Revenue management: is it time to get evangelical?
Pamela Whitby speaks to the chief evangelist of a hotel tech firm who argues that a strategic approach to revenue optimisation lights the path to gold
The definition of the word ‘evangelist’ has religious connotations, so why apply it to somebody working for a technology company? As Klaus Kohlmayr, chief evangelist of technology firm IDeaS Revenue Solutions, suggests, it is because he hopes to be the bearer of ‘good news’ to the hospitality industry. And, that good news is: with the right revenue management and optimisation strategies, not only can hotels save a lot of dosh, they can also become leaders in a highly competitive industry!
Revenue management and optimisation has never been more important. Helen Raff, EyeforTravel’s chief product officer, who has put together the agenda for the upcoming Revenue Optimisation & Growth Summit in Amsterdam (Nov 26-27), recognises this: “Delivering a great customer experience is one thing, and of course that is fundamental to any hospitality business. But delivering a great customer experience doesn’t necessarily equate with revenue on the table.”
Delivering a great customer experience doesn’t necessarily equate with revenue on the table
Take Ryanair, for example. Over the years, it has hardly been hailed for its fantastic customer experience – quite the opposite in fact! The key to success, as Dara Brady, Ryanair’s digital director, explained at EyeforTravel Europe in May, has been consistently delivering the lowest price in the market. By focusing ruthlessly on a simple business model that involved keeping costs as low as possible to allow for cheap prices, Ryanair has become one of the world’s most successful airlines.
Picking and choosing
In his role as evangelist, Kohlmayr, who will be speaking in Amsterdam, says he is focused on the mid to long-term trends shaping the industry. And, what he sees as the biggest trend on the horizon is convergence. “Customer expectations are changing and they want to have a relevant offer, relevant products and relevant experiences any time they make a purchase and that is shaping the way hotels, and their partners, deliver solutions,” he says.
In this respect, the retail industry has led the way. “If you buy a fashion item on Amazon, for example, you can choose the size, the pattern, and the colour and you get a price based on this. But when it comes to hotels, it’s already a packaged product,” Kohlmayr explains.
But this is changing and conversations are currently underway about the possibility for hotels to unbundle products in a similar way to the airlines, as outlined in a recent study commissioned by IHG and Amadeus.
[In the future] a hotel customer could choose everything from WIFI and breakfast to feather pillows and a sea view from a drop-down menu, and be charged accordingly
In other words, a hotel customer could choose everything from WIFI and breakfast to feather pillows and a sea view from a drop-down menu and be charged accordingly. “This is going to be a major transformational shift in the industry, giving more power to the consumer to pick the items they actually want,” Kohlmayr says.
However, in order to speak to customers in a highly relevant, personal and conversational way, companies need a lot of data. And, customers are only going to be willing to hand over that data in a ‘social contract’ that involves some value to them – as Amazon has proved.
Firms like IDeaS, RateGain, and Capterra, have positioned themselves to help the hospitality industry build the infrastructure required to capture that data effectively.
To understand how data can deliver a better experience for consumers, Kohlmayr says you only have to look at Google, which is “working very diligently on delivering a better experience for consumers.” He cites a recent personal experience involving a flight from Belgium to Thailand. The cheapest price he could find on an OTA was $1,100, but by using Google Flights, he found a €600 fare. “That is indicative of how Google is able to pull in rates from a range of suppliers, and they could do this because they got European prices from Thai Airways, rather than giving me the American price,” he says.
However, he does not believe Google will become an OTA. Instead, it will continue to leverage vast quantities of data to build better relationships with suppliers that are in the interests of consumers.
But is that unfair? Is Google abusing its monopoly? Many in the travel business would argue yes, but Kohlmayr is pragmatic. “It’s a free market, and in a free market there is competition, and that is good. That is how free markets work, whether it is fair or not,” he says.
The revenue management opportunity in the hospitality space remains huge, and this includes the so-called attribute-based pricing dimension. In fact, Kohlmayr estimates that there are probably around 80,000 hotels as a primary target for RM technology, and of those only 20,000 are already working with a firm like IDeaS. “There is still a huge opportunity as you go down the longer tail for independent and smaller hotels to leverage revenue management systems,” he explains.
