Why today’s revenue management systems just aren’t working anymore

Everyone in the industry agrees that the job of the revenue manager has fundamentally changed over the past few years.  As revenue management has demonstrated success and gained visibility, revenue managers are taking on a much more strategic role within the organization.  Revenue managers are no longer responsible for simply opening and closing rates according to occupancy forecasts, but rather, are expected to take a more holistic and strategic view of pricing and demand management.  They are now responsible for managing revenue from other revenue generating assets across the enterprise, understanding the market forces that impact the firm’s competitive price position, and coordinating with colleagues in marketing.  Simultaneously, there has been a move towards price optimization, with many industry leaders advocating for the benefits of this approach. 

Unfortunately, the systems that support revenue management decisions have not evolved as quickly as the role.  Many revenue managers these days have the sneaking suspicion that their revenue management solutions are no longer providing optimal recommendations. Changes in the market are not reflected in pricing recommendations. Revenue managers find themselves working outside or around the revenue management system more often than not. 

Based on what I’ve been seeing in the industry today, the following three factors are driving the problem with today’s revenue management systems:

  • The market has changed: price transparency, social media and mobile technologies, unstable economies, and disruptive weather events have fundamentally changed both demand patterns and purchase behavior.  Today’s revenue management systems were not designed for these conditions, so pricing recommendations have become sub-optimal.
  • The analytics are outdated: Advances in forecasting and optimization technology, access to more data, increases in processing power, the move towards price optimization and new research into revenue management algorithms have outpaced the analytic capabilities of today’s revenue management systems. 
  • The user experience provided by the systems no longer matches the requirements of the revenue manager’s role: The role of the revenue manager has become broader and more strategic, but the systems remain tactical in nature.  Revenue managers end up spending much of their time extracting and manipulating data, rather than making strategic decisions.  Further, today’s market is incredibly dynamic, so revenue managers cannot afford to wait for the systems to update or react to changing conditions.   

The strategic decisions revenue managers are now making require a different level of data and analysis.  The revenue manager’s job has become broader than just figuring out what to charge for a deluxe ocean view room on January 30 for a three night stay.  It’s also about being able to produce analysis to consider important ad-hoc questions such as “Should we change our corporate rate structure?” or, “Do we benefit by allowing this particular channel access to our inventory?”, or even, “Are group commission levels appropriate for the type of business that is materializing?” Today’s revenue management systems, with their narrow focus on tactical price management, do not support these types of analyses, and spreadsheets are certainly not a sustainable tool for the large data sets and complex analytical processes required for revenue managers to continue to succeed.   

We know that exposing these weaknesses can be sensitive.  Many firms have made significant investment in revenue management systems over the past decade.   Business processes have been built around them, and significant training investments have been made.  It might be uncomfortable for revenue managers to raise their hands and say they need something more or something different.  So we here at the analytic hospitality executive are here to lead the charge on behalf of our revenue management cohort.  Consider this a continuation of my call to action.  We need to start talking about this or things will never change!  Over the next few posts, we’ll dive into each of the weakness areas in more detail.  Then, in October, we’ll start talking about how these weaknesses can be overcome.  We’d love to start a conversation with all of you on this.  Is this something you have noticed in your industries? Do you agree with our assessment, or not?

For a background on revenue management and price optimization for hospitality, read part one and part two  of Revenue Management vs. Price Optimization.

One Comment

  1. Posted September 12, 2012 at 8:01 pm | Permalink

    Ever since we started using revenue management software in a small hotel in Amsterdam, we never relied totally on the forecast for the very same reasons quoted above. I have a hard time believing that any hotel operator just set the price publishing option to automatic.
    Always double check for mistakes, unscheduled events, etc.

4 Trackbacks

  1. [...] Executive > Revenue management systems can longer cope with changed market conditions « Why today’s revenue management systems just aren’t working anymore Revenue management systems can longer cope with changed market conditions Kelly McGuire|September [...]

  2. By Revenue management analytics are becoming outdated on September 20, 2012 at 9:47 am

    [...] the last several weeks, The Analytic Hospitality Executive has been exploring why we feel that today’s revenue management systems aren’t working anymore.  Today, I’m going to delve into the limitations prevalent in today’s revenue management [...]

  3. [...] the last several weeks, The Analytic Hospitality Executive has been exploring why we feel that today’s revenue management systems aren’t working anymore.  Two weeks ago, Kelly wrote about how the market has changed.  Last week, I wrote about why [...]

  4. [...] Those of you who have been loyally following “The Analytic Hospitality Executive” know that we haven’t typically talked about problems without presenting solutions.  You may have been surprised to see us discussing all of these issues with “today’s” revenue management systems, painting such a dire picture of the state of revenue management without providing any insight into how to solve these issues.  Well, of course we have an answer for you!  This week we are announcing the availability of a brand new product, SAS Revenue Management Price Optimization Analytics, and throughout the rest of the month we’ll be discussing how this new analytic package will help overcome the weaknesses in today’s revenue management systems that we’ve talked about over the past month. [...]

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    We’re hospitality industry specialists at SAS, the world’s leader in business intelligence and analytical software. We’ve partnered with The Center for Hospitality Research at Cornell University to find solutions to hospitality industry challenges. In this blog we will leverage the existing knowledge of the faculty, existing research and the experience of industry peers to answer the questions that hospitality executives face every day. Questions regarding topics such as revenue management and price optimization, social media analysis, sustainability, patron/guest lifetime value optimization, labor planning and marketing automation and optimization.
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