Revenue Management, Inventory Management, and Electronic Distribution

1
Revenue Management, Inventory Management, and
Electronic Distribution
New Frontiers in Hotel Management

• John Burns
• February 7, 2007

2
Headline Middle East hotels enjoy third year
of double-digit growth

• ADR up 17.8
• Dubai rates up 15.0 ADR US249
• Abu Dhabu rates up 48 ADR US177
• RevPAR up 16.7
• HotelBenchmark Survey - Deloitte

3
Headline Dubai Q3 Revenues up 14 Occupancy
at 85

• Dubai Department of Tourism Commerce Marketing
  (DTCM)

4
Headline 130 five-star hotels to open in Dubai
by 2010

• 48 already operational as of December, 2006
• Plus 51 4-star hotels (up from 35) and 50 3-star
  hotels (up from 39)
• TRI Hospitality Consulting

5
Why this topic?

• Because
• Revenue Management, Inventory Management and
  Electronic Distribution are all evolving quickly
• All three are becoming increasingly linked to one
  another

6
Revenue Management
Inventory Management

Electronic Distribution
7
Why this topic?

• Because
• Revenue Management is impacting revolutionizing
  many aspects of hotel operations, including
• Pricing
• Inventory distribution
• including electronic distribution
• Business acceptance polices
• Merchandising

8
Why this topic?

• Because
• Revenue Management is becoming an expected
  component of every 3 star and above operation
• Revenue Management Systems are proving their
  value (and necessity)
• Dubai (and soon much of the Middle East) will
  benefit strongly from skilled use of RM

9
My Approach in the Presentation

• First - Introductory comments
• Next - A look the emerging backbone of Revenue
  Management, the RMS (Revenue Management System)
• Along the way, we will examine the many
  operational areas being impacted by RM

10
Some Basics

• What is Revenue Management?
• Conventional definition
• the right (room) product to the right customer
  at the right time for the right price
• Todays definition
• Offering in a situation-sensitive manner -
  the right price across all outlets and for all
  product sales opportunities (not just lodging!)

11
Why is RM Important?

• Revenue gains
• 3, 6, 9, 12 (or even greater) revenue gains
• Improves manual operations
• forecasting, budgeting, inventory allocation
• Drives better merchandising
• More, better promotions
• On-target staffing
• Not too high, not too low
• Automation can free up staff for other duties

12
Who is Eligible?

• The Myth RM will not work for Hotel
• With an ADR less than US100
• In hotels with occupancy under 80
• In hotels under 200 rooms
• IDeaS
• Travel Lodge Barton Stacey, UK
• Limited service , 20 rooms
• Orient Express Maroma Resort, Mexico
• Full service, 56 rooms

13
RM Embraces Technology

• Revenue management automation gains acceptance
• Hoteliers recognize the benefits of implementing
  a Revenue Management System, or RMS

14
Extent of RMS Implementation

• Use is Just Beginning -
• Major vendors total fewer that 3,500
  installations worldwide
• In an estimated user group of 25,000 to 35,000
  hotels

15
Major RMS Vendors

• Amadeus/Optims (largest, 1,200 hotels)
• EasyRMS
• IDeaS
• JDA Software (Manugistics)
• Maxim RMS
• MICROS/Top Line Profit
• PROS
• Rainmaker/Aeronomics

16
A Leap Forward in Practicality

• Initially
• In-house installed client/service system
• Today
• ASP (application service protocol) Web access
• Little up-front capital expense

17
A Leap in Practicality

• Initially
• In-house installed client/service system
• 100,000-150,000 purchase cost
• Today
• ASP (application service protocol) Web access
• Fee per room per year US60-90

18
RMS Basic Functions

• PMS or CRS data extraction
• Forecasting Transient
• Optimization
• Recommendation production upload
• Reporting
• Plus
• Training
• User support

19
Additional/Optional RMS Functions

• Group Evaluation Pricing
• Business Intelligence data analysis
• Competitive Web rate tool/data integration
• Multi-property management
• SC Interface
• Budgeting module

20
Limits?

• No, no limits on number of
• Hotels
• Room types
• Rate types
• Market segments (or sub-segments), etc.