Although some smaller hotels still believe revenue management doesn’t apply to them, this could not be further from the truth. As Anthony Scotland, director of strategy and special projects at Hersha Hospitality Management, which operates a portfolio of US-based independent hotels, recently told EyeforTravel, the return on investment is “way higher than the tangible revenue benefits.”
Rate parity remains a big issue, argues Kohlmayr, and many hotels haven’t understood the danger of relying solely on an OTA like Expedia or Booking.com to drive their sales. In addition, plenty of hotels are still applying static rates, and do not dynamically look at forecasts. “There must be a healthy balance between third-party business, and any hotel can benefit from a more dynamic approach to pricing and understanding demand to price accordingly.”
There is still a huge opportunity as you go down the longer tail for independent and smaller hotels to leverage revenue management systems,” he explains
But change is afoot. Although the hotel industry is often accused of being stuck in the past, a definite shift is underway. Kohlmayr cites Accor in Europe as one company that has brought a new energy into the industry by positioning itself as a ‘connector of experiences’ rather than a hotel company. There are also some mid-sized companies like the fast-growing and innovative Dutch chain CitizenM, which recently opened its 19th hotel in Boston, and Edwardian Hotels in the UK, which are bucking the status quo. “Edwardian, for example, is working a lot with artificial intelligence and are looking at total revenue management, and the guest experience,” he says.
Even the major chains like Marriott have recognised that most people simply do not book one type of accommodation anymore. They may stay in a swanky hotel one month and in a vacation rental, igloo or tree house the next. Hence the fact that Marriott now has a homes and villas offering! Another company making waves in the budget segment is OYO, a seven-year-old Indian company claiming to be the biggest chain by the number of rooms.
According to Kohlmayr, this is just another example of how the industry is converging, and we can expect to see further consolidation. “We are all waiting for Amazon to make an entry into the market. Could Amazon even make a play for Airbnb?” he says.
Human touch and a long view
On the big picture of whether companies are thinking enough about how AI will impact the workforce of the future, Kohlmayr has this to say: “In the US, the hotel industry is said to be lacking a million people and there are not enough people to fill those roles. At the same time, companies like Amazon have a massive amount of automation in their warehouses, and yet they still can’t find enough people to work for them,” he says.
[Arguably, because the online retail giant has been criticised for poor working conditions and a questionable approach to workers’ rights!]
For people on the shop or warehouse floor, automation may not be such a good thing, but in revenue management, it is. “Revenue managers should not be crunching numbers or building spreadsheets. This is not the best use of their skills,” he says, adding that: ”With the right system, hotels can run revenue management on autopilot, freeing managers up from 90% of the daily grunt work and allowing them to focus more strategically on meetings and events or food and beverage revenue, distribution strategy and so on.
Having said all that, he doesn’t see humans disappearing from hospitality any time soon. Check-in kiosks in airports have taken years to gain acceptance given consumer push back. “The hotel industry is a people business, a service business and the hotel concierge is still very much with us,” he says.
Revenue managers should not be crunching numbers or building spreadsheets. This is not the best use of their skills
Indeed, the travel and tourism industry is a hugely important one. According to the World Travel Council, it not only generates $8.8-trillion in annual revenues, it also supports 39 million jobs. However, although the industry is currently in a ten-year run of good performance, recent news of downturn is, says Kohlmayr, concerning. In the long-term, however, he still believes the prospects look bright.
Kohlmayr is particularly excited about the innovation happening in emerging technologies. For example, there are new property management and platform providers that have a combination of central reservation (CRS) and property management system (PMS) capabilities. “There is a new generation of systems and market places emerging, and we could soon even be able to download PMS or CRS from something like an Apple app store and trial it, and then switch if it doesn’t work out.”
On the possibilities for voice, the application doesn’t just have to be of benefit to consumers. In fact, IDeaS has developed a product that allows a hotel GM to ask about occupancy levels, rate changes and so on while making a morning coffee.
If you would like to hear more about how hotels can optimise revenue performance and drive growth, join us in Amsterdam(Nov 26-27)