“RM now moving away from overall profitability towards customer centric profitability”

IN-DEPTH: It is critical to understand that the interests of the hotel are the same as protecting your most valuable customers, says Devdutta Banerjee, Regional Director - Revenue Management, India Bangladesh and Nepal, Starwood Hotels & Resorts

Published: 09 Aug 2011

IN-DEPTH: It is critical to understand that the interests of the hotel are the same as protecting your most valuable customers, says Devdutta Banerjee, Regional Director - Revenue Management, India Bangladesh and Nepal, Starwood Hotels & Resorts

The way revenue management (RM) systems are evolving, specialists believe that companies can do a lot more than just simply look at their competitors’ prices and match them for the sake of being competitive.

As far as how segmentation plays into maximising profits and setting the right price, it’s still a hit and miss with a lot of companies. Case in point: while hotels have invested in automated demand forecasting, good segmentation still requires restrictions and enforcement. Offering a discount in exchange for booking well in advance is good, but early booking discounts that allow late cancellation don’t accomplish much. Too many hotels still allow deeply discounted rates to be canceled up until 6pm on arrival day. On the other hand, requiring full non-refundable payment at time of booking is true fence that will separate business and leisure demand. But that is relatively uncommon—except to the extent that OTA’s do this and capture upside that hoteliers really should be getting.

Strategic and tactical sales and marketing offerings are critical and the RM job has now evolved into interpreting the future trends and decisions based on more forward looking info and becoming less dependant on past trends.

As Devdutta Banerjee, Regional Director - Revenue Management, India Bangladesh and Nepal, Starwood Hotels & Resorts, says RM is now moving away from overall profitability towards customer centric profitability.

“It is clear how the evolution of pricing dynamics, and profitability is becoming key to all decision making processes. As we dive deeper into understanding trends from a macro level and slice and dice the data further, one moves towards segments, and further on towards individual buying and spend patterns,” says Banerjee.

“At the end of the day it is the individual customer and the business to business transactions which make the hotel business and therefore forecasting demand by segment and pricing based buying behaviour of individuals, segments, which includes price points, lead time, stay restrictions etc, are key to protecting the overall interests of the hotel. The key to understanding this is that the interests of the hotel are the same as protecting your most valuable customers,” says Banerjee, who is scheduled to speak at the forthcoming EyeforTravel’s Travel Distribution Summit India 2011, to be held in Mumbai (12-13 October) this year.

Banerjee spoke to EyeforTravel’s Ritesh Gupta about the future of RM. Excerpts:

Revenue management in hotels is constantly evaluating several issues at this juncture. How do you assess the future of RM in this industry?

Devdutta Banerjee:

RM is essentially about being dynamic. This translates into being completely in sync with trends that are evolving and being ahead of the curve to be able to maximise opportunities that present itself.

Today the world is moving away from standard operating process to getting more and more personalised. In this lies the opportunity, where one is able to understand spend patterns of individuals and micro markets and drive business. With each innovation, arises challenges and opportunities. The essence of the game is to continually analyse the trends and opportunities before it is too late.

RM is now becoming an essential feature of hotels and yield decisions are viewed very critically. In the not too distant past, RM was not critical headcount in hotels. We then evolved to getting RM in the Excom of hotels and now we are reaching a stage where RM is a full fledged department in its own right.

RM tools are no longer a matter of choice for hotels and the complexities of analytics do not allow us the luxury of not having automated systems. Almost all large hotel have RM tools as a key feature and is a part of the decision making process of hotels.

Ancillary Revenue streams are critical to the hotels survival and treating them as mere cost centres are an absolute No.

Can you elaborate on some of the critical issues which RM has had to face in the recent past and how do you think the industry needs to gear up towards the same?

Devdutta Banerjee:

In simple terms:

  • Change in demographics - Moving away from traditional markets of US and Western Europe to a more Asian focus

  • The online revolution - Geo Specific OTAs which have strongholds in key markets

  • The churn in Economies - Typical economic cycles of growth and depression have now been replaced by micro cycles in different economies

  • Talent need – the war for talent

  • Visibility of RM to senior leadership team and owners (only if they understand, will they invest in talent and tools)

It is being highlighted that the big innovation that is on the horizon is the capability to quantify price elasticity and use that output to generate optimal prices directly. Bringing publicly available competitor pricing data into the heart of the RM system and forecasting how customers will respond to changes in price—it’s a totally different approach. The most advanced hotels are moving in this direction and airlines are likely to follow suit. What’s your take on the same?

Devdutta Banerjee:

The Internet is here and is here to stay. People are booking online and via mobile apps etc. movies, tickets, retail shopping, everything is out there. Reaching the customer with a value proposition that is appropriate and is competitive is the key. While we may believe that we are unique, the customer does compare us with an array of similar offers within our compset and in more cases than not, with other destination offers as well. To identify the set of hotels and destinations that a customer is likely to compare us with and then coming up with a value proposition is the key.

Geographical and demographical comparisons are critical and need to be factored in.

RM systems are evolving to identify retail buying behaviour to look at how people are buying us, to look at what they are comparing us against and ensuring that we price adequately. This also effectively allows us to ensure that we are not underselling our product as well when there is an opportunity to drive demand with a reduction in price.

The modern RM is no longer the record keeper of the past and instead is far more reactive to market conditions, in tune with sales plans and the RM professionals are being described as decisive forward thinkers who are innovative and creative. How do you think this all is reflecting the approach of RM professionals today as far as forecasting is concerned?

Devdutta Banerjee:

Analysing trends and interpreting them was always a part of the traditional RMs job. The big change that has happened is that with the rapid changes happening in the economic environment, there is no real comparable trend available any more. The only option therefore is to look ahead and make sense of what the future is shaping out to be. Strategic and tactical sales and marketing offerings are critical and the RM job has now evolved into interpreting the future trends and decisions based on more forward looking info and becoming less dependant on past trends.

Whilst RM systems go a long way in identifying opportunities and maximising revenues they are not capable of business forecasting and this still remains an area where Revenue Mangers have to improve. What’s your viewpoint regarding the same?

Devdutta Banerjee:

Forecasting is a complex process and is a continuous process of evolution to fine tune the same both in terms of accuracy and in terms of the breadth of the forecast. From a stage where room nights and room occupancies being the focus, to room revenue, to F&B revenue and then on to overall revenue and now moving forward to GOP level forecasting, is a journey that is being tackled in stages. There are several factors involved, including data, technology, trends, external environment, investment etc which play a part in the process. Adequate manpower, training tools etc have a role as well. As the hotel scene matures in our region, we are progressing towards a higher integration but it is a journey and the final goalpost in terms of forecasting is a moving target.

 

Travel Distribution Summit India 2011

Devdutta Banerjee, Regional Director - Revenue Management, India Bangladesh and Nepal,Starwood Hotels & Resorts is scheduled to speak at the forthcomingEyeforTravel’s TravelDistribution Summit India 2011, to be held in Mumbai (12-13October) this year.

For more info, click here:

Or contact:

Tim Gunstone

Managing Director

EyeforTravel

+44 (0)2073757557

tim@eyefortravel.com

 

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