Revenue Management - the science of ultimate hotel success

Summary

In 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.