Innovations in revenue management

Over the last few years, I have watched revenue management change from a competitive advantage to a must have for the gaming and hospitality industry, and I’ve seen an increase in the sophistication with which hotels and casinos approach the problem of pricing and distributing their perishable inventory. While not every hotel or casino practices revenue management (and not everyone practices it correctly), those that do are becoming increasingly sophisticated, and are even beginning to outgrow their current solutions.

The next opportunities for revenue management are on two fronts:

  1. Extending existing analytics.
  2. Integrating revenue management with other demand management functions.

On the analytic front, increased processing power and access to new and more extensive data sources have opened the possibility for innovations in revenue management forecasting and optimization analytics.

But I am most excited about the opportunities to integrate the demand controlling functions of the revenue management department with the demand generating functions of the marketing department. I routinely hear about the dysfunctional relationship between these two critical departments from revenue managers and marketers alike. Revenue management is responsible for controlling demand, setting rates and availability to maximize the revenue from the limited number of available rooms. Marketing is responsible for generating demand and owns the relationship with the customer. These two departments are very closely related, but have trouble working together due to the silo’d nature of the organizational structure at most companies.

In fact, I witnessed a very heated discussion just last week between a revenue manager and a marketer over the marketing department’s ability to generate demand for specific dates at specific properties without having to use a third party like Expedia or Travelocity. Conflicting goals and incompatible data sets make working together a real challenge.

SAS and IDeaS are working on a technology solution that integrates the information generated by these two departments and surfaces key data points in a format appropriate to the user. This integrated marketing and revenue management solution is the glue that will bind these two functions together, and help them work towards the common goal of property-wide profit optimization.

Joint clients who use both customer analytics and revenue optimization analytics already see the benefits of integrating marketing and revenue management. As these solutions progress, advanced analytic applications will enable revenue management to optimize on total customer value rather than just room rate and improve forecast accuracy by including the expected impact of promotions in demand forecasts. Marketing departments will be able to predict which customers are likely to respond to what types of promotions, and can target this demand exactly where and when it is needed.

Perhaps most importantly, SAS’s move into SaaS makes these solutions more accessible to the dispersed and resource-strapped gaming and hospitality industry. These companies can take advantage of these advanced analytic applications without the overhead associated with an on-site implementation, a benefit already very familiar to IDeaS clients.

As a past gaming and hospitality operator and researcher, I am very excited about the potential of the joint offerings from IDeaS and SAS, and the chance to be a part of developing the next generation of integrated revenue optimization solutions. The acquisition of IDeaS by SAS was significant for the hospitality industry because it was the first time that a major software vendor looked to a niche hospitality company to add capabilities to their portfolio. These two companies together have the unique opportunity to develop innovative new technologies, techniques and solutions for the gaming and hospitality industry and beyond.

tags: ideas, pricing, profit optimization, revenue management

2 Comments

  1. Ahmed Mahmoud
    Posted April 23, 2009 at 8:22 am | Permalink

    In a view of The next opportunities for revenue management for hospitality industry can be highlighted as mentioned above
    Extending existing analytics.
    Integrating revenue management with other demand management functions.
    That will lead not only in rooms , but also restaurant, meeting rooms space , as well HK but in different concept, but it will lead to the same results , remembering that revenue management in the issue of generating revenue , by creating demand or saving some cost in other areas

  2. Kelly McGuire
    Posted April 23, 2009 at 9:22 am | Permalink

    Very good point about extending RM to other revenue generating assets within the property! Hospitality companies are certainly seeing benefits from applying RM techniques and theories to other outlets such as restaurants, function space, spa and golf. Once these outlets are operating optimally, and are priced optimally, the opportunity is open for total property revenue management.

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