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Integrating RM and CRM in a Mutually Beneficial Relationship



By Ritesh Gupta
September 2010

The mission of both revenue management (RM) and customer relationship management (CRM) departments is virtually the same: optimise profitability and, in the process, allow inventory access to the best customers. 
 
The differences emerge in both the timeframe in which the optimisation occurs and the tools utilised in this process. Philosophically, RM judges “best customer” in terms of maximising current profitability while CRM philosophy adopts a longer-term view.    
 
Specialists in the arena propagate that the solution to integrate the RM and CRM teams can lie in two areas: Integration of a jointly accepted, fact-based methodology that confirms that current profitability maximisation is substandard to optimising long-term profitability. Certainly not an easy task but such clarity is needed.  Until such time, optimisation of current profitability is the more tangible option; and updating the RM tools, and more specifically, evaluation of customer differentiation to the allocation process.  Again, not an easy task but a necessity. 
 
Gavin Hawthorn, head of CRM, Whitbread Hotels and Restaurants says the integration of RM and CRM is potentially one of the most powerful integrations service businesses in travel could work towards.
 
“There is a whole range of opportunities to be gained through understanding customer behaviours, patterns and asset utilisation. The range is from effective targeting of distressed inventory to closed user groups of customers with specific relationship types to increasing profitability from frequent and loyal customers through more relevant and targeted pricing to developing ancillary revenue streams around a broader view of those relationships,” said Hawthorn, who is scheduled to speak at the forthcoming Revenue Management and Pricing in Travel 2010 conference, scheduled to take place in Amsterdam (23-24 November).
 
Profitability
 
Arguably, the cornerstone justification of CRM is utilising customer information to identify/optimise profitability. Its application is based on the ability to segregate/understand customer profitability and take consequent actions that enhance profitability.
 
“I agree this is the cornerstone - but not the be all and end all. Key for me is that this information is used in a way that delivers back to the consumer which delivers real incremental change. I feel the industry in many ways has pioneered a lot of recognition and loyalty but is only now really starting to grasp the opportunity afforded by aligning CRM with the customer experience and the need to integrate activities effectively,”  Hawthorn told EyeforTravel’s Ritesh Gupta in an interview.
 
Optimising Revenue
 
For long, the industry has emphasised that CRM must establish similar credibility within organisations that its evaluation methodologies can incrementally improve the incumbent RM practices.  Furthermore, it can be argued that CRM needs to be viewed as an additional analytical mechanism that is considered as one more execution layer of RM. Another challenge is the organisational dissonance that can result from friction between the RM and CRM departments if cross-departmental goals are not aligned. 
 
The mechanics of most RM systems/policies are to optimise current profitability.  In contrast, the theory of CRM strives to bring in long-term customer value into the equation.  For example, often can be the case that infrequent, non-loyal customers can be quite profitable and these customers often compete for the same inventory as loyal, but less profitable (as measured by current profitability) customers.  If the measuring stick is current profitability, the non-loyal customer often wins.  If the measuring stick is long-term revenue, then there should be supreme confidence in the analytics that there is a clear payback at a later date to forgo short-term profitability.
 
It is imperative that the leadership responsible for both departments, typically the VP of Marketing, aligns individual departmental goals and energies.  
 
On major challenges that suppliers are facing today when it comes to optimising revenue from CRM,  Hawthorn says, “I may be a little bit biased by my experience - but I would say some of the largest challenges are: 1. Integration difficulties around legacy systems; 2. A lack of understanding of total customer profitability over managing business around traditional production metrics such as occupancy / RevPar etc.”
 
Systems
 
Travel companies are building CRM systems alongside RM systems. On how can companies in the travel industry successfully integrate the two, Bill Kotrba, senior director of Industry Strategy for JDA’s Pricing and Revenue Management Group, says the first step is to recognise that all customers are not created equal. 
 
“Transactional RM does not always maximise results when certain customers have a high long-term value to your company.  CRM systems can leverage all available data about an individual customer’s lifetime value based on previous purchases and other information supplied voluntarily.  The result can be that a room is offered at a discounted rate for one person—but not for another, based on how CRM long-term value is quantified.  Casinos did this intuitively for decades long before RM and CRM systems existed,” says Kotrba.
 
The second step, and much more difficult, is recognising specific individuals and actually delivering customised prices and products across a broad range of distribution channels and points-of-contact.  There is another segmentation opportunity here, driving specific customers to interact with your company only via a specific site or distribution channel which recognises them.  
 
For his part, Hawthorn says, “I am not aware of many companies who are really integrating the two all that closely. Some of the best study material relates to Harrah’s Casinos who had the vision to see the opportunity of aligning these two functions, but it does take a real vision and commitment from senior management to see something like this through I would argue.”
 
Trends
 
On new trends expected to shape up in the manner in which RM and CRM would get integrated, Hawthorn expects a better understanding of the broader profit impact of regular customers - with better understanding of the costs of acquiring new customers as part of pricing and distribution strategies.
 
Revenue Management and Pricing in Travel 2010 conference
 
Gavin Hawthorn, head of CRM, Whitbread Hotels and Restaurants is scheduled to speak at the forthcoming Revenue Management and Pricing in Travel 2010 conference, scheduled to take place in Amsterdam (23-24 November).
 
For more information, click here:

About EyeforTravel
EyeforTravel is a leading media company specializing in business intelligence for the travel and tourism industry. EyeforTravel provides a series of senior executive travel conference on a diverse range of topics including travel distribution, online marketing, social media, mobile and revenue management.  EyeforTravel also provides some of the most in depth research into global online travel markets and trends. For more information visit www.eyefortravel.com
 
Contact:

Rosie Akenhead
rosie@eyefortravel.com
0044 (0) 207 375 7229

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