Smart decision guide to hospitality revenue management RateGain by Rate Gain

The 2016 Smart Decision Guide to Hospitality Revenue Management

Everything you need to know about Hospitality Revenue Management â&#x20AC;&#x201C; and how to select the right solution and/or services for your organization.

Underwritten, in part, by:

Independently produced and distributed by:

Table of Contents 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

Introduction 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-

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

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.

The 2016 Smart Decision Guide to Hospitality Revenue Management

Introduction 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

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.

evaluating and selecting the right solution and/or services in the context of a hotel or resortâ&#x20AC;&#x2122;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.

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 1

Topic Overview and Key Concepts

The 2016 Smart Decision Guide to Hospitality Revenue Management

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 â&#x20AC;&#x153;a heterogeneous market as a number of smaller homogeneous markets in response to differing product preferences.â&#x20AC;? 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.

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

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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 1: Topic Overview 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

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.

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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 1: Topic Overview 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. Itâ&#x20AC;&#x2122;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. Gain reliable expectations (occupancy, arrivals, etc.) Generate accurate reports Identify key patterns

Improve marketing and sales efficiency Reduce time associated with traditional pricing

Increase revenue Increase profitability Maximize occupancy Increase ancillary revenue

Research Data Point What are the biggest benefits one can expect to gain with Hospitality Revenue Management? Increase hotel revenue and profits

97%

Reduce time and costs associated with tradition pricing tactics Improve marketing and sales activities Gain competitive intelligence and market insights

88% 81% 76% 0

100

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

The 2016 Smart Decision Guide to Hospitality Revenue Management

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 dayto-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

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

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 The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 1: Key Concepts 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

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

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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 1: Key Concepts 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. Marketlevel data, including competitive pricing, future flight demand, weather

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.

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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 1: Key Concepts 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

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.

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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 2

Buying Considerations and Evaluation Checklist

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter22: Buying Considerations Chapter 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.

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.

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 The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter22: Buying Considerations Chapter 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 guestâ&#x20AC;&#x2122;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-ofstay 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

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.

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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 2: Buying Considerations 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 hotelâ&#x20AC;&#x2122;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 hotelâ&#x20AC;&#x2122;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

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.

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

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 2: Buying Considerations 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

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.

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

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 2: Buying Considerations 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

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

of cloud data, as is often the case today. Rather, they should be making strategic decisions thatthe can be used tohas been drive revenue growth and increased profitability. enormous, empowering Research Data Point physicians, “How would you rate your company’s success in terms of utilizing revenue office managers management to improve financial performance?” and others with Midsize and Limited anytime, Successful Somewhat successful Very successful Service Hotels anywhere • Have utilized revenue management access for to8.5 all years, on average • Have increasedand RevPAR patient 21% 24% 17% by 7% on average operational • 25% have one or more revenue managers activities.

27%

32%

26%

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

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

The 2016 Smart Decision Guide to Hospitality Revenue Management

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

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 3

Must-Ask Questions

The 2016 Smart Decision Guide to Hospitality Revenue Management

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.

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

On that basis, the business case for upgrading to nextgeneration 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

97%

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

91%

Creating the right revenue management culture within the organization

87%

Integrating revenue management activities with sales and marketing activities

82%

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

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.

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

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 3: Must-Ask Questions 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 shortterm 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

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.

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).

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 3: Must-Ask Questions 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 geomarkets, 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,

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

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 vendorsâ&#x20AC;&#x2122; 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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 3: Must-Ask Questions What is the solution providerâ&#x20AC;&#x2122;s track record for stability, reliability and continuous innovation? As with any technology solution purchase, reputation and customer satisfaction are important factors in the decisionmaking 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? Itâ&#x20AC;&#x2122;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-

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.

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 inperson 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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 4

Roadmap and Recommendations

The 2016 Smart Decision Guide to Hospitality Revenue Management

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. Legacy Systems

Next-generation Systems

Uncertain ROI and financial upside potential

Proven ROI and predictable (and substantial) revenue outcomes

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

Revenue management separate from marketing & sales activities

Revenue management integrated with marketing and sales activities

Manual distribution of rates to OTAs and other online channels

Automated channel management and channel optimization

Revenue management applied to guest rooms only

Revenue management applied to all property revenue streams

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 4: Recommendations 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 revenuemaximizing 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

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.

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. The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 4: Recommendations 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 nextgeneration Hospitality Revenue Management means also taking into account

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.

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.

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 4: Recommendations 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

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.

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.

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 5

Inside Voices and Outside Voices

The 2016 Smart Decision Guide to Hospitality Revenue Management

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.

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.

Marketing manager, full-service hotel Revenue manager, full-service hotel

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. Senior executive, mid-size hotel

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.

Senior executive, full-service hotel

The 2016 Smart Decision Guide to Hospitality Revenue Management

Chapter 5: Outside Voices 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

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. Ahmed Mahmoud, founder, RevenueYourHotel.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. Pamela Whitby, editor, EyeforTravel.com

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

The 2016 Smart Decision Guide to Hospitality Revenue Management

Appendix

Research Notes and Underwriters

The 2016 Smart Decision Guide to Hospitality Revenue Management

Appendix: Research Notes 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.

Job level / role of survey respondents

Size / category of survey respondentsâ&#x20AC;&#x2122; hotel (or other lodging property) employers

47%

35%

16%

Staff

Managers

Senior executives

14%

49%

37%

Small hotels (including motels and bed & breakfasts)

Geographic location of survey respondents

66%

North America

Midsize and limited service hotels

Large and full service hotels and resorts

28%

Europe

Other

The 2016 Smart Decision Guide to Hospitality Revenue Management

Appendix: Underwriter 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 marketing@rategain.com +44 2035141419

The 2016 Smart Decision Guide to Hospitality Revenue Management

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 info@starfleetmedia.com.

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The 2016 Smart Decision Guide to Hospitality Revenue Management