Revenue management in hotels is constantly evaluating several issues at this juncture - dynamically measuring the responsiveness of guests to price changes, RM tools and ancillary revenue streams, and automated systems.

Published: 06 Oct 2011

Revenue management in hotels is constantly evaluating several issues at this juncture - dynamically measuring the responsiveness of guests to price changes, RM tools and ancillary revenue streams, and automated systems.

By Ritesh Gupta

EyeforTravel’s Ritesh Gupta recently spoke to Chinmai Sharma, VP Revenue Management, Wyndham Hotel Group about the future of RM and the latest trends. Excerpts:

Can you predict the biggest talking points related to RM at this juncture?

Chinmai Sharma:

I think the main areas of discussion surrounding Revenue Management will be:

• Converging of Revenue, Sales, Marketing, eCommerce and Distribution disciplines and how will RM need to adapt to stay relevant
• How will RM influence Operations, Hotel Development and Ownership groups going forward?
• Use of technology to assist dynamic bundling and more relevant one to one pricing for consumers
• Focus on Profitability

It is imperative that commercial contracts are viewed in terms of both their short and long term value, and the risks associated with the business. Such considerations are presently widely practiced but not within an automated system environment, and possibly with less discipline than traditional RM. What do you make of this assessment?

Chinmai Sharma:

I think it’s a correct assessment and there is definitely some scope for improvement in this area. Part of the challenge is that it’s hard for hotels (or corporations) to forecast exact travel / lodging needs over a large time horizon which makes it hard for a hotel to renegotiate terms after let’s say the first 3-6 months of a contract.

The other issue is that most automated RM systems rely on human inputs for categorising corporate accounts into yieldable / non yieldable buckets and don’t have a way to track account production automatically to audit the ‘bucket logic’. One thing that should be improved at all hotel companies is to audit corporate account production quarterly to check against the rate-volume logic used to price the account at the beginning of the year.

It is being propagated that there is a need for RM professionals to become more risk management focused – commercial value of contracts now need to be assigned risk grades. Do you think the challenge lies in quantifying and automating the decision variables surrounding risks? Given the rapid changes in travel patterns and world events, linking risk grades to forecasting activity remains a challenge. What’s your viewpoint?

Chinmai Sharma:

I think assigning risk grades to contracts is a good idea although quantifying the decision variables in order for a forecast might be a bit challenging. A typical hotel might have a couple of hundred corporate accounts and it will be difficult to do this exercise at an account level. From a practical perspective - it might be easier to categorise corporate accounts or similar corporate rates / discounts into buckets and then to monitor the activity of the category instead of individual accounts. At the same time assigning risk grades to bread and butter accounts and other significant contracts like crew and office space is probably a good idea. Inputs from the sales team will be key to this process as well as they are usually in constant touch with the key accounts.

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?

Chinmai Sharma:

I think forecasting has always been integral to any good revenue management process. I think the challenge today is that while technology and analytics is improving (along with access to good external data on pricing and other market dynamics), the travel patterns are becoming more complex due to emerging channels, changing consumer behaviour and a new global environment where events in one country or region impact another region more significantly than in the past.

The approach of the successful RM professionals today should be to make as much sense of these patterns as possible for their local markets and also to make forecasting a true collaborative effort with sister departments like sales, marketing and operations. Using new technology and systems that can apply self correcting algorithms based on actual results compared to forecasts will be key going forward.

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?

Chinmai Sharma:

I think most of the latest RM systems do provide a forecast by segment or rate category along with a tracking mechanism so the user and the system can gauge forecast efficiency over time. In order to develop a good business forecast process the successful Revenue Managers will have to use their knowledge of the local market and trends on top of a system generated forecast.

Another area of opportunity would be to link the rooms forecast to operations so that the hotel managers can get some quantitative assistance in areas like staffing and in forecasting room service and outlet revenues.

Over-bundling confuses customers, and erodes profitability. It’s a balancing act - if you bundle too much value, your profitability suffers; if you don’t bundle enough value, you find yourself further behind tomorrow and planning your next bundle. What do you think is the key to achieving such balance?

Chinmai Sharma:

I think the key is to use common sense and not complicate the process too much. All hotel operators and Revenue Managers should have a fair understanding of what amenities and bundled services are sought after for their hotel product and destination. As an example if the top 3 things sought by guests are parking, breakfast and internet access then the hotel should focus around building offers around these amenities. The perceived value of the bundle should be enough to draw and commit the shoppers to become buyers and data / analytics should be used to continually measure performance and ‘incrementality’ of bundling. Reservation platforms and booking engine capabilities can also assist in this process by using package elements during the check out process so the end customer can customise their stay experience.

It is being highlighted that price elasticity measurement is something relatively new in RM and will likely find an application in the ancillary revenues. What’s your viewpoint regarding the same?

Chinmai Sharma:

I think we continually try and gauge price elasticity in most revenue generating areas especially in the traditional room revenue management area. New tools and technology should definitely make this easier even in the ancillary revenue area although I don’t think the measurement approach for ancillary revenue needs to be any different than other revenue sources.