VS1 Cloud Blog
Article by: Sean O'Neill, Skift
Hotels need to put aside their frustrations with software for forecasting and rate-setting. Revenue mangers will need all the help they can get to make sure they grab their fair share of the recovery in bookings. - — Sean O'Neill
Coronavirus-related shocks to the hotel sector have put revenue management systems to the test. Makers of software that predicts demand and recommends rates are still working to shore up their algorithms, and even now, a lot of human intelligence is needed to make up the gaps.
The revenue management systems haven’t been as helpful as they could’ve been during the pandemic, some hoteliers said confidentially. But other hotel revenue managers said technology had been a critical aid and that you can only expect so much during a crisis of this magnitude.
“The rebound from the crisis could be revenue management’s finest hour,” said Kelly McGuire, managing principal of hospitality for ZS.
Back in March, Skift asked revenue managers “how should hotels set room rates now and after the coronavirus crisis?” Since then, hotel revenue managers have raced to figure out pricing while dealing with waves of staff cuts.
“For hotels, what’s important is to do quick price-testing to find the rate level where you get conversions,” said Nina Wittkamp, a Munich-based expert associate partner for McKinsey & Company. “That requires brands to test a lot of offers in each market.”
WHEN YOUR COMPETITORS HAVE CHANGED
One wrinkle facing revenue managers is that the crisis may have confused their sense of which other nearby, comparable properties are their real local rivals.
“Your competitive set has probably changed in the short-term,” McGuire said. “If you’re a resort that has shut down the restaurants, spa, and pool, are you much different in a consumer’s mind with the proverbial Hilton Garden Inn down the street, even if you have nicer linens? If you’re competing with that property, you may have to adjust your rates or marketing, depending on what your data says.”
The complexity requires revenue managers to make better use of the software tools they have.
“Some systems specify what’s your position, meaning you can choose that your property’s price positioning should be higher than X hotel down the street and lower than this other hotel,” said Federica Salvatori, a Rome-based revenue management consultant for upscale hotels. “For some dates, this tactic may not work, though. You must be on top of the daily dynamics and create exceptions to the rule as needed.”
Not all software pays close attention to what a hotel’s competitors are charging when creating forecasts or price recommendations. But some experts believe the pricing of your closet rivals is vital data to look at right now.
“You want software that makes price suggestions close to your market reference, meaning, the hotels that consumers are most closely comparing your property to, rather than just to demand for your destination generally,” said Silvia Cantarella, founder and revenue management consultant at Revenue Acrobats in Verona, Italy. “Because what’s happening in your district of a city may not reflect demand on the outskirts of the same city during the pandemic.”
“Even then, you can’t rely on any individual signal too much,” Cantarella said. “It has to be ‘human and machine,’ working together and looking at signals you might not have looked at much before.”
VENDORS TUNE UP THEIR REVENUE MANAGEMENT SOFTWARE
Vendors have been under pressure to tune up their software. Some have been switching the emphasis their software has put on historical trends when doing short-term forecasting.
Some of the old industry tensions have had to give way to new realities.
“For years there’s been this conversation around, ‘Is it human or machine that should make decisions?'” said Klaus Kohlmayr, chief evangelist at IDeaS. “This crisis has been an instance that has underlined how humans and machines need to work together.”
IDeaS said it has made adjustments in its software so that it better understands how demand patterns are shifting given the volatility.
“We have a weighting between historical data and most recent data, and we’ve had to put more weight on the latest data,” Kohlmayr said. “We also have been planning for the future, telling our systems not to use this April’s booking data to create April 2021 forecasts.”
Some companies split the difference between people smarts and machine intelligence depending on what puzzle they’re focused on solving. For instance, users of software from Duetto and some other providers can turn on the autopilot settings for bookings 60 days out to focus instead on hands-on choices about on dates around the corner.
Duetto said in a statement that it’s “continuing to ingest novel forward-looking data sets. It said that by “layering in new demand signals, it will continue to make Duetto’s predictive algorithm the most responsive on the market.”
SOME HOTELS KEEP INVESTING IN TECH
Spending forecasts for hotel tech are falling due to slashed budgets. Yet demand for revenue management software may show rare resilience, industry experts said.
Some hotel companies even pressed ahead with tech investments during the worst of the crisis. Marcus Hotels, a hotel management company in Milwaukee, Wisconsin, shifted in recent months four of its Hilton-flagged properties to a new Hilton-created revenue management system.
“We were happy that Hilton kept supporting the roll-out of revenue management software despite the crisis,” said Linda Gulrajani, vice president, revenue strategy and distribution at Marcus Hotels. “The message is, hopefully, that technology will help us result in positive ROI [return on investment] down the road.”
Magnuson Hotels said that so far this year it has seen its revenue-per-available room drop only 17.8 percent in the U.S., compared with a U.S. industrywide fall of 46.7 percent. It partly chalked that performance up to tech investments. The company has rolled out in the past two years a cloud-based distribution and hotel operations platform that offered a lot of automation to hoteliers for pricing and receiving reports on competitors.
But not every hotel company is happy. See our story on Monday Hotel Owners’ New Financial Realities Thwart Pandemic Tech Push by the Major Brands.
RISING USE OF CONSULTANTS
Layoffs and staff cutbacks may also lead to more use of software.
“As demand picks up, it’s going to get harder because hotel companies will be cautious about bringing FTEs [full-time employees] back,” McGuire said. “I hear lots of conversations about outsourcing day-to-day pricing activities to third-parties.”
One example of the many consultancies is PAG (Premiere Advisory Group), which offers to be an outsourced revenue distribution department.
It takes a human eye to be agile to respond to the bursts in demand that can pop up.
A case in point: A freak July thunderstorm grounded many flights in New York City, leading to a sudden surge in searches and bookings for luxury hotels, said Daniel Parker, senior regional manager for revenue and distribution support at PAG.
“When you see a sudden pick up in bookings, you want to raise the rate a little more to catch every bit you can get,” Parker said.
Some consultancies have specialties that software vendors and hotel companies lack. For instance, some perform audits of how each property appears and presents its amenities and coronavirus-related precautious in the reservations systems used by corporate travel managers and run by companies like Amadeus, Sabre, Travelport, and HRS.
SMALLER HOTEL COMPANIES ARE VULNERABLE
Smaller players may have the most to gain from using revenue management software tools to come out of the crisis.
“Some revenue managers at independents and small regional chains are spending hours each day updating spreadsheets,” said Mike Medsker, president of Focal Revenue in Denver. “Once travelers come back, it’s going to be a crushing workload to sustain without more automation.”
Yet some smaller players may also be reluctant given the budget crunch, and this may help push the move for independents to convert to tech-savvy franchises, as Skift has reported. Either way, they’ll need to rely more on tech.
Despite devastating plunges in revenue, hotel revenue managers and their colleagues in sales and marketing may help hotels max out the possible money they can grab during the recovery.
“Many smaller hotel companies still make manual adjustments in their rates,” Wittkamp said. “But consumer willingness to pay can fluctuate quickly in this crisis, and the resulting complexity in understanding demand isn’t manageable without software.”