non-room revenue streams such as restaurants, casinos, parking, spas,

golf courses, etc. This shortcoming is glaring. It helps explain the advent of

additional metrics — as if there weren’t enough already — designed to

measure economic performance in a more comprehensive manner. Revenue

Generating Index (RGI), also known as RevPAR Index (RPI), looks at relative hotel

revenue performance, by measuring the extent to which a hotel is achieving

its “fair share” of revenue in comparison to a defined group of hotels. RGI is

calculated by dividing the hotel’s RevPAR by the RevPAR of the competitive

set (the data for which can be obtained through a third-party provider).

Similarly, Average Rate Index (ARI ) measures the extent to which the hotel is

achieving its “fair share” of ADR. It is calculated by dividing the ADR of the

hotel by the ADR of the competitive set. RGI and RPI — and, also, market

penetration index (MPI) — provide a solid basis for performance comparison.


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Revenue management data. Just as a soup is only as good as the

ingredients that go into it, a revenue forecast is only as good as the

information that goes into it. And like a soup, which may require only a few

select ingredients to achieve the desired taste, accuracy in forecasting is not

necessarily a case of “the more the merrier” when it comes to volume of data

or number of data sources. Revenue managers may be excited about the

ever-growing number of data sources available to them. But they should

exercise caution in incorporating every last bit of data into their models.

More data can simply mean more noise. At a certain point, there are bound

to be diminishing returns. In fact, new data that may seem highly relevant at

first glance may, in fact, create integration headaches while failing to move

the needle on forecasting accuracy. The volume and depth of clean historical

data related to occupancy, rate and revenue figures (including bookings

dates, rate codes, arrival dates, departure dates and revenue by day) provide

the strongest basis for forecasting accuracy. All this data should reside in the

Property Management System (PMS). The greater the number of years for

which a hotel has data, the more accurate the forecast is likely to be. Market-

level data, including competitive pricing, future flight demand, weather

reports and geographical information (where guests are arriving from), may

also be used for forecasting purposes. Web shopping data (the number of

consumers booking rooms and at what price, as well as the percentage of

visitors abandoning the hotel website) may also provide some insights into

current and future room demand as well as price sensitivity. The number of

website visitors tends to correlate to the frequency of last-minute arrivals.

Like a tasty soup, which may require only a few select ingredients, accuracy in forecasting is not necessarily a case of the more “the merrier” when it comes to the volume of data.



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Intelligent pricing. With Hospitality Revenue Management, timing is

everything. Forecasting demand for available rooms — and dynamically

pricing room rates based on demand and capacity as well as competitor

activity — needs to happen in a near-real-time manner. Starfleet Research

defines intelligent pricing as making decisions for how to maximize room

occupancy at the best possible price while factoring in all the related revenue

questions in a real-time or near real-time manner. These questions include:

What is the optimal price to charge in order to maximize revenue, accounting

for the fact that demand will change as the price changes? What is the best

possible rate the hotel can hope to get for a guest room, taking into account

the type of room as well as the length of stay? How can a hotel ensure that

discounted price promotions won’t dilute revenue and profits in the long

run? Intelligent pricing addresses these questions by analyzing demand

forecasts, competitor rates, price sensitivities and various other inputs and

factors, including demand drivers like seasonality, day-of-week differences

and market dynamics. Here it’s worth noting that, until recently, the standard

approach to pricing strategy has been a fixed-tier approach based on one

overall best available rate (BAR) for each room and also on the expected

supply and demand of rooms for a particular date. Ideally, when pricing

multiple products, solutions should account for different room types and also

for the impact of multiple public products on one another –e.g. advanced

purchase versus BAR. Some hotels are now adopting a pricing strategy based

on the idea is that different prospective guests should be offered different

rates depending on which guest segment they fall into as well as which

channel they’re using for booking their reservation. As technology innovation

makes it possible for hotels to price their room types, channels and dates

independently of each other, the approach would seem to hold promise.

Intelligent pricing means being able to forecast demand for available rooms in a real-time manner and being able to maximize occupancy at the best possible price.



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Chapter 2

Buying Considerations and Evaluation Checklist


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Chapter 2 Chapter 2: Buying Considerations

The tools are continuously evolving in response to the growth of OTAs with differing pricing and commission structures, shrinking booking windows and refined pricing strategies.

