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Ernst & Young LLP
Revenue Management in the Digital Age
Gary Angel
Today’s best practice in revenue management is driven by three ingredients: best practices in IT integration, a new paradigm for customer loyalty and an immersive analytics experience for revenue managers. Never before has the hospitality industry evolved so rapidly. Digital channels have driven huge changes in distribution of bookings, and now are driving fundamental changes in the customer experience on property. These changes present new opportunities for sophisticated, customer-driven revenue management and loyalty strategies that create competitive advantages and new forms of loyalty and pricing. Revenue Management in the Digital Age
In the past, state-of-the-art revenue management systems (RMS) integrated event bookings, demand forecasts, and reservations to create optimal pricing strategies both on-site and with respect to online travel agents. For this type of forecast-based pricing, the RMS did not need to integrate with property systems, loyalty models or marketing campaigns because little of that mattered to the pricing strategies in play.
This is not optimal, but many of these systems are still in widespread use.
By failing to differentiate pricing at the customer level, forecast-based pricing can miss opportunities to acquire new customers, build the loyalty program, or maximize mind share. Forecast-based pricing misses opportunities to maximize long-term customer value in exchange for small short-term revenue gains. This method doesn’t allow the company to factor the full spend of a customer during their stay when pricing inventory, potentially leaving money on (or, in this case, off) the table. Finally, not being able to understand and optimize opportunities around room type, considerations, and loyalty makes it difficult to create a true competitive advantage with a rewards program.
Integration is the first key enabler to building better RMS strategies. Older systems that store portfolio, customer loyalty or pricing data in fixed siloes don’twork well in the current environment. Re-platforming and opening up systems is a key part of driving better customer experiences in the digital world, but it is equally important that systems interface with pricing–and that they do so in both directions. Too often, enterprises are only focused on getting data out of their systems, which really is not enough. Every RMS should provideinterfaces with other applications for both data in and out, and the data should be used flexibly. Without this bi-directional data flow and integration capabilities, revenue managers can’t take advantage of more sophisticated pricing and customer experience strategies.
For many years now, rigid, points-driven loyalty programs have dominated the travel and hospitality industry, and they worked very well, however gaining a competitive advantage with those programs is nearly impossible now. To make matters worse, they sit largely outside the type of responsive, personalized customer experience that guests increasingly demand at every level of loyalty. Ideally, every customer is a loyalty opportunity, with no sign-up or status required. There are huge opportunities to extend loyalty programs to all customers and to break the boundaries of traditional buy-10-and-get- 1-free programs. With advanced analytics and RMS strategies, organizations have the ability to constantly surprise customers by delivering unexpected rewards to them. Because organizations can control the issuance of these rewards, they have the ability to minimize their true cost of redemption and maximize their loyalty lift. This new paradigm borrows heavily from game concepts, where developers have found that unexpected rewards built into the fabric of the game experience dramatically increases engagement, usage and revenue conversion. Not only is this type of “surprise-based” loyalty a competitive advantage, it is both enabled by and a large driver of adoption for key customer engagement opportunities like mobile apps.
Of course, bringing customer value and unexpected rewards into the revenue optimization equation places a whole new set of demands on revenue managers and necessitates changes in the type of interface they use. The old days of opening up clunky reports in six different places, manually scanning for hotspots, and making tedious adjustments are gone. A good RMS needs to equate to a real-time trading system: a single platform that integrates customer data, forecasting, third-party demand curves, event information, market news and advanced visualization and analytic studies within a single window to the world. It operates as a window that lets the revenue manager adjust pricing strategies directly inside the analytics and visualization views across multiple properties and time ranges. Commodity traders love to use the old adage–“Don’t bring a knife to a gunfight.” This type of immersive analytical experience is essential if you do not want your revenue managers left for dