News for the Hospitality Executive |
By Ritesh
Gupta September 2011 The hotel industry has witnessed the emergence of price optimisation tools that incorporate real-time competitive rates with a hotel’s demand and booking patterns to recommend the best price.
Overall, the industry is focusing more on price elasticity and price optimisation as part of its overall revenue management strategy.
Referring to developments pertaining to price-sensitivity modelling, Pieter Dorhout, Founder, Pieter Dorhout Consulting says rather than accepting demand as it materialises, RM now aims to influence demand to materialise in a profitable way.
“Or in sports terms: RM is evolving from being a neutral, passive referee to becoming an active player in the market,” Dorhout told EyeforTravel’s Ritesh Gupta in an interview.
“This has profound implications for the RM algorithms, processes and people. There are great examples of companies who have taken on the related challenges and reaped rich rewards. However, as with most investments, a higher return is usually accompanied by a higher risk. In this case, the appetite for sophistication needs to be balanced against the ability to deal with complexity, and getting this balance wrong can be extremely painful,” shared Dorhout, who is scheduled to speak at the forthcoming Revenue, Yield & Pricing for Travel Europe 2011 Conference, to be held in Prague (29-30 November) this year.
Dorhout
spoke about the significance of RM in the travel sector, pricing and
segmentation practices, deals/ discounting, and other relevant issues.
Excerpts:
How
do you assess the significance of revenue management in the travel
sector in
today’s business environment? Pieter Dorhout:
It’s
a shame that the phrase ‘change is the only constant factor’ has become
such a
cliché, because it has actually never been more true than today.
In this
context, revenue management can help travel operators adapt very
quickly to
changing market conditions. In fact, sophisticated players will
automatically
adapt their presence in the market: when demand is falling short,
incremental
cost become the relevant benchmark for pricing, but when (or where)
demand is
soaring, opportunity costs become the price threshold. In other words,
especially in these uncertain times, RM is crucial to the core business
of
every travel company: making profit. What
do you think travel professionals can learn from RM specialists in the
other
sectors? Pieter Dorhout:
Lots!
Although universities now offer modules in RM, and lots of mathematical
research is carried out, it is still fair to say that most RM
practitioners
have followed the learning-by-doing path. As a result, RM practice is
very much
defined at the industry level, and there is relatively little
cross-pollination
across industries. I now offer a RM Concepts training course, which
takes a
step back from day-to-day practice, in order to explore the underlying
conceptual principles. This will not only deepen the revenue manager’s
understanding of his own job, but will also make it easier to learn
from RM
application and RM trends in other environments. 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. How do you assess
the
future of RM in this industry? You are right: RM is evolving into many directions at the same time. In the past, it was mainly recommending which products (especially length-of-stay) should be closed, and to do that, a reliable demand forecast was required. Now, lots of developments – some of which you name – aim to extend the RM footprint as well as increase its sophistication. I think this will have two main implications:
Pieter Dorhout:
It
is important to distinguish between market segmentation and channel
management.
Distribution has effectively become a commodity, and the low barrier to
entry
has resulted in a wealth of economically viable channels. For the
operator, it
is now neither effective nor efficient to put significant effort into
managing
individual channels, and rate parity is a generally sensible outcome.
However,
that does not mean that market segmentation has lost its
profit-generating
power. For example, it would be tempting to say that network airlines
will soon
adopt the low-cost airlines’ one-way pricing practice. And some already
have.
But I know for a fact that the ability to distinguish between leisure
and
business demand by means of duration is still extremely valuable for
other
airlines. For hotels, I think the message is: don’t throw the baby out
with the
bath water; rate parity across channels is fine, but commoditisation of
your
product probably isn’t. It
seems there is an appetite from consumers to always lap up special
deals,
discounts and special offers. What do you recommend to hotels
considering that
so many options for flash sale initiatives are now available? Pieter Dorhout:
Make
sure you keep an eye on the big picture: if you can’t see the wood for
the
trees then you can rest assured you’ve lost the plot! Secondly, bear in
mind
that treating distribution channels differently is costly, and if you
believe
that distribution is now more or less a commodity – as I do – it is
probably more
beneficial to focus on decision variables that you do fully control.
Just as an
example, rather than working out which channel is best suited for an
exclusive,
limited-distribution deep discount, you could use the same energy to
talk to
local restaurants, theatres, parking garages, museums and/or shops to
create an
attractive package for general distribution. Hoteliers
are looking at the total worth of the customer and not just the amount
they
spend on the room. This is where CRM and Revenue Management will merge.
How do
you see the maturity level of the same? I will present my views on this at the Prague conference. In short, I think there is still a long way to go, and – perhaps more worryingly – the road to go is not necessarily the road we’re going… I’m not a great fan of unnecessary complexity. In merging CRM and RM, it seems logical to treat every (loyal) customer as a micro-market segment and/or to try and optimise life-time value. Doing this will certainly keep the theorists ahead of the real world for many conferences to come…But again, I’m concerned about our ability to ensure that all the related decisions do indeed contribute to overall profits. Personally, I’d recommend to develop a joint, coherent vision for CRM and RM, but to give up some detail and algorithmic ambition, so that it can actually be implemented without too much risk. I’m looking forward to discussing this with people with a different view! Can
you provide an insight into initiatives being taken by the industry to
maximise
profits by accurately forecasting demand by segment, and setting price
and
availability restrictions to ensure access for the most valuable
customers? The question contains an accurate definition of what RM has always been about. In fact, in times of economic turmoil, the trend can go in the opposite direction: as high-value business demand becomes more erratic and also more likely to materialise as bookings for lower-value products, holding out for the big bucks may look like a risky strategy. Similarly, new industries wishing to adopt RM should consider very carefully if they serve any late-booking high-value demand at all. For example, tour operating doesn’t really have that kind of demand, and that changes fundamentally the context for applying RM (practices or systems). The airline industry is often the pinnacle of RM sophistication, but following them too slavishly is not a good idea. Pieter Dorhout, Founder, Pieter Dorhout Consulting is scheduled to speak at the forthcoming Revenue, Yield & Pricing for Travel Europe 2011 Conference, to be held in Prague (29-30 November) this year. 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 Global Events Director [email protected] Toll Free 800 814 3459 ext. 7229 |
To Learn More About Your News Being Published on Hotel-Online Inquire Here