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Uli Pillau from Ideas Revenue Management discusses the key areas hotels need to focus on when creating their hotel rates at the Hotel Website Marketing Conference

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  1. 1. Revenue management developments in hospitality industry Hotel Website Marketing Conference Uli Pillau Amsterdam 25th March 2010
  2. 2. Discussion Topics <ul><li>Revenue Management history & foundation </li></ul><ul><li>The Revenue Management Cycle </li></ul><ul><li>Hospitality Trends </li></ul><ul><li>Dynamic Pricing & Best Available Rate developments </li></ul><ul><li>Technology limitations and restrictions </li></ul><ul><li>Examples from transaction / reservation systems </li></ul>
  3. 3. Today’s challenges of hotels and hotel groups <ul><li>20 years ago revenue management for hotels was much simpler </li></ul><ul><li>Initially a hotel reservation department was the point of sale for all clients - PMS </li></ul><ul><li>Subsequently hotel groups added CRO’s and the GDS came along (CRS) </li></ul><ul><li>The first Internet third party channels started to play a role </li></ul><ul><li>Today there are hundreds of channels customers can use to evaluate hotels and do hotel reservations </li></ul><ul><li>In parallel the pressure on hotel groups, owners, management increased </li></ul><ul><li>Technology became more complicated </li></ul><ul><li>Less time and resources available to make more difficult decisions </li></ul><ul><li>The Internet makes pricing more transparent </li></ul><ul><li>Rate Shopping and Channel Management were invented </li></ul><ul><li>Scientific Revenue Management helps to some extend, but…. </li></ul><ul><li>Automation and next generation technology developments will become the key to success! </li></ul>
  4. 4. Yield/Revenue Optimization <ul><li>Successful Revenue Optimization is made up of different important components: </li></ul><ul><ul><li>Revenue Optimization culture </li></ul></ul><ul><ul><li>Accurate Forecasting </li></ul></ul><ul><ul><li>Close cooperation and agreement on selling strategies between Sales and Rooms Division </li></ul></ul><ul><ul><li>Tools such as Rate Shopping, Channel or Revenue Management </li></ul></ul><ul><ul><li>Good restrictions and controls in all reservations systems and distribution channels </li></ul></ul><ul><ul><li>Following the Revenue Management Cycle </li></ul></ul>
  5. 5. The Revenue Management Cycle Forecast Monitor Optimize Control €€ Profits €€ €€ Revenues €€
  6. 6. Unconstrained Demand Observed Demand Unconstrained Demand Optimize Historical Occupancy Data Rooms
  7. 7. Forecasting Overview <ul><li>The objective of demand forecasting is to ensure the ability to make / deliver optimal yield decisions </li></ul><ul><ul><li>Historical plus on books demand </li></ul></ul><ul><ul><li>Detailed length of stay forecasts – transient and group </li></ul></ul><ul><ul><li>Separate analysis of periods of abnormal demand (S.E.) </li></ul></ul><ul><ul><li>Separate analysis of cancellations and no show patterns by market segment </li></ul></ul><ul><ul><li>Accurate measurement of uncertainty of the forecast </li></ul></ul><ul><ul><li>Self Learning – Auto Correcting </li></ul></ul><ul><li>Any forecasting method not taking all of this into account will provide sub optimal yield decisions / decision support </li></ul>Forecast Optimize Control Monitor
  8. 8. What needs to be Optimized? <ul><li>Unconstrained Demand </li></ul><ul><ul><li>taking into account the volume and value of the demand </li></ul></ul><ul><li>Accounting for the cost of accepting different types of demand </li></ul><ul><ul><li>e.g. Channel Costs </li></ul></ul><ul><li>Inventory Availability </li></ul><ul><ul><li>Overbooking levels which account for group and transient wash </li></ul></ul>Control Monitor Forecast Optimize
  9. 9. Controls <ul><li>The foundation of Revenue Management has always been </li></ul><ul><ul><li>Length of Stay Management </li></ul></ul><ul><ul><li>Rate Management </li></ul></ul><ul><ul><li>Overbooking Management </li></ul></ul><ul><ul><li>Controls in form of Last Room Value/Hurdle Rates and OB by hotel and room type </li></ul></ul><ul><li>In addition, Revenue Management must also address the following: </li></ul><ul><ul><li>Best-Available-Rate, Dynamic Pricing </li></ul></ul><ul><ul><li>Channel Management </li></ul></ul><ul><ul><li>Group decisions – total value </li></ul></ul><ul><ul><li>Cluster decisions </li></ul></ul>Forecast Optimize Monitor Control
  10. 10. Hospitality Trends Forecast Optimize Monitor Control <ul><li>There has been a shift in RM caused by pricing transparency (Internet) and change in market activity </li></ul><ul><li>Automated RM should be a high level combination of Inventory Control – LOS, OB, Rate as well as Pricing & Channel Controls </li></ul><ul><li>Business intelligence in setting pricing and resetting that pricing, based on rapidly changing market demand is critical </li></ul>