The tools and services that enable revenue management are evolving rapidly

in response to a number of factors. These include the proliferation of online

travel agencies (OTAs) with differing pricing and commission structures,

shrinking booking windows, the emergence of more advanced pricing

strategies, and ever-more intense hotel competition. Leading solution

providers are investing heavily in R&D and running agile software

development and release cycles to try to say ahead of the competition. The

flurry of change can make selecting the right solution a daunting task. The

buying considerations are sure to depend to a large extent on a hotel’s specific

needs and situation. That includes category, size and typology (including the

number and types of non-room revenue streams) as well as the team’s level of

experience (including whether it has one or more dedicated revenue

managers and the right corporate culture in place). Should the hotel hire an

outside firm to conduct an assessment of current pricing practices? Should it

use a BAR approach or should each channel and segment be priced

independently? Should it price by arrival date or length of stay? For these and

countless other questions, the answer is: it depends. Still, for most buyers, there

are a number of key considerations to keep in mind, including the following.

Technology integration capabilities. Hotels, resorts and other lodging

properties have always had extensive technology integration requirements. A

revenue management solution, especially, can’t be treated as a standalone

application. Rather, it needs to integrate as seamlessly as possible with

multiple data streams, starting with the Hotel Property Management System

(PMS) to provide for unified bookings, analytics and reporting. It also needs to


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Chapter 2 Chapter 2: Buying Considerations

It quickly becomes clear that Hospitality Revenue Management is a big data challenge; to be successful means having a solution that can address that challenge head-on.

integrate with systems used for marketing, sales and distribution as well as

OTAs and any number of other third-party technologies and channels. For

integrations to work optimally, technology partners need to independently

test and certify data and functionality. They need to ensure that systems are

compatible and that all historical data has been extracted and validated.

Internally, within the organization, point of sale (POS) data needs to integrate

with PMS data to provide a holistic view of a guest’s overall stay, including

their ancillary spending on food and beverages, guest services, spa visits, etc.

Data processing power. Hotels are importing increasingly large volumes of

data into their pricing models. For a large property, the data set may include

dozens of customer segments, a dozen or more room types, several years of

historical booking and reservations data, and upwards of a dozen length-of-

stay types. Add to the mix competitive rate data, demand data, multi-market

economic data, and even air traffic and weather predictions. Combining all

these data sets for just one hotel could easily amount to 200 million-plus

observations. Generating the pricing recommendations for that property

could require more than 15 gigabytes. Multiply that number for a hotel chain

with dozens of properties and it quickly becomes clear that, more than

anything, revenue management is a big data challenge. Until recently, the

technologies have underperformed by most measures, partly because they

were unable to overcome the data processing constraints and optimize the

needed calculations in highly compressed timeframes. Today, however, most

revenue management solutions are able to address that challenge head-on.


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Hotels should be able to automatically identify and track their most profitable channels, factoring in the associated costs, including commissions, transaction fees and SEM expenses.

Channel management and optimization. With pricing recommendations

in a continuous state of flux, its imperative that rates and inventory

information gets updated as quickly, and with as few errors, as possible

across all OTA and other distribution channels (including the hotel’s own

website). Otherwise, unfortunate situations can arise. The prices being

presented to prospective guests on some channels may be lower than

desired, for example. Or rooms presented on some channels as available

may, in reality, be overbooked. The potential fallout could be damaging,

generating a flurry of negative online reviews. Inputting room rate and

availability changes manually can, at the least, result in money being left on

the table. Channel management capabilities help ensure that a hotel’s

room rates as well as its inventory are up-to-date across all OTAs and other

partner- and guest-facing channels. An important buying consideration,

therefore, is the extent to which room change updates are handled

automatically rather than manually, and what the average lag time is to

implementing channel updates. Although not yet achievable in many

markets, including the United States, advanced channel optimization

capabilities should be used when possible to identify the most profitable

channels, factoring in the associated costs, including commissions,

transaction fees and search engine marketing (SEM) expenses, and

dynamically adjust the pricing on a channel-by-channel basis.


Chapter 2: Buying Considerations

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Hotels should be able to automatically identify and track their most profitable channels, factoring in the associated costs, including commissions, transaction fees and SEM expenses.

