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Revenue Misconceptions Debunked
By Todd Rollin
Friday, 5th March 2021
 

In a recent blog, I shared five key features to look for in a Revenue Management System (RMS) and as I wrote the piece, I kept in mind that all RMS vendors probably have their own 'Top 5', and trying to sort through 'who’s best' could be confusing for hoteliers that are new to cloud-based RMS.

To that end, I reached out to both current and former revenue personnel to help navigate what elements of an RMS are truly beneficial to increasing total customer value and profit, vs. features that might inhibit the bottom line, hamper efficiencies, and even lead to embarrassing outcomes, such as a price that’s so bargain-basement you could be giving your rooms away.

Here are four “tripping points” that hoteliers often face in choosing an RMS.

1. "All or nothing” automation is the only way

With so many revenue managers furloughed during COVID, many hotels have had to manage limited windows of demand with fewer people. Most lack the hard data, other than past and future booking data and possible relaxation of restrictions, to know when (if ever) they’ll be back to filling rooms. Therefore, long-term or permanent staff reductions mandate greater efficiencies, and the lure of partial or complete automation is very attractive.

If you’re pricing based on static BARs, historical data and comp sets, automating all your pricing activities might sound attractive. If you want to seize on future demand to drive profits, drive a scalable, intelligent strategy throughout your properties, and manage costs intelligently, then you might need to think differently.

Instead, consider Controlled Automation, where you can choose when and where to automate, powered by an algorithm that adjusts to demand and other market signals.

But there’s an extra element here that makes Controlled Automation truly different, and that’s where revenue teams can decide what is automated, what is not, and what you want to manage with a mix of the two - it's the ‘controlled’ part.

Controlled Automation also allows you to manage by exception. This means you set Automation to handle most tasks, but the revenue strategist can:

  • Set umbrella corporate strategies
  • Include additional signals learned from the strategist’s experience
  • Override some optimal strategies based on hotel policies/restrictions

We spoke about this in the “5 Features” blog, but it goes without saying: in general, the best decisions come from a mix of human and machine. Controlled Automation leverages the expert skills, intimate market knowledge, and insights of your teams while automation scales those strategies intelligently.

We’re not pushing you away from fully automating your pricing; in fact, if you have a single property, or several you need to run remotely with little variation between properties, complete or almost-complete automation may be your best bet. But the more variables that come into play - particularly when you still have some experienced revenue strategy talent in your organization - you’ll probably want to pull back the reins on the automation from time to time.

2. Don’t move on new technology until demand picks up

While demand signals are looking up long term, many properties are shell-shocked from COVID closures, while others stayed open but with skeleton crews. Most likely, lost or deferred bookings and unretrievable fixed costs forced you to reduce your workforce and take other austerity measures, such as eliminating technology investments. Now, it’s a matter of figuring out how to make up for lost time and revenue - and determine where, and when, to invest in your infrastructure.

If you’re ready to book guests again, re-hiring employees (if they’re still available), remodeling your property, and restocking inventory are signs that you’re ready to book guests on a broader scale again. In these cases, however, most properties that have previously invested in technology “wait until tomorrow” to re-invest in technology. So, while they were once ahead of the competition, they now start to fall back on:

  • Over-discounting to fill rooms (even if demand would be high irrespective)
  • Overuse of OTAs
  • Overuse of Compset Rate Shopping data, which leads to inevitable price wars
  • Spreadsheets for forecasting, budgeting and pricing

One or more of these “safety nets” could not only hamper understanding actual demand, but you might find yourself driving profitable business away if you fill your rooms at lower-than-market prices. Maybe that’s a lure to get people back instead of going to the competition. Your gains, however, will likely be short-lived when you ultimately have to raise your rates just to stay afloat.

Instead, consider whether your technology systems were working for you both before and during COVID (if you were open during the pandemic, even with occupancy limits and other restrictions). If they weren’t, or you abandoned them entirely (or perhaps never had them at all!), think about an upgrade. Now, more than ever, you need to seize unmet demand and be ready for anything (including, but hopefully not, another pandemic or economic event). Here are four things to look for in a next-generation RMS:

The ability to independently apply demand-based yielding strategies to segments, room types and distribution channels in real-time;

An easy-to-use and learn system that is supported by a partner who shares your commitment to success and profits;

A cloud-native platform that connects to and processes any quantity of historical and real-time internal and external data sources, provides instant and no-cost software updates, integrates seamlessly with your and your partners’ technologies, and can be rapidly deployed to new properties in just days;

A smart, flexible algorithm that provides unlimited optimizations, so whether you are running in full, partial or no automation, you are capturing the latest demand signals in your pricing.

