How an RMS Supports Business Performance in an Uncertain Market
By Murphy Mathew - Exclusive for 4Hoteliers.com
Monday, 4th October 2021

Exclusive Feature: Nobody knows the future, and to say accurately predicting what hotel demand will look like in the coming months will be ‘a challenge,’ is an understatement.

In an environment where change is the only constant, relying on historical data patterns to predict future business may be less effective.

However, hotels have successfully planned and built demand forecasts with limited relevant information before, for instance opening a new property comes with the challenging task of predicting how the business will perform with limited data.

So, how can hotels prepare their business for an uncertain tomorrow? If there are limited amounts of relevant historical data for a revenue manager to use to inform pricing decisions, what other intelligence is available to help hotels make critical business decisions today?

The need for automation

Markets today are suspectable to rapid change due to evolving government lockdown and social distancing measures. Manually collecting, evaluating, and calculating data for the purposes of price setting via spreadsheets is not only a tedious process, but also slow and highly susceptible to mistakes and missed opportunities.

This is where an advanced revenue management system (RMS) makes a huge difference to both the top and bottom line. An advanced RMS not only generates prices that adapt to market changes, but it also considers the competitive landscape and a guest’s willingness to pay.

As hoteliers seek to control operational costs and management roles are consolidated, many hoteliers are taking a ‘cluster’ approach to revenue management. With a cluster approach, hotel revenue managers are no longer responsible for a single property within a hotel group. They are now responsible for a cluster of properties and are expected to make strategic revenue decisions for up to a dozen, or more, hotels every day. This expansion of responsibilities means revenue managers have real limitations on the time and task allocations they can provide to any single property, so having automated technologies is critical.

Forecasting in a disrupted market

An accurate demand forecast assists hotels with pricing decisions, inventory management, staff allocation, property maintenance and general operations.

Forecasting is also critical for hotel owners and investors assessing the financial potential, or performance, of a property. However, in the eyes of some hoteliers, given that business conditions today are unprecedented and don’t match anything seen in the past, historical data is less relevant and revenue management may be less accurate. But this is simply not true.

Even with historical booking data being less directly comparable to the conditions of today, revenue management professionals should be able to build out a range of forecasts based on all credible external and internal market intelligence that can be gathered, such as government announcements, travel policies, flight data, Google search trends and market reports.

Revenue managers should build their forecasts based on several scenarios (optimistic, probable, and pessimistic) and review the actual demand versus forecasted results regularly to adjust long-term pricing strategies.

While some RMSs use a limited number of forecasting models at a level defined manually by users, high-performance forecasting, built into an advanced RMS, relies on hundreds of advanced forecasting models where the most appropriate model is selected by the system automatically. Then the forecast model parameters are calibrated to understand the impact of the specific price sensitivities, no-shows, cancellations, booking windows, etc. within the forecasting group to a granularity of individual rate codes/products.

Analytics can be employed to solve a variety of challenges, including adapting the forecasts to demand shifts and understanding demand as a function of price (the impact of price changes on the demand that exists for the room product).

Predictive modelling and forecast data remain essential for forward planning. It is important to look at the right data though as not all data is created equal and only the relevant information should be considered.

To build an accurate vision for the future, hotels must gather macro-level intelligence such as border and travel restriction policies and how they impact market trends and travel intent, along with granular-level data, focusing on the transaction level, aggregating, and benchmarking rate category, channel, cost of acquisition, arrival and departure dates, lead time, length of stay, loyalty contribution—even at the individual travel agency or corporate account level.

The cost of not using an RMS

Given that a typical hotel will make roughly five million pricing decisions every year, it is not humanly possible for any revenue manager to get every decision right, every day without the support of automated systems—especially when considering the sheer volume of data needing to be gathered and analysed.

An advanced RMS not only generates prices that adapt to market changes but actually anticipates these variations in advance. In a changing hotel market, slight pricing changes can have a big impact on demand. Therefore, any hotelier operating without systems that can analytically decipher the impacts of a specific price change (20 dollars higher or lower) on occupancy and the resulting revenue benefit (or lack thereof) for their property, is operating at a disadvantage.

A hotel not using an RMS and setting their own rates based on their unique business forecast can either base their pricing assumptions on ‘gut-feel’ or look to match a competitor’s own pricing activity. Both approaches are misguided, if not dangerous. By following a competitor on price, a hotelier should be prepared to be dictated by strategies they are unaware of, which risks setting off a chain-reaction in price reductions between rival properties that cannibalises revenues for both properties.

An RMS scientifically monitors competitor hotels’ pricing for an equivalent room type and its impact on your hotel’s pricing to gauge how aggressively (or otherwise) to react when a competitor changes pricing. In a market impacted by COVID-19, hoteliers tend to overact to the pricing actions of others in their market to compete on available demand.

Hoteliers must avoid making emotional decisions in these circumstances. Rather they should focus on rational, analytical, and data-based strategic approaches to pricing that revenue management provides to protect their business in the long term.

Invest in your business today

The reality is that faced with low occupancy rates, hoteliers are having to limit operational costs where possible and rethink their commercial strategies. This makes sense and hotels today should only invest in systems that will directly improve their revenue performance and deliver a business return.

The fact remains though that to be successful, or even to just survive today, a hotel still needs to attract the right guest, through the right channel at the right price. And only revenue management can help do that. An automated RMS that can make effective pricing decisions to maximise business and revenue, even in a disrupted market, is no longer a ‘nice to have’—it is a business necessity.

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

Murphy Mathew, APAC Solutions Engineer, IDeaS

For more information on how an advanced RMS can support your hotel’s business recovery in an uncertain market, please visit: www.ideas.com

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