Cloud versus on-premise hosting. Another important decision criteria to

consider is whether the Hospitality Revenue Management solution is an

on-premise installation or cloud-based, with a software-as-a-service (SaaS)

model that allows for continuous software updates. The main downside of

on-premise installation lies in the fact that the lodging property is

responsible for installing and maintaining the hardware and providing IT

support and data security. As with most enterprise technology solutions,

most Hospitality Revenue Management systems are moving to the cloud,

and hotels are benefiting from the global scale and distributed access to

interfaces and information. Other benefits include reduced stress on hotel

technology infrastructures, and, in some cases, more seamless integration

with other applications, including Hotel Property Management Systems. A

big advantage of “true SaaS” is that software updates and bug fixes can be

pushed as they become available, meaning that every user is always on the

most recent version of the software.

User experience. A good user experience begins with an interface that is

well-designed and flexible. Revenue managers and other users should be

able to define dashboards to meet their needs and suit their styles. While

notifications should drive the workflow, users should be able to look under

the hood to, for example, dive into price sensitivity data and quickly see

what inputs are behind the pricing recommendations at a detailed level.

They should not have to wait for actual booking numbers to become

available to understand the impact of their overrides and determine

whether they made the right “re-optimization” decisions. Of course, users

have differing needs, depending on the characteristics of the hotel, resort



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The impact of the cloud has been enormous, empowering physicians, office managers and others with anytime, anywhere access to all patient and operational activities.

or other lodging property as well as their own personal preferences. Any solution, therefore, is likely to

require at least some degree of customization. Users should be able to create notifications as well as

define the data inputs and specific needs around analytics and performance reporting. Flexibility in

configuration is needed to not only mine the right data, based on selected parameters, but also generate

actionable insights. Users should not be spending the bulk of their time extracting and manipulating

data, as is often the case today. Rather, they should be making strategic decisions that can be used to

drive revenue growth and increased profitability.

Research Data Point “How would you rate your company’s success in terms of utilizing revenue management to improve financial performance?”

Midsize and Limited Service Hotels

21% 24% 17%

27% 32% 26%

Large and Full-Service Hotels

Very successful Successful Somewhat successful


• Have utilized revenue management for 8.5 years, on average • Have increased RevPAR by 7% on average • 25% have one or more revenue managers

• Have utilized revenue management for 10-plus years, on average • Have increased RevPAR by 9% on average • 75% have one or more revenue managers


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Chapter 2: Evaluation Checklist

This Evaluation Checklist offers a framework for conducting an apples-to-apples comparison of

technology solutions for Hospitality Revenue Management using the buying considerations outlined

previously. Other key considerations can be added based on individual buyer priorities. Relative

weightings can be assigned on a scale of 1 (“This buying consideration has no bearing on our purchase

decision”) to 10 (“This buying consideration is a very important factor in our purchase decision”).

Buying Consideration Weighting Vendor 1 Vendor 2 Vendor 3

1. Technology integration

2. Data processing and analytics

3. Pricing management

4. Channel (OTA) optimization

5. Customizability to property needs

6. Cloud (SaaS) / on-premise hosting / hybrid

7. Flexibility in data analysis and reporting

8. User experience

9. Other features and functionality

a. Demand forecasting management

b. Group pricing management

c. Multiple property management

e. Non-room (e.g. function space) rev. mgmt

f. Competitive rate shopping management

e. Other _____________________________

10. Support, training and consulting services

11. Reputation / install client base

12. Cost (TCO)

Overall Rankings N/A


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Must-Ask Questions

Chapter 3


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Chapter 3: Must-Ask Questions

Every hotel, resort and other lodging property naturally

wants to ensure that any technology investment that it

makes will ultimately drive increased financial success.

On that basis, the business case for upgrading to next-

generation revenue management capabilities tends to

be one that is easy to make. But which solution is the

right one for the organization? By asking the right

questions, prospective buyers can quickly rule out

some options while narrowing down others. Just as the

buying considerations are bound to vary depending on

property size, category and other factors, so, too, are

the “must-ask” questions. In fact, even hotels within the

same category or typology (e.g., single-property luxury

beach resorts) often have different customer demand

patterns, different profile mixes, different room

inventory and different ancillary revenue streams. The

information they will want to ascertain from solution

providers is therefore also likely to vary amongst them.

