Revenue Management - the science of ultimate hotel success
Summary
TLDRIn 2016, Marriott's acquisition of Starwood Hotels made it the world's largest hotel company, challenging traditional loyalty programs. The video discusses revenue management, a crucial strategy for hotels to maximize profits by matching supply and demand. It explains how Marriott and other hotels use revenue management to compete with OTAs by encouraging direct bookings and managing room pricing dynamically based on customer data and market conditions. Despite technological advancements, many hotels still rely on manual processes, highlighting a need for a shift in mindset towards more efficient revenue management practices.
Takeaways
- 🏨 Marriott became the world's largest hotel company in 2016 after acquiring Starwood Hotels, which had a loyal customer base and a more approachable rewards program.
- 💔 The acquisition was met with disappointment by Starwood's loyal customers, particularly those in the Starwood Preferred Guest program, due to differences in rewards exclusivity and room availability for redemption.
- 📈 Marriott aimed to compete with online travel agencies by increasing its size and loyal customer base, encouraging direct bookings to avoid commissions.
- 🧠 Revenue management is crucial for hotels to match supply and demand, selling the right room at the right price, time, and distribution channel to maximize profits.
- 🗓 Revenue management involves predicting room demand based on historical data, market conditions, and external factors like holidays and weather, to set dynamic pricing.
- 🚫 The perishable nature of hotel rooms means that unsold rooms for a night result in lost potential value, emphasizing the importance of accurate demand forecasting.
- 💸 High fixed costs in the hotel industry, such as salaries and utility bills, mean that maximizing the value of each room, restaurant seat, and amenity is essential.
- 🔍 Customer segmentation allows hotels to apply dynamic pricing based on factors like age, marital status, and travel purpose, which can optimize revenue.
- 🤖 Automation and machine learning can enhance revenue management by processing live data and adjusting pricing in response to demand changes.
- 📉 A survey by Cornell School of Hotel Administration found that revenue management practices had not significantly changed despite expectations for growth in technology and analytics.
- 🛠️ The adoption of revenue management technology is hindered by a silo mentality in hotels, with a reluctance to move away from manual processes and Excel spreadsheets.
Q & A
Why did Marriott acquire Starwood Hotels in 2016?
-Marriott acquired Starwood Hotels in 2016 to become the world's largest hotel company, thereby increasing its size and volume of loyal customers to compete with online travel agencies.
What was the reaction of Starwood Preferred Guest program members to the Marriott acquisition?
-The acquisition was heartbreaking to many loyal customers of the Starwood chains, specifically members of the Starwood Preferred Guest program, due to differences in rewards exclusivity and the value of their points.
How does Marriott's rewards program compare to Starwood's in terms of exclusivity and value?
-Starwood Rewards were more approachable, requiring less spending to earn a stay at upscale hotels compared to Marriott's program, which required twice the amount. Additionally, Starwood had no limit on the number of rooms available for rewards redemption.
What is revenue management and why is it crucial for hotels?
-Revenue management is the science of matching supply and demand by selling the right room to the right client at the right moment at the right price on the right distribution channel with the best commission. It's crucial for hotels to maximize profit and manage perishable inventory.
How does the perishability of hotel rooms affect pricing and revenue management?
-Rooms are perishable; if they remain vacant for a night, their potential value is lost. Revenue management helps prevent this by adjusting supply and demand to ensure rooms are sold at optimal prices or given to loyal members.
What are the challenges hotels face with fixed costs and limited capacity?
-Hotels have high fixed costs like salaries, utility bills, and marketing expenses that remain constant regardless of occupancy. They also have limited capacity for rooms, restaurant seats, and other amenities, necessitating efficient revenue management to maximize value.
How does revenue management help hotels predict and adjust to room demand?
-Revenue management uses historical data, external factors like holidays and economic conditions, and forecasts to predict demand and adjust pricing and availability accordingly to match supply and demand.
What was the outcome of the survey conducted by Cheryl Eke in 2010 and followed up in 2016 on revenue management practices?
-The survey results were underwhelming, showing that despite expectations for growth in technology and analytical skills, revenue management roles remained largely manual with limited technology support and no centralization of processes.
Why are hotels struggling to adopt revenue management systems despite their availability?
-The struggle to adopt revenue management systems is due to a mindset issue, often referred to as 'silo mentality,' which makes the adoption of technology more difficult than it should be, even though solutions are available even for small independent hotels.
What steps can hotels take to improve their revenue management practices?
-Hotels can improve their revenue management by segmenting customers, applying dynamic pricing, automating processes, and forecasting demand. They can also train teams and establish revenue management practices at every location.
How do online travel agencies (OTAs) like Expedia and Booking.com use revenue management?
-OTAs use revenue management by providing free toolkits to their members that offer insights on demand, share forecasts, and allow setting prices in the calendar, demonstrating their adoption of technology and data analytics.