  11. 11. True Dynamic Pricing vs. Best Available Rate (BAR) Models Forecast Optimize Monitor Control <ul><li>True Dynamic Pricing is not about selecting a Price from a Rate Spectrum – it is a rate value </li></ul><ul><li>True Dynamic Pricing would include Length of Stay (LOS) considerations </li></ul><ul><li>Not accepted in most hospitality markets yet & limited by transaction reservations system capabilities </li></ul><ul><li>BAR introduced as an intermediate solution? </li></ul><ul><li>Making its way from America into Europe </li></ul><ul><li>One BAR for all LOS or BAR by LOS? </li></ul><ul><li>Manual vs. Automated BAR? </li></ul><ul><li>BAR functionality has a different meaning in many CRS, PMS and IDS </li></ul><ul><li>Future integration between RMS and transaction systems </li></ul><ul><li>will be critical </li></ul>
  12. 12. What about the client? Forecast Optimize Monitor Control <ul><li>Visibility of prices via Internet </li></ul><ul><li>Pricing transparency </li></ul><ul><li>Rate Parity across channels </li></ul><ul><li>Where does your inventory reside? </li></ul><ul><li>Different restriction functionality – optimise vs. parity </li></ul><ul><li>Corporate / Consortia Rates and BAR </li></ul><ul><li>Hotel industry credibility </li></ul><ul><li>Clear pricing and channel strategy incorporating BAR will be key to market success </li></ul>
  13. 13. Best-Available-Rate (BAR) automation <ul><li>BAR Module </li></ul><ul><ul><li>Single Rate Plan for each arrival date and/or LOS in the decision window </li></ul></ul><ul><ul><li>Calculated based on proprietary algorithms </li></ul></ul><ul><ul><li>Accounts for the probability of selling a room at an ‘unqualified’ rate level </li></ul></ul><ul><li>Accounts for the following: </li></ul><ul><ul><li>Seasonality </li></ul></ul><ul><ul><li>Day of Week </li></ul></ul><ul><ul><li>Level of demand and expected occupancy </li></ul></ul><ul><ul><li>Remaining capacity available for sale </li></ul></ul><ul><ul><li>LOS impact </li></ul></ul><ul><ul><li>Groups in house </li></ul></ul><ul><ul><li>Competition (Rate Shopping Data) </li></ul></ul>Forecast Optimize Monitor Control
  14. 14. <ul><li>Reference Channel </li></ul><ul><li>Positioning of the hotel against </li></ul><ul><li>the competitors </li></ul><ul><li>Skip hotels on certain dates </li></ul><ul><li>It adds consistency and a structured approach to the integration of rate shopping data into the decision process </li></ul>Factoring in Competitive Rate Shopping Data Forecast Optimize Monitor Control
  15. 15. Channel Management <ul><li>Series of decisions required </li></ul><ul><ul><li>Consistency ? </li></ul></ul><ul><ul><li>Rate or Revenue Parity per Channel ? </li></ul></ul><ul><ul><li>Cost of business per channel ? </li></ul></ul><ul><li>Pricing assistance is going to help the deployment of the right price to the right channel </li></ul><ul><li>Automatically (or not) open and close the channels based on their value to the hotel and the demand to come through that channel </li></ul>Forecast Optimize Monitor Control
  16. 16. <ul><li>Dynamic, auto-correcting, pattern-based forecasting (unconstrained by LOS) </li></ul><ul><li>Senses new demand patterns which might evade human eye, both transient and group </li></ul><ul><li>Quantifies uncertainty </li></ul><ul><li>Relies more on recent trends than stale history </li></ul><ul><li>Produces valid decisions within 60-90 days of installation </li></ul><ul><li>Separately analyzes special events, without ignoring underlying trends </li></ul><ul><li>Considers competitive set </li></ul><ul><li>Integrates closely with Channel Management </li></ul><ul><li>Welcomes user input to the forecast </li></ul>Scientific Forecasting in today‘s world
  17. 17. <ul><li>Includes all previous requirements </li></ul><ul><li>“ Hybrid” forecasting elements </li></ul><ul><li>Considers competitive set AND other market relevant data </li></ul><ul><li>Considers more data from different sources (or ideally one) </li></ul><ul><li>Next generation platform will add components such as integrated campaign management, CRM, sales & marketing </li></ul><ul><li>Need for new technology generation in hospitality industry – one data source and stronger selling systems </li></ul>Scientific Forecasting in tomorrow‘s world
  18. 18. Updating all channels at the same time Channel Management tool Revenue Optimization and Pricing Solution PMS/CRS Room Inventory Data CRS Restrictions and Pricing For GDS/Internet Channels WWW Restriction & Overbooking Controls GUI, ALERTS & REPORTS Data Extract Decisions/Pricing Upload Web Shopping Engine Internet channels
  19. 19. e.g. Integration between RMS and Channel Management
  20. 20. Restrictions in the reservation process…e.g. Opera PMS
  21. 23. IDeaS – Integrating Decisions and Systems Global Regional Resorts / Casinos / Convention Hotels