That said, they are also likely to have many questions in

common. Following are just a few of the questions they

may wish to explore with solution providers to help

ensure that, once implemented, they will be better

able to identify patterns, forecast demand changes,

make rapid and accurate pricing decisions, and so on,

resulting in positive revenue outcomes — and leaving

no doubt that the technology investment was money

well spent.

97%

91%

87%

82%

Integrating revenue management activities with sales and marketing activities

Performing an “audit” or assessment of existing pricing activities and practices

Research Data Point Percentages of lodging properties that view each of the following success factors as “important” or “very important.”

Creating the right revenue management culture within the organization

Importing all historic booking, reservation, competitive and other relevant data into the solution



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Compile a comprehensive list of anticipated pricing questions and verify that the solution will be able to address the questions in a relatively rapid and automated manner.

Will the solution provide the answers we need to our pricing questions?

Ideally, given access to the requisite data, a revenue manager or other

qualified user of a next-generation solution should be able to answer all of the

day-to-day questions that are needed to maximize the company’s financial

performance. Such questions might include: By how much should we increase

or decrease our rates for a given type of room? How many customer groups,

and what size groups, should we accept on a given day? How much should we

charge walk-in customers? What should be the floor and ceiling for our rate

range? Are the changes in demand and bookings likely to represent a short-

term or long-term pattern – and, if the latter, what actions should we take in

response? To what extent should we discount negotiated rates? What should

be our rack rates for the coming year? What discounts and promotions, and to

what target customer segments, are likely to perform well right now and in the

near-future? What discounts would likely dilute profits and should we

therefore avoid? To what extent should we mark up our premium rooms,

based on the current and near-term demand patterns? What, if any,

competitors’ price moves would likely affect these demand patterns and how

should we respond should those possible moves become reality? How can we

counteract cancellations and no-shows, group wash, extensions and early

departures to capture optimal profitability? Tip: Compile a comprehensive list of

pricing questions and verify that the solution will be able to address these

questions in a straight-forward manner. Make sure the solution provides for

flexibility, which is important when it comes to setting pricing rules, flagging

special events, adjusting segmentation schemes, etc.. Also, make sure it’s able to

apply the most optimal techniques to not only price but also manage the business

and that it understands contract elements such as Last Room Availability (LRA).


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Revenue management is a quantitative puzzle with an ever-changing palate of numbers, patterns and results and a need for continuous adjustment and refinement.

To what extent does the revenue management solution offer depth and

flexibility in data analysis and reporting? Revenue management is not like

assembly line work. Rather, it is a quantitative puzzle with ever-changing

numbers, patterns and results and a need for continuous refinement. Delving

into the data, testing different if/then scenarios, and collating actual results

requires a high degree of flexibility. Not all data queries can be anticipated. A

significant percentage of pricing questions may, in fact, need to be investigated

on an ad hoc basis. Out-of-the-box functionality may satisfy the needs of

beginners or small properties with relatively simple needs. But it is likely to be

insufficient for more sophisticated revenue managers and larger properties

with multiple room types, customer segments and ancillary revenue streams. A

solution should make it easy to accommodate virtually any need, including the

need to monitor and measure individual property, portfolio, and departmental

performance, the need to create customizable hierarchies for different geo-

markets, channels, room types, time periods, loyalty programs, and the need to

do manual overrides of the automated rates suggestions for OTA channels.

Important questions might include: Once problem areas are identified, can the

solution guide users on how to take appropriate action? Can tactical decisions,

including the overall impact, be tested live? Can the dashboards provide

exception reporting, identifying areas needing the most attention, and be led

to taking the most appropriate action. Tip: Verify that the solution is flexible in

terms of keys areas of functionality, including custom reporting, and validate all of

the vendors’ claims. If customized reporting is possible, find out what is involved in

the process of filtering and sorting data according to a specified set of parameters.

Make sure reports can be exported to Excel and other formats that may be needed.