Outlines
🏨 Marriott's Acquisition of Starwood and Customer Loyalty Impact
In 2016, Marriott became the world's largest hotel company by acquiring Starwood Hotels, a group with 11 brands. This move was upsetting for loyal Starwood Preferred Guest members, as Starwood offered more accessible rewards compared to Marriott. For instance, Starwood allowed members to earn stays by spending $10,000 with a branded credit card, while Marriott required twice that amount for less satisfying experiences. Starwood also had no restrictions on rooms available for reward redemption, whereas Marriott limited availability. Marriott’s acquisition was part of a larger strategy to compete with online travel agencies (OTAs) like Expedia and Booking.com. By driving customers to book directly on hotel websites, Marriott aimed to avoid paying commissions to OTAs. This approach is rooted in revenue management, a system designed to balance supply and demand to ensure hotel profitability.
💡 The Science of Revenue Management in Hotels
Revenue management is critical for hotel success, as it helps match supply with demand. Hotels face a unique challenge because rooms are perishable assets—if a room remains unsold for a night, its value is lost. By using revenue management, hotels can adjust prices to avoid giving away rooms cheaply or at a loss. Additionally, hotels have high fixed costs, like salaries and utilities, regardless of occupancy rates. Therefore, selling rooms at optimal prices becomes essential to cover these expenses. Revenue management involves setting prices based on factors like customer type, competitors, and distribution channels, ensuring hotels can maximize profits while maintaining full occupancy.
📈 Predicting Hotel Room Demand: Theory vs. Reality
Revenue management relies heavily on demand prediction. For example, a hotel in Barcelona may expect high tourist demand in summer, allowing it to raise prices. However, predictions can be inaccurate, as seen in 2014 when Latin American hotels overestimated demand during the World Cup and ended up with lower-than-expected occupancy. They raised prices, but the primary segment of travelers turned out to be domestic middle-class customers rather than luxury guests. This misalignment resulted in an imbalance between room supply and pricing, something that effective revenue management could have addressed by segmenting customers and applying dynamic pricing.
🌐 The Power of Dynamic Pricing and Automation
Dynamic pricing is a key component of revenue management. By collecting data about past travelers and segmenting customers (e.g., by age, marital status, or travel purpose), hotels can apply different pricing models for different types of guests. Automation and machine learning tools can process real-time data to adjust prices dynamically. However, predicting demand can be complex, especially in cases of unexpected events like public health crises. Despite these challenges, hotels can use historical data and factors like holidays, local events, and weather conditions to make more accurate forecasts, optimizing pricing and ensuring a better balance between supply and demand.
🚪 The Challenges of Adopting Revenue Management Systems
Despite advancements in technology, many hotels are slow to adopt revenue management systems (RMS). A 2010 survey of revenue managers by Cheryl Iams from Cornell University showed that while professionals expected more technology integration, little changed by 2016. Many hotels continue to use manual processes rather than embracing available technology, even though RMS solutions are widely accessible and free toolkits are offered by OTAs like Booking.com and Expedia. The issue isn't a lack of resources but a 'silo mentality' that makes technology adoption difficult. With better training and a more open mindset, hotels could benefit greatly from automated RMS solutions, leading to increased profitability.
Mindmap
Keywords
💡Marriott
💡Starwood Preferred Guest
💡Revenue Management
💡Perishable
💡Dynamic Pricing
💡OTA (Online Travel Agency)
💡Customer Segmentation
💡Fixed Costs
💡Demand Forecasting
💡Silo Mentality
💡Property Management Tools
Highlights
Marriott became the world's largest hotel company in 2016 after acquiring Starwood Hotels.
Starwood Preferred Guest program was more approachable than Marriott's rewards system.
Marriott needed to compete with online travel agencies like Expedia and Booking.com.
Revenue management is crucial for hotels to match supply and demand effectively.
Rooms are perishable; if vacant for a night, their potential value is lost.
Revenue management aims to prevent rooms from staying vacant by adjusting supply and demand.
Hotels have high fixed costs, so they need to maximize the value of their limited capacity.
Revenue management combines rooms and customers to sell at specific prices.
Hotel room demand can be predicted based on factors like season and location.
Revenue management can solve problems of imbalance between available rooms and customer willingness to pay.
Customers can be segmented based on factors like age, marital status, and travel purpose.
Dynamic pricing adjusts prices based on customer segments and market conditions.
Automation and machine learning can process live data to respond to demand changes.
Forecasts help prepare for future demand based on historical data and external factors.
Revenue management can be hindered by a silo mentality and resistance to adopting technology.
Many hotels still rely on manual processes despite the availability of revenue management solutions.
Adopting revenue management is not just about increasing transactions but finding a path in a dynamic market.