21
The Automated RM Process

• Three steps

22
Process Step 1
Forecast

• Looks for trends
• Examines market segments
• aka room categories/rate categories combinations
  or buckets
• Groups like market segments
• Examines a) booking pace, b) history
• Examines group bookings
• and their status (tentative, definite, guaranteed)

23
Process Step 1
Forecast

• Creates demand forecasts for the next 30 days
• For some or all of
• Rooms - Guests
• Length of stay - Arrivals
• Revenue by category (Room, FB, Banquet, Other)
• Walked guests - Walk-ins
• No-shows - RevPAR
• etc.
• Calculates a level of confidence in each
  projection

24
Process Step 1
Forecast

• Considers Special Events in the Forecasting
  Process
• Over-ride functions enable the user to add
  information about which the RMS is not aware or
  to enter unusual circumstances such as special
  events

25
Process Step 2
Optimize

• What is Optimization?
• Revenue maximization by considering the level of
  demand against remaining rooms inventory

26
Process Step 2
Optimize

• Occurs nightly, plus
• scheduled interim optimizations
• manually evoked interim optimizations
• or both
• End product recommendations

27
Process Step 3
Recommend

• Various styles of recommendations
• (within predetermined minimum and maximum rate
  for each market segment)
• Hurdle Rate
• Rack Rate recommendations
• Minimum Length of Stay
• Full Pattern Length of Stay
• BAR Best Available Rate
• Rates/Restrictions
• Output is for upcoming 365 days
• Near dates optimized more often than distant dates

28
Process Step 3
Recommend

• A word about BAR
• BAR Best Available Rate
• A single best rate for each day for each
  unqualified market segments
• Reflects the optimum differential between each
  of those segment rates, to avoid quoting numerous
  unqualified rates for a given date

29
Process Step 3
Recommend

• RMS can also structure rate recommendations based
  on Web data and predefined rules
• To suggest rates in each channels relative to
  competitors rates
• Our rates will always be
• The same a Hotel ABC
• 5.00 higher than Hotel DEF

30
Process Step 3
Recommend

• Degrees of Implementation
• Suggestions only
• Semi-automated adoption
• Review approval
• Automatic adoption
• Various tools for Managing by Exception
• Based on predefined performance parameters

31
Process Step 3
Recommend

• What do the vendors suggest?
• Automated recommendation adoption with minimum of
  manual intervention
• But, yes, this is always an over-ride
  opportunity (and a log of those manual
  over-rides)
• And sometimes a What-if option evaluation
  function

32
Groups

• Groups
• Usually a separate logic from that applied to
  forecasting transients
• Recognizes irregular patterns in group room
  bookings and pick-up
• Factors in group-related costs, including
• Commissions - Comp/discounted rooms
• Factors in ancillary revenue (and sometimes,
  profit) from group and its members
• Banquets - Other FB
• Meeting facilities - Leisure facilities, etc.

33
Groups

• Groups
• Group Evaluator function delivers recommended
  group rate
• Usually identifies the displacement cost of
  accepting the group
• Can also suggest alternative dates/rates

34
Next

• Handling The Tough Issues

35
Regrets/Denials

• RMSs split on how to consider regrets and denials
• Definitions pose a problem
• Some ignore them, claiming that they can sense
  the larger picture of demand, including
  unconstrained (i.e. unlimited capacity) demand
• Others accept the data and factor it into their
  evaluation process

36
Call-around Data

• Generally an opportunity to enter this, for key
  competitors for past dates Rooms Sold, ADR or
  RevPAR for comparison on system reports against
  hotels own performance

37
Multi-propertyRevenue Management

• Cluster yielding decisions when business can be
  spread over multiple properties
• even across brands
• Consolidated reporting for the cluster

38
Handling LRA

• LRA (Last Room Availability) does not mean
  guaranteed availability
• In some cases, market segments with LRA are
  associated with Rack, so as long as Rack is open,
  LRA will be in effect for those accounts given
  LRA status
• In other case, they are flagged a last to close
  market segments

39
Walk Management

• Most RMSs consider the costs of walking a guest
  in its overbooking recommendations, to ensure
  that the benefit outweighs the expense
• Walk costs are date definable
• Overbooking can be restricted by increasing the
  costs resulting from a walked guest

40
Tour Wholesale

• Yes, can handle
• Differentiates block and individual style
  business
• Analyses the historical performance of existing
  Contracts
• Proposes revisions to the terms and conditions of
  the existing
• Suggests terms for future periods
• Evaluates the opportunity to sign new Contracts
  for future periods

41
Loyalty

• Consideration of Loyalty data for market segments
  with most frequent/valued guests
• Achieved by giving a higher value to the loyalty
  associated rate code
• results in adjustment of the hurdle or offering
  of the rates normally assigned to a higher
  priority market segment, to this potential guest

42
Forecasting Other Revenue Streams

• Yes, increasingly
• Banquet
• Other FB
• On-property activities Spa, Golf, tennis,
  beach, retail, etc.