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What is the solution provider’s track record for stability, reliability and continuous innovation? As with any technology solution purchase,

reputation and customer satisfaction are important factors in the decision-

making process. Nobody wants to purchase and implement a revenue

management solution that falls short of expectations due to known

shortcomings in stability, reliability or promised benefits. No input may be

more important to the buying decision than that which can be gleaned from

existing clients, preferably lodging properties that share some commonalities

in terms of size, typography and existing technology infrastructure. A solution

provider or consultant may be willing to provide one or more client

references. And some clients, particularly those operating in noncompetitive

markets, may be willing to share their experiences and perhaps even disclose

results in terms of percentage increases in RevPAR, for example. Client

testimonials and success stories can also be valuable sources of information.

Tip: Seek information about what performance issues may arise though

conversations with existing clients, preferable ones that are similar in size and

existing technology infrastructure. Ask about the product roadmap for the future.

What type of customer support is included? It’s important to have a clear

set of expectations around customer support and problem resolution as well

as the training that may be needed to get up to speed. More than three-

quarters (78%) of survey respondents agree that user training ranks as a key

success factor in ensuring that a solution is utilized as effectively as possible.

Does the solution provider or a certified subcontractor offer online or in-

person training programs? Does it offer an assigned point of contact? How

quickly will questions be answered and problems get resolved? Unexpected

interruptions in revenue management activities can be costly. Tip: Make sure

that resources will be available to resolve issues in a timely manner.


No input may be more important to the buying decision than that which can be gleaned from existing clients, preferably lodging properties that share some commonalities.


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Roadmap and Recommendations

Chapter 4


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Chapter 4: Roadmap

According to estimates, less than 15% of the approximately 175,000 hotels worldwide have

implemented revenue management solutions to date. That percentage is increasing rapidly, however.

Hotel operators that rely on Excel spreadsheets or even basic software solutions for their revenue

calculations will be hard pressed to compete against those with pricing optimization capabilities. The

diagram below illustrates the migration path that revenue management solutions are taking as they

evolve in sophistication and accuracy and as the scope of applicability continues to broaden.

Best-available-rate pricing only Dynamic and flexible approaches to pricing to optimize profits

Increased room occupancy as the primary goal

Increased net revenue as the primary goal

Manual calculation, or only partial automation, of pricing and

inventory recommendations

Complete automation of pricing, inventory and all other

recommendations

Manual distribution of rates to OTAs and other online channels

Automated channel management and channel optimization

Revenue management separate from marketing & sales activities

Revenue management integrated with marketing and sales activities

Revenue management applied to guest rooms only

Revenue management applied to all property revenue streams


Legacy Systems Next-generation Systems

Uncertain ROI and financial upside potential

Proven ROI and predictable (and substantial) revenue outcomes

27

Chapter 4: Recommendations

Calculating price sensitivity of customer demand and deriving an analytical solution to competitive price effects is no small feat, and not something that can be easily done in Excel.

Next-generation revenue management solutions harness the power of big

data. They calculate price sensitivity of customer demand, taking into

consideration such factors as season, lead time and room type, and derive an

analytical solution to competitive price effects. That’s no small feat, and not

something that can be easily done in Excel. Given the ability to improve

financial performance by upwards of 10%, it’s no wonder that properties are

looking to take their existing capabilities to the next level. That means not

only implementing the right technology solution and using the right data set

(again, it’s important to be able to demonstrate the value of a data source in

improving forecast accuracy or pricing decisions), but also creating a revenue-

maximizing culture. Following are a few recommendations for buyers to keep

in mind as they look to upgrade their revenue management capabilities.

Hire a revenue manager. The hotel booking ecosystem is complex and

optimizing financial results across channels requires specialized skills, no

matter that pricing recommendations are becoming increasingly automated.

The role of the revenue manager has never been more important. According

to estimates, there are currently only about 10,000 hotel revenue managers

worldwide. Some industry observers contend that revenue managers should

be highest paid employees, given their potential contribution level. Of course,

the revenue manager and general manager are oftentimes one and the same,

particularly in smaller hotels with limited budgets. Indeed, many revenue

decisions today are being made by general managers who may have little or

no formal training in the science of demand forecasting and price

optimization. Needless to say, the results are bound to be suboptimal.


28



Build a revenue management strategy and culture. What is a revenue

management strategy? Simply put, it’s a blueprint for improving financial

performance over a specific period of time. The strategy should incorporate all

of the revenue streams from across all parts of the hotel as well as all of the

revenue drivers, from the sales department to the online distribution channels.

