Automated RM: a game changer if you avoid some common mistakes
True revenue optimisation takes place when one is able to accurately assess the overall contribution from customer micro-segments towards overall profitability.
In the absence of an automated revenue management system (RMS) such decision-making and assessment is not possible, nor practically viable. With an automated RMS, however, one is able to process a volume of historical and future reservation data which allows you to forecast in a granular way by customer segment and be able to recommend actions that lead to much greater profitability.
Automated RMSs also takes into account the impact of displacing a segment in terms of total revenue potential including other ancillary income. “This is a game changer,” says Mumbai, India-based Puneet Mahindroo, corporate director of revenue management & global distribution at Taj Hotels Resorts and Palaces.
EyeforTravel’s Ritesh Gupta talks to Mahindroo about what automated RM is doing for business.
EFT: How do you assess the maturity of automated RM strategies across multiple properties?
PM: Most revenue management software today is highly evolved and uses multiple models and statistical algorithms to generate recommendations. The maturity is more dependent on the revenue culture of the organisation.
For instance, an organisation’s revenue strategies may for the moment be just room revenue focused whereas another may have graduated to more advanced form where the revenue team's decision making may be driven by total revenue contribution model. Thus the choice of the system and the functionality is determined by the revenue culture. The worst mistake is when organisations decide to implement revenue management software and expect it to start doing wonders. Instead they should expand the platform for a strong revenue culture and when the basics are great, get a system to build on it.
EFT: How has the industry overcome challenges around manually consolidating data from different sources?
PM: Unfortunately the industry is still governed with several point-to-point connects in terms of systems that are interfaced to varying degree. In other words we have a property management system, a customer relationship system, RMS, and point of sale systems and so on. All these are different databases. The industries that have been successful in dealing with this issue are those that have a single database that supports multiple graphic user interfaces. Until this issue is overcome we will continue to face challenges of this nature.
EFT: Has the process of analysing multiple data points in RM become swifter?
PM: That goes without saying. In the past a good part of our day used to be spent just collating data, giving us very little time analyse this. This drastically hindered our ability to be agile and proactive in our approach. In addition this would also limit the time horizon of future data analysis and actions. Today an automated RMS empowers us with the ability of not only accessing multiple datasets at a click of few buttons but self-learning algorithms also facilitate recommendations. This means that the system is not just collating and organising data for analysis and decision-making but instead serving as a scientific decision facilitator by presenting a certain set of decisions and actions.
EFT: Has the ability to forecast with accuracy improved over the years?
PM: Technology has certainly been a strong influence in improving forecast accuracy. Today most hotels that use the right system, processes and, more importantly, have the right human talent and intellectual capital can boast of 2-3% error margin on average. However, we have not been able to still crack the issue of external environment influence on forecasts. It’s still very inward looking. Once we can deal with this aspect in a more methodical and scientific manner, the accuracy can further be enhanced. My comments are more restricted to more short-term forecasts. I believe the forecast accuracy over a longer booking horizon in the future continues to pose a challenge.
EFT: One of criticisms is that many RM systems have not been able to incorporate models for ancillary demand. Where can these systems be improved upon?
PM: I think ancillary demand management has certainly been incorporated now from a total revenue contribution perspective limited to resident guests. The area that still requires a lot of development is non-resident guest spends for instance in catering, banquets and restaurants. This is where the issue of multiple systems and databases comes into play. So it’s just not an RMS issue, but a larger hospitality system architecture and interfacing issue.
EFT: How should hotel companies go about incorporating automated and data-driven demand forecasting and pricing?
PM: There is no one shoe fits all approach. Each hotel company has its own core strengths and competencies. Hence, the first step is to develop a revenue culture that compliments that. The next is to develop a consistent and systematic set of processes driven by the right talent. This will help form the basic platform. Only once this is established, one should consider bringing in technology and tools that aid the processes. The most common mistake is that we bring in the system and then try and build processes to support it. Instead we need to bring in systems that enhance and support established processes.
EFT: Is it true that most RM systems cannot differentiate between one customer and another in terms of lifecycle and lifetime value?
PM: It is indeed my dream that someday the RMSs will be truly CRM oriented where we can pursue a ‘segment of one’ approach. This means that we treat each customer as an individual micro segment and decision-making is based on individual value proposition. I call this the ‘Amazonification’ of revenue management. Just like Amazon is able to personalise and recommend deals and promotions tailor-made to individual preference and historical spend patterns or buying behaviour, so we should be able to do the same in the hotel industry.
EFT: How do you expect automated RMSs to evolve?
PM: The next step of evolution of the RMS is to integrate information from multiple points of sale to give a more holistic approach towards management of total revenue. This should ultimately be done with a vision of serving the ‘segment of one’ approach.