Hoteliers are always trying to find the optimal point in a cost benefit analysis with regards to technology.

Published: 20 Feb 2009

Hoteliers are always trying to find the optimal point in a cost benefit analysis with regards to technology.

However, it is said that often that analysis is difficult to accomplish since there are so many factors that impact the business. Clearly, hotels and other businesses want to focus their energies on the highest lifetime value customers but investing in technology and resources to segment those customers and develop strategies to retain them is an expensive undertaking.

Assessing the situation, Devdutta Banerjee, regional director - Revenue Management, India, Bangladesh and Nepal, Starwood Hotels and Resorts, says, "I think it is unfair to look at this as an isolated issue with the hotel industry. I guess every service industry faces this issue and from a business stand point I do not think it to be a severe challenge. Perhaps this is evident even more so because the pace of technology change has increased dramatically. Let's face it. At home you don't know which TV to buy, because by the time you buy a TV the entire technology might be outdated.

Banerjee spoke to's Ritesh Gupta about the role of RM, especially in the prevalent business environment and much more. Excerpts:

Approaching RM in the current environment: RM is the key to managing revenues in good times or bad. The key factor here is to work closely with Sales, Marketing and Operations to ensure that the pricing is optimised to suit the market conditions and to look at total revenue management practices. I principally do not think reduction in prices lead to increase in demand specially in adverse market conditions. This can only happen if you are in a pricing structure which does not provide value to the customer. I do agree that there will be a short term price correction but a well thought out pricing and distribution strategy will be able to minimise the impact.

On segments of the market that can be stimulated by aggressive pricing over off-peak periods: RM is the key to manage peak and off peak pricing. Managing segments which will help tide over off peak periods has to be looked at from a perspective of overall hotel strategy. One of the key factors here is to forecast accurately to know when you need what segment to focus on, ensure that you support the same through a congruent approach, with marketing targeting the same segments, sales following up, operations gearing up to meet the requirements of the segment etc well in advance of the said booking window in which the market segment responds.

It is difficult for hotels and airlines to implement yield management strategies that capture all segments of demand. By using dynamic packaging tools that OTAs and others provide, suppliers are able to effectively move that demand to those times and if they can replace that business with higher-rated business over peak dates then it is a win-win for the supplier and the consumer. On the role of intermediaries be it offline or online in such scenario: The OTAs need to evolve. While the principle of daily pricing suits some, the OTAs really do not allow for multiple price points depending on the length of stay. Also some specialise in hotel rates and some on Opaque rates, and some on bundled rates.

Eventually hotels and OTAs need to work on a platform where seamless rate and inventory management will be possible and costs of distribution come down. As we speak costs of distribution are really something which need to be worked on.

Eventually we will look at a rationalisation where corporate volume accounts too will move to these platforms of dynamic pricing.

On how sensitive is RM systems forecast quality about frequent price adoptions in a dynamic pricing environment: Any forecasting model looks at two aspects: 1) How was the past and 2) based on this what will the future be like. I guess the challenges will be there to truly know what was the true price elasticity and if we truly got the best possible price for every room that was sold. The question for the true RM is will such a forecasting system will be cost effective for a hotel?

On how much elasticity a specific type of customer will accept and the booking lead time in which to apply it to your pricing model: The only principle that works effectively is the cost of replacement business, i.e. at what price are you prepared to lose this business, because you will get something else at a higher price point. Also it is it is my belief that price elasticity is not immune to the demand structure. In fact one of the paradigm shifts that's needed is the fact that most of the corporate business in the world does not purchase a hotel room. They purchase a convenience and you need to price for the convenience. I therefore don't believe that there could be a generalisation for segments but more so an elasticity based on the demand scenario prevailing at that point in time which can be spread across different segments.


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