The strategy should be built upon a solid foundation of revenue goals using

targeted RevPAR, ARI and other relevant metrics for tracking progress. It should

include a timeline with key milestones and spell out the tactics for achieving

success. The strategy should be as specific as possible, detailing, for example,

how the property approaches pricing – e.g., whether it is dynamically pricing

the best available rate based on forecasted demand (BAR) or on actual

demand. Ideally, the strategy will instill a revenue strategy culture, creating

cognitive alignment amongst all employees regarding the value of Hospitality

Revenue Management and communicating —and celebrating — the results.

Think in terms of Total Revenue Management. Until recently, most revenue

optimization algorithms managed room price and nothing else. But next-

generation Hospitality Revenue Management means also taking into account

the ancillary spending that takes place in hotel restaurants, bars, conference

centers, banquet rooms, golf courses, etc. For larger, upscale hotels and

resorts, these revenue sources typically account for one-quarter of total

company revenue. Thinking in terms of Total Revenue Management and not just

revenue management as it pertains to guest rooms can mean leaving a lot less

money on the table and significantly boosting revenue and profitability.

Thinking in terms of Total Revenue Management and not just revenue management as it pertains to guest rooms can mean leaving a lot less money on the table.

29



Partner with the sales and marketing departments. The pricing

recommendations and market insights generated by revenue managers can

be valuable across multiple parts of the organization. Access to the tools and

dashboards should be made available to marketers, in particular, who are

charged with demand generation activities. Insights, such as those that

forecast periods of high demand versus low demand and that reveal which

customer segments are planning to book rooms for a certain period, should

inform every campaign. The insights should inform how aggressive to be with

marketing offers and promotions, toward which customer segments the offers

and promotions should be directed, and when, exactly, to present the offers

and promotions, and which marketing tactics are most likely to elicit the

desired responses. To achieve optimal results, it’s imperative that revenue

managers work hand-in-hand with the sales and marketing functions and

integrate all of their customer acquisition strategies.

Track and measure progress. A whole alphabet soup of metrics is now

available for tracking revenue performance. These metrics , defined in Chapter

1, should be used diligently. Many of the metrics have moved beyond RevPAR

and ADR, and also beyond just guest rooms. Consider banquet room revenue

performance, which can be measured in terms of function space utilization,

profit per available space/time (ProPAST) and profit per occupied space/time

(ProPOST). As discussed, it’s important to benchmark performance against the

competitive market, using such metrics such as MPI, ARI and RGI, all of which

are also becoming standard revenue management measurements.

To achieve optimal results, it’s imperative that revenue managers work hand-in-hand with the sales and marketing functions and integrate all of their customer acquisition strategies.

30

Inside Voices and Outside Voices

Chapter 5


31

It seems to me that the revenue management function is combining with the sales and marketing functions. To be truly successful at this game, you have to eliminate the traditional walls that stand

between these different functions. Everyone across the organization benefits when they work cooperatively to optimize

revenue. Using a centralized technology that everyone can access can help a lot.

A luxury resort like ours has a lot of different revenue levers. lt’s really

important that we’re able to look at all of these levers in a single dashboard. Having a holistic view of all the OTAs

and all the channels and all of the data that feeds into the model is the only

way to optimize revenue performance.

It’s hard to know when demand is going to shift. It’s just as harder to act on that

knowledge in real-time and make the appropriate pricing adjustments. Demand is

in a constant state of flux. It can turn on a dime. It takes an advanced revenue

management solution to detect change and immediately implement pricing decisions.

Hotels need to have a standard approach to market segmentation. Revenue managers and employees

need to adhere to it. Everyone needs to use the same rate and channel

codes. Everyone needs to follow the same operational procedures. Success requires consistency.

Chapter 5: Inside Voices


Revenue managers, hotel executives and managers with first-hand experience in the art and science of

Hospitality Revenue Management tend to have a lot to say about the topic. Following are a few

perspectives gleaned from individuals who participated in the survey that produced the research

findings included in this Smart Decision Guide.

Senior executive, full-service hotel

Marketing manager, full-service hotel

Senior executive, mid-size hotel

Revenue manager, full-service hotel

32

Following are a few additional perspectives from industry observers, including trade magazine editors and

research analysts, with insights into next-generation Hospitality Revenue Management.