43
Competitive Rate Data Collection
Consideration

• GDS and Internet rates
• Cleansed to improve accuracy of collected data

44
Competitive Rate Data Collection
Consideration

• AgentWare
• AnyRate
• Electrobug
• MarketVision - Rubicon
• QL2
• RateTiger eRevMax
• RateView - TravelClick
• TrendFX

45
Competitive Rate Data Collection
Consideration

• Two options
• Display of competitor rates for manual review
• Less often, consideration of competitor rates by
  the RMS during the optimization process

46
Reports

• Numerous reports available
• Modifiable
• Schedulable
• Supplemented by Alerts
• E-mail or SMS
• Revenue Managers you can never escape!
• Monthly Annual budget projections

47
Rate Distribution via a Channel Management Tool

• EZ Yield
• Hotel Booking Solutions
• Lanyon
• Rate Allocator eRevMax
• TravelClick
• And in Dubai,
• DaeX

48
Integration with Sales Catering Systems

• When integrated, the systems share data so that
  group evaluation made by SC System reflects RMS
  information
• RMS has full awareness of tentative bookings
  resident in the RMS but not yet entered in
  PMS/CRS

49
Implementation Activity History Requirements

• Generally one year (sometimes two years
  recommended)
• Hotel and market segment level data (but usually
  not transaction data)
• Specifically
• Totals (Hotel Level) by day of the following
• Physical Inventory
• Out of Order
• Out of Order Other
• Rooms Revenue
• Rooms Sold Counts

50
Implementation Activity History Requirements

• Arrivals Departures Counts
• No Shows Counts
• Cancellation Counts
• By Market Segment by Day of the following
• Rooms Sold Counts
• Rooms Revenue
• Rooms Sold Counts
• Arrivals Departures Counts
• No Shows Counts
• Cancellation Counts
• Also, if practical, FB Revenue, Other Revenue,
  and Total Revenue

51
Implementation Training

• Train-the-trainer
• Increasingly, e-Training options as well

52
How Soon for Useful Recommendations?

• 30-60-90-120 Days
• Provided all requested history data is available
  and entered
• Otherwise it could be 9-12 months before high
  quality recommendations are offered

53
On-going Support

• Varies
• Always some, with examination of effectiveness of
  system use and recommendations for improvement

54
International Applications

• RMSs typically support
• Various currencies
• Various languages in their user displays
  (English, German, French, Spanish, Chinese, etc.)

55
Guaranteed Revenue Returns?

• Guaranteed 3-5-7 revenue improvements
• A promise of the past
• Unrealistically difficult qualification
  requirements

56
Future Directions in RM

• Greater focus on profit, not just revenue
• Real-time re-optimization
• Greater consideration of total guest spend
• In situations where a exceptional spending
  pattern can be identified and those guests
  classified as a market segment
• RMSs may emerge as the central control
  point/panel for major hotel systems CRS, PMS,
  distribution

57
Future Directions in RM

• Improved awareness and management of
  distribution channel, especially electronic
  channels
• Their overhead costs
• Their revenue and profit potential
• Rooms and otherwise
• Their ability to deliver specialized (i.e. last
  minute) business

58
Future Directions in RM

• Improved awareness and management of
  distribution channel, especially electronic
  channels
• Their connectivity challenges

59
Future Directions in RM

• Greater integration of RM, CRM ED
• To give the right availability and right rates to
  the people to matter to the hotel brand over
  the long term
• RM maximizes revenue with this reservation
  other than channel recognition, the offered price
  is recipient neutral
• CRM maximizes revenue in the long term by
  securing an on-going, lucrative revenue stream

60
Future Directions in RM

• More emphasis on fairness in pricing
• with clearly articulated fences between rates so
  that guests are not antagonized by variable
  pricing, as practiced by the airlines
• Evolution of the Revenue Managers responsibility
  
• from rooms revenue maximization to revenue
  maximization throughout the property

61
What Makes RM Work?

• Unqualified support for the RM program by senior
  property management and corporate staff
• Training (and more training) for RM staff
• Implementation of RM technology
• Even Excel spreadsheets eventually hit their
  limits

62
RMs Challenges

• Per Nayan Peshkar, Regional Dir., RM- Europe,
  Millennium Hotels, RM faces both soft and hard
  challenges
• Soft Challenges
• Acceptance of RM concepts and philosophy by
  hotels management
• Trust issues from the customers perspective
  related to variable pricing
• Quality of RM staff
• Finding and retaining the best and brightest

63
RMs Challenges

• Per Nayan Peshkar
• Hard Challenges
• Definitive research (and operating) methodologies
• Making the information meaningful
• Integration with electronic distribution
• Impacting a hotels sense of short-term and
  long-term gains

64
Revenue Management
Inventory Management

Electronic Distribution
65
Discussion

• Questions?

66
Revenue Management, Inventory Management, and
Electronic Distribution
New Frontiers in Hotel Management

• John Burns
• February 7, 2007