Revenue Management & Pricing Executives - this is your call to action!

To be brutally honest, I’m getting a bit bored with revenue management these days.  Like all of us, I follow revenue management press, bylines and blogs, and attend revenue management conferences.  It really seems like we’re going in circles. There was a flurry of activity several years ago around the recession (I guess that was something new to talk about), but we seem to have somehow stalled out.  I think it’s time for some disruptive change in the way we think and talk about revenue management in hospitality and travel.

 The future is here – so let’s get on with it already!

For the last few years we’ve been talking about changing role of the revenue manager.  We’ve discussed how revenue management is evolving from tactical, inventory management, focused on opening and closing pre-defined rates to maximize revenue and occupancy to a more strategic role in the organization with broader responsibilities that encompass marketing, sales, channel strategy.  Revenue managers are now charged with managing the entire revenue stream and building a customer-centric approach to developing demand.  This is clearly an exciting opportunity for the discipline and for those that practice it. It represents the opening of a whole new frontier for revenue managers, or at least it should have.

Two of my favorite recent RM papers deal with this topic of the expanding role of the revenue manager.  If, by any chance, you haven’t seen them, you should definitely check them out.  Revenue Management’s Renaissance, by Robert Cross, Jon Higbie and David (Dax) Cross was published in the Cornell Hospitality Quarterly in 2009, and Kimes’ research on The Future of Hotel Revenue Management was published by the Cornell Center for Hospitality Research in 2010.  The problem is that these papers were published a while ago.  They highlight a number of exciting opportunities – but it seems like we’re still just thinking about it.  These papers were calls to action, and, in my opinion, represented a first step towards a new way of thinking.  Now we need to take this deeper, or wider, or somewhere else.

Another example: Not to overly criticize the conference organizers, as this isn’t really their fault, but if you really look at conference agendas for the major RM conferences, they look much the same as they did 3 or 4 years ago.  We’re still discussing the characteristics of “the revenue manager of the future”, struggling with communicating our value to the executive team, trying to figure out how to partner with the OTAs, and cautioning against price wars.  You’ll generally see a session on expanding revenue management into ancillary revenue streams (or total hotel RM) and something on incorporating customer value into the revenue management decision.  One might argue that a stable agenda indicates a stable, well-established discipline, but I rather think it’s the opposite.  We’ve stalled out a bit, and we need to breathe new life into revenue management before it’s too late.

It is time that we start thinking about “next practices” rather than “best practices”. 

We’re supposed to be the flagship analytic discipline within the organization – the “geeks who can speak”, the keepers of the data, the runners of models, the producers of reports.  I have to tell you, from what I’ve been seeing in the market, our colleagues in marketing are rapidly overtaking us in these areas, and they are using innovative and sexy new algorithms, data sources and business processes to do it.  The problem that we’ll all run into very soon is that “marketing speak” is very accessible to everyone, but just try to whip out the phrase “price sensitivity of demand” or “stochastic network optimization” in an executive meeting, and get ready for some blank stares!   This isn’t necessarily a bad thing (and it isn’t a competition, despite my previous comment).  In fact, it’s a huge opportunity, but we need to take advantage of it and begin to innovate along with our counterparts.

 So, my challenge to all of you is to challenge yourselves.  Don’t assume that the big players have it right, or that you need to stand back and see what happens next.  Ask good questions of your marketing counterparts, your executive team, your colleagues at conferences.  Challenge your vendors to actually solve your pricing problems in new and innovative ways, rather than rebuilding a tired user interface or writing a new report based on the same analytics.  Instead of cramming social, mobile, local, flash sales and social buying into one session at a conference, let’s put some time and individual focus on key emerging areas that represent a new paradigm in buying behavior.  And let’s really talk about it – not just say:  “you need to respond to consumer reviews”; “x% of bookings will come through mobile by 2020”, “you need a social strategy”, “you need a mobile strategy” – let’s dig in and figure this stuff out in a practical and actionable way.

 So, what am I excited about?  I would love to start more debate around the distribution study that Mark Lomanno and Cindy Estes-Green released earlier this year (see my post about my interview with Mark, and Natalie’s post about her interview with Chris Anderson).  I’m excited to apply analytic revenue management, not just operational RM, to other revenue generating outlets within the hotel.   I think we should talk about the impact of big data on pricing decisions, and investigate whether there are new sources of information that might influence pricing decisions.  I want revenue managers to understand emerging analytics in marketing and customer intelligence, so we can be forward-thinking about how those results might improve pricing decisions.  We all know that consumer buying behavior has changed, so let’s do some more research into exactly how new sources of information about travel has influenced how consumers buy, and then creatively figure out how that changes revenue management’s strategy.

I’m sure that there are many other emerging areas that are opportunities to innovate in revenue management.  I’d love to hear your thoughts on what you’d like to work on next!  I recognize that change happens slowly, and implementing innovation within an organization can be like turning the Titanic.  My concern is that if things keep on as they are, by the time the Titanic has turned, we won’t have anywhere new to sail (except right into the nearest iceburg…)

If you know of organizations that are innovating in the area of Hospitality Research and Analytics, go ahead and nominate the organization for the Cornell Center for Hospitality Research and IDeaS Hospitality Research & Analytics Awards.

tags: Hospitality Analytics, Revenue Management and Price Optimization

2 Comments

  1. Posted August 6, 2012 at 4:55 am | Permalink

    Hi Kelly,
    I strongly agree - we have to move forwards and we also have to focus on under-researched areas.
    What´s about the long-term impact of RM on brand equity. At this stage I am looking forward to find some other academics to work on this...; or what´s about the measurement of the ongoing success of
    RM practice (vs non-application), are there any measurements in place. Another topic which may be of interest...
    Best wishes
    Detlev

    • Kelly McGuire Kelly McGuire
      Posted August 6, 2012 at 9:32 am | Permalink

      Hi Detlev,
      100% agreed on the under-researched areas. You might be interested in the resesarch done by Cathy Enz, Linda Canina and Breffni Noone for the Center for Hospitality Research http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-16079.html. I've told Cathy that the next step to this study should be to study hotels with RM systems and practices in place versus those without. I'll add your suggestions next time I speak with her!!
      Kelly

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