Train strategic thinkers and think total revenue

management; not just rooms revenue. Don’t allow revenue managers to rely on automated tools so

much that they forget to use their own experiences. Adopt new dynamic pricing tactics. Also, determine whether the collection of big data is worth the cost. Work with the marketing team to streamline how to

test and measure the data, then evaluate whether what’s being collected is actually being used.

Bob Gilbert, President, The Hospitality Sales and Marketing Association International

Ahmed Mahmoud, founder, RevenueYourHotel.com

Pamela Whitby, editor, EyeforTravel.com

Choosing the right people or partners and tracking, managing and acting on

data (while staying on top of all aspects of traditional

revenue management such as managing rates, yielding,

forecasting, visibility etc) remains crucial in today’s

hotel environment.

Hotels can better manage their revenue by taking

advantage of various technologies that make it

easy to monitor the current state of the economy, the

hotel industry itself and the historical performance of the

hotel.

As the market evolves, capabilities that were once cutting edge become default and new

functionality becomes differentiating. Customer segmentation and rate fencing have become

Table Stakes capabilities and should no longer be used to differentiate solutions. Instead focus on

seamless integration with other systems to build a guest profitability view in order to get the best fit

for your requirements.

Chapter 5: Outside Voices


Vendor Landscape: Revenue Management Systems, Info-Tech Research Group

33

Research Notes and Underwriters

Appendix


34

Appendix: Research Notes

47% 35% 16%

Staff Managers Senior executives

Small hotels (including motels and

bed & breakfasts)

Large and full service hotels and resorts

14% 49% 37%

Midsize and limited service hotels

North America Other

66% 28% 6%

Europe

Job level / role of survey respondents

Size / category of survey respondents’

hotel (or other lodging property) employers

Geographic location of survey

respondents

In Q4 2015, Starfleet Media conducted an online survey, consisting of both multiple choice and open text

questions, to capture the perspectives of industry practitioners with firsthand experience with Hospitality

Revenue Management. Some of the research findings are highlighted in this publication. Following is some

basic information about the 137 qualified survey respondents who participated.


35

Appendix

RateGain is a leader in hospitality and travel technology solutions for revenue optimization, rate intelligence, electronic distribution and brand engagement helping customers around the world to streamline their operations and sales. The company provides Cloud based solutions to Hotels, Airlines, Online Travel Agencies, Car Rental Companies, Cruise Liners and Tour/Wholesale Operators. Unity by RateGain, is an revenue optimization suite that helps hotels streamline their rate intelligence, reputation management, pricing optimization and distribution systems into one unified box by combining all the above in a easy to use single cloud platform. Unity delivers optimized prices by considering multiple factors such as competitive pricing, reviews and ratings, market compression, Occupancy data etc and the same system helps hotels distribute those optimized prices to over 600 channels globally. Hotels can also access various components such as competitive pricing or reviews and ratings as a standalone module to help them with their day to day strategy or prepare for that important meeting! Unity helps hotels increase Revpar by up to 15%. www.rategain.com Contact: Devonshire House 60 Goswell Road London EC1M 7AD [email protected] +44 2035141419

Appendix: Underwriter


http://rategain.com/PDF/RevGain-Casestudy-Grandhotel-Zvon.pdf�

http://rategain.com/PDF/Why-hotels-need-a-stronger-room-forecasting.pdf�

http://www.rategain.com/�

mailto:[email protected]�

36

This Smart Decision GuideTM is the result of primary and secondary research conducted by Starfleet Research, which is the IT market research arm of Starfleet Media. It was independently produced, without editorial involvement from the company underwriters. Our approach to content production provides for unbiased, fact-based information. It represents the best and most comprehensive information, analysis and recommendations available at the time of publication. Starfleet Media assumes no liability for the use or interpretation of any information contained in this Smart Decision Guide. Purchase decisions based on the information contained herein are the sole responsibility of the individual decision maker(s) and/or the companies they represent. Unless otherwise noted, the entire content of this publication is copyrighted by Starfleet Media. It may not be reproduced, distributed, archived, or transmitted in any form or by any means without the prior written consent by Starfleet Media, except by the company underwriters that have secured perpetual licensing rights to the content. For additional information, please contact Starfleet Media at [email protected].

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