Ira Vouk is the author of a top industry publication "Hospitality 2.0". In GRANT#3 she talks about the potential for existing RMS vendors to improve their products in order to catch up with the real needs of a modern hotelier.
There's a lot of potential for existing RMS vendors to improve their products in order to catch up with the real needs of a modern hotelier. Most aspects of their functionality (forecasting, pricing, segmentation, etc.) are built in the pre-covid era. But do those strategies still work?
Ira Vouk, author of Hospitality 2.0, is a hospitality industry consultant and technology innovator with decades of hands-on industry experience. For GRANT she listed 7 must-haves of revenue management technology.
Hoteliers are starting to understand that all answers are in the data, not in Tarot cards.
Revenue Management technology will become the centerpiece of the hotel tech stack once it gains the necessary amount of functionality described further in this article. It will have to be reimagined and possibly also renamed. Something like Revenue and Profit Optimization Platform seems like a more suitable term. Further I explain why.
As a result of the pandemic, proper cost control became a matter of survival for many. The industry was also forced to start innovating by developing new sources of revenue, improving efficiencies, while at the same time, it also incurred additional costs related to employee and guest health concerns.
Whether we like it or not, every single decision Revenue Managers take on a daily basis has an impact on the bottom line. That dictates the need for the Revenue Management discipline to not just concentrate on optimizing the room revenue stream. Revenue Management has to solve the problem of profit maximization.
Here are major gaps that exist in the current Revenue Management technology pertaining to profit optimization (or lack thereof):
In summary, the way RMSs were built and have been functioning is not yet adapted to the profit optimization needs of hotel owners.
You might recognize a typical scenario in a traditional hotel company: RM department targets RevPAR, Marketing drives room nights for stay dates that don’t correspond to need dates, Sales team books groups over high demand periods without checking with RMs, Operations worry about cutting costs, while the owner cares about cash flow. Everyone is pulling the cart in their own direction and there’s no synergy whatsoever. This has been happening in many organizations in our industry for many, many years.
Revenue and Profit Optimization technology of the future needs to help hospitality businesses to solve the problem of departmental misalignment and aid in collaboration of those departments by becoming a Platform instead of just another siloed piece of the puzzle. A Revenue and Profit Optimization Platform.
Revenue Management technology needs to help glue everything together and feed the information and decisions to other parts of the organism (where in most cases, profitability is the ultimate goal) with all departments working towards the same metric. Another major missing link is between RM and Operations. For some reason, existing RMS systems don’t incorporate functionality to assist with optimal staff scheduling, optimizing occupancy that would lead to maximum profits by minimizing operating costs.
In line with the overall trend of different departments merging and starting to work closer together, directors of revenue management, are starting to take on more tasks that previously were delegated to marketers. Here’s how MSEs (metasearch engines) fit in this picture, with Google of course being the most prominent player.
As you know, metasearch works with a number of different models: CPC (cost-per-click), CPA (cost-per-acquisition), and recently – CPS, aka PPS (commission-per-stay or pay-per-stay).
Today, as Google’s share in the search engine market reached about 92 percent, making it an absolute leader (travel sector included) – Revenue Management technology vendors can’t continue ignoring the fact that it will soon become our main distribution channel.
While Google is not ready to crawl down the reservation funnel and start handling transactions between the consumer and the supplier (like traditional OTAs do), their main goal is to have “the best place for travelers to make their booking decision”. And the way they’re planning to achieve that is by having the best, most comprehensive, most up-to-date, and most accurate information about the availability and prices in the market on those vertical search pages.
With that ambition in mind, Google is actively reaching out to hotel companies and independent booking engine providers asking for direct integration and bypassing OTAs. As more and more of them get connected directly to Google Hotel search, the more the scale will lean towards this MSE giant and away from OTAs.
It won't be long before we start noticing the change. Google has a very strong potential to start helping hoteliers funnel more traffic to direct channels in the very near future. Listing a hotel on Google Hotel or Google VR vertical search page is FREE. And for those who would like to boost visibility and increase conversion, Google offers an option to pay for ads via CPC/CPA/CPS. The main difference between Google’s commission (or any other meta channel for that matter) and that of an OTA is that it is flexible and is fully controlled by the bidder. It means that intelligent fluctuation of meta bids will become part of the next-generation RMS optimization decisions.
Google will become the ultimate travel decision-making platform, and nobody will be able to compete. Google will own metasearch, because they own the search, period. Other metasearch engines like Tripadvisor and Trivago still rely on search traffic coming through Google.
We need to start considering how we can bring the Revenue Management discipline and the marketing discipline together as Hotel Ads become a part of our revenue and profit optimization strategy in the same way Revenue Managers have been overseeing OTA distribution for the last two decades.
Being able to anticipate demand levels for every day in the future (365 days out or even further) is the basis for any revenue and profit optimization strategy and budget planning.
Travel demand has always been uncertain, and history never repeats itself. Recent events just highlighted this fact for all of us and have been pushing the industry towards more innovations in the areas of forecasting and optimization. But very few RMS vendors seem to be able to catch on with that.
Now that the industry has come to this understanding, it’s time to rebuild our forecasting methods altogether.
The traditional method of constrained and unconstrained demand forecasting estimates the quantity of rooms to be sold, using historic reservation data. There is a major problem with this approach: It’s not about predicting true demand, it’s about predicting occupancy. But Forecasting occupancy irrespective of pricing is irrelevant in today’s world.
We have to realize that we need a new way to forecast that reflects our new reality:
External destination data is the upper funnel, forward-looking data that is gathered from the market, outside of the hotel. And it’s not just compset rates. What I’m talking about here is comprehensive market data that allows you to get as close to measuring market potential (and as far away from internal booking curves) as possible.
There is a lot of potential to use MSE (metasearch engines) upper funnel search volumes for proactively and dynamically measuring forward-looking market demand. Those who get their hands first on Google hotels’ search volumes will have a significant competitive advantage.
What changes are we facing? What new sales channels will the future bring? Which technologies will play a role in the selection of travel and hotel offers in the future? What tools will hoteliers have at our disposal to assert ourselves in the market?
We created GRANT Magazine to find answers to these questions. The English to grant means to grant insights and to fulfill wishes ....
Believe it or not, only a very small number of existing RMS vendors’ algorithms are truly AI-based, and those are mostly the newest ones. But for the most part, true AI is still very much underutilized in our Revenue Management technology. Utilizing modern machine learning science should be imperative for any modern RMS (RPOP).
What’s also worth noting is that RMS algorithms should never be considered fully done. They're living and breathing things and they always need to get better. Once AI is implemented, it needs to continue being tweaked, and ML needs to continue learning.
The reality is that many legacy RMS solutions are refusing to invest in upgrading their “brains” while taking advantage of the fact that it’s practically impossible for the consumer (a hotelier) to verify the quality of the algorithm before the system is actually installed.
Currently, there is only one Revenue Management System vendor that claims to have real-time integration with the system of record (which is normally PMS). Everyone else operates on a set schedule where data exchange happens either once a day or a few times a day. The limitations of existing technologies that result in slow processing of data (on both ends: RMS and PMS) is the main reason for this.
In addition, the limitations on the PMS side can also impact the accuracy of the data used by revenue management systems.
It is clear that ChatGPT or similar AI tools have the potential to completely revolutionize the Revenue Management discipline and our industry altogether. The possibilities are infinite and the first RMS vendor to figure out how to utilize this disruptive force will have a huge competitive advantage.
And yes, a portion of this article was written with ChatGPT. Ideas are all mine.