3. Onboarding a new RMS is time-consuming and risky

So you’ve examined what’s available in the market, and decided to upgrade to an industrial strength RMS. Good call!

When evaluating the various offerings in the market, weigh your options carefully. Some systems tout almost unbelievable RevPAR and other metrics (even during COVID), while others insist that their algorithm was 20+ years in the making and has no peer. It’s tough to separate the wheat from the chaff!

Given the unprecedented evolution of data science, cloud technologies, open integration, and flexible user interfaces, you can literally be up and running - with your teams fully trained in the use of the RMS - in just weeks. While certain deployments can be more challenging, such as with multiple legacy integrations or the need to cleanse data, your vendor shouldn’t be telling you that it may take several months or more to go live. This may be a sign that the system:

  • Is not truly cloud-native, but possibly ported to the cloud;
  • Is difficult to learn, with functionality that many users may find unusable and/or antithetical to their objectives;
  • Is built on a highly proprietary tech stack vs. open source, mandating that you buy into the vendor’s platform (opening the door to them upselling you on other products of features you don’t need);
  • Is hard to update/upgrade, meaning you may avoid some new releases, so you’re not getting the latest environment, market and demand shifts;
  • Won’t easily integrate new data sources, instead hiding data in the algorithms;
  • Takes an all-or-nothing approach to automation, forcing you to leave your strategies behind and buy into the technology without consideration.

If you’re comparing vendors, make sure you also evaluate ALL the costs of a new system. Some vendors are willing to take a hit on the software pricing, but backload the system scope with hidden costs, many of which can increase when “unforeseen challenges” create cost and time overruns.

4. Pick a system that delivers 100% accurate forecasts

There’s no doubt that a well thought-out forecast is a vital tool to estimating the year (or month, or quarter) ahead, and crucial for your budget. Indeed, the promise of precise forecasting is yet another arrow in the sling of today’s RMS offerings. But before you get too excited about who offers the most accurate forecasts in the market, beware!

Any system claiming near-100% forecasting accuracy is not only overstating their customers’ performance, they’re also missing the point. Forecasts are often tied to ADRs, occupancy, and revenue. That information is necessary for budgeting, but an accurate occupancy forecast won’t help you survive if your rates are too low, you are underselling your properties, and/or you are giving too much business to the competition or OTAs.

Given massive shifts in consumer demand and the prevalence of OTAs over the past decade, and most recently the pandemic that completely broke most forecasting models, forward thinking hotels are rethinking the role of forecasts in building resilient, profitable businesses.

This new breed of revenue strategists and leaders treats forecasting like pricing; that is, it needs to be dynamic, demand-driven and forward-looking to hold any value.

If you can incorporate demand signals and other market factors into your revenue strategy model, and tying your strategies for pricing and forecasting, you can expect to see the following benefits:

  • Highest paying guests
  • Longest stays
  • Lowest costs of acquisition
  • Optimal number of heads in beds
  • Lowest operational expenses

In addition to the benefit of actually being able to drive profits, you will find yourself likely forecasting more, with better data and clearer objectives, paving the way for forecasts you can really use. You can also adjust budgets as necessary, using your new strategy model to help you determine actual predicted costs versus just a virtual finger in the air.

In addition to having a flexible, Open Pricing engine, ensure your RMS is able to easily construct day-level forecasts in minutes and deliver instant business insights through comprehensive custom reports and interactive dashboards. Then, you’re on your way to forecasts that actually mean something and are constantly readjusted to adapt to changing market conditions, which ultimately allows you to aim at profit maximization instead of building your strategy around hitting your forecasted target. That’s part of the process of developing and fine-tuning your strategies over time, through the ebbs and flows of running a hotel or group.

Where do you go from here?

While none of us can precisely predict when bookings will return to pre-COVID numbers (or even greater, in some cases), it’s clear that many hotels are already watching “drive” visitors reemerge, are looking to airline bookings for “fly” numbers to increase, and then perhaps longer-term, business guests will return. Even without a crystal ball, you need to be ready - you would hate to turn profitable guests away, or miss narrow demand spikes that a modern RMS platform can help you track and seize on.

We’re here to listen to your story and help you understand what transitioning to an RMS means, whether you’ve been around the block before, or are just making the leap. Within a few weeks, you can be up and running, with a Customer Success team built from the hotel industry ensuring you’re maximizing the value of the Duetto platform. Let us help you. Contact us today at www.duettocloud.com

Todd Rollin, Director, Product Marketing & Sales Enablement

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