Transcripts
in 2016 Marriott became the world's
largest hotel company after acquiring
Starwood Hotels a massive group owning
and operating 11 brands the news was
heartbreaking to many loyal customers of
the Starwood chains or more specifically
members of the Starwood Preferred Guest
program Starwood Rewards weren't
particularly exclusive but compared to
other high-end hotels were much more
approachable for example you could spend
only ten thousand dollars using a
branded credit card to earn yourself a
stay at one of its upscale hotels with
Marriott you'd have to gather twice that
and the experience wouldn't measure up
besides while most hotels would have
only 10% of the rooms available for
Rewards Redemption
Starwood had no limit there was always a
room if you needed one Marriott realized
that to compete with online travel
agencies like Expedia and booking.com
it had to become more powerful in both
size and volume of loyal customers to
redeem their valuable points people had
to book directly from a hotel's website
and that meant a hotel wouldn't have to
share commission with an OTA this is all
part of a larger system that helps hotel
survive in the current market it's
called revenue management the science of
ultimate hotel success
basically revenue management does a
difficult job of matching supply and
demand or selling the right room to the
right client at the right moment at the
right price on the right distribution
channel with the best Commission this is
something any business has to do to stay
profitable but something the hotel
industry needs the most why rooms are
perishable if a room stays vacant for a
night its potential value is lost you
will need to sell it at a much cheaper
price or give it away to a loyal member
revenue management will tell you what to
do or it will prevent this dire
situation by correcting the supply and
demand graph next a hotel has limited
capacity you can only stock so many beds
restaurant seats and deck chairs all of
which have to be maintained whether you
have guests occupying them or not you
need to get the most value of them this
means that a hotel has high fixed costs
salaries utility bills and marketing
expenses stay the same whether you have
a fully occupied hotel or a low demand
season so you have a set of rooms that
have to be sold in a set of customers
that agree to pay a specific price for
that room it's time to combine them
here's how revenue management works in
theory hotel room demand can be
predicted if you run a hotel in
Barcelona you expect to get a ton of
tourists in the summer so you can ask a
higher price will these expectations
come true in current market conditions
it's actually hard to tell in 2014
hotels in Latin America were expecting
an inflow of international travelers for
the World Cup the demand ended up being
even lower than the year before
they raised the prices to an average of
one hundred and forty eight dollars per
night which was more than any other
destination in North America Europe and
part of Asia
besides 40% of emerging hotels were
targeting luxury guests but in reality
the largest traveler segment was
domestic travelers that recently entered
the middle class all this ended up in a
large imbalance
between the number of available rooms
and the price customers were willing to
pay revenue management could have solved
this problem in three steps first by
segmenting the customers hospitality is
one of the businesses where the price
for service can depend on the type of
customer a person's age marital status
spending habits and whether they're
business travellers will define the
optimal price a retired couple won't
hunt for a cheaper deal ditto for
someone visiting the conference in your
area if you collect data about past
travelers and segment them you'll be
able to apply dynamic pricing if you've
seen our video on flight pricing you
know that airlines have different fares
for leisure and business travellers but
customers are not the only ones
impacting pricing hotels can adjust
pricing based on their financial
situation competitors and the perceived
value of the service what makes pricing
truly dynamic is automation or even
machine learning that processes live
data and responds to the changes in the
demand remember how we said that revenue
management is about matching supply and
demand well to do that you need to look
ahead and predict what demand will be
like in say a year of course sometimes a
local catastrophe or public health
emergency may compromise all predictions
but in normal circumstances forecasts
help you prepare more adequately
historical data external factors like
holidays events an economic situation in
the region and even weather are some of
the data used for these forecasts now if
there's an established framework for
managing demand expectations why do
hotels lose money and even brands like
Marriott are struggling to keep up with
OTAs there's a problem with adopting
revenue management in 2010 cheryl eke
Iams professor of operations management
at the Cornell School of Hotel
administration conducted a survey among
500 revenue managers about how they
think an area may develop and change six
years later in 2016
she followed up with the interviews to
learn how their practices
changed and compared them with
predictions the results were
underwhelming while many professionals
expected a growth in technology and
analytical skills not much actually
changed a revenue managers role remained
manual with limited technology support
and next to no centralization of the
processes while IT and data analytics
were expected to drive change the most
they didn't become commonplace and it's
not as if tech developments lagged
behind even small independent hotels
have access to RM solutions today both
booking.com and Expedia have free
toolkits for their members that give
insight on demand share forecast and
allow you to set prices in the calendar
which is evidence that this is not a
financial problem but a mindset one RMS
are willing to grow much more than Hotel
ears themselves so called silo mentality
makes the adoption of technology more
difficult than it should be especially
in a world full of possibilities many
property management tools already have
RM capabilities building a custom
solution will bring more profit in the
long run teams can be trained an
adoption can happen over time from
simply abandoning Excel spreadsheets to
establishing a revenue management
practice at every location after all
revenue management is not about doubling
transactions but finding your path in
this dynamic world
[Music]
Weitere ähnliche Videos ansehen
Revenue management in the hotel industry- Basics
Hotel Property Management System (PMS): Functions, Modules & Integrations
What Hilton, Hyatt and Marriott Don't Want You To Know
Lesson 1.2 Yield Management in the Hospitality Industry
Increase your CLC Room Nights- Largest Negotiator of Hotel Rates in North America
Coronavirus' hit on the hotel industry is 'unprecedented... revenue is off 90%,': Best Western CEO
5.0 / 5 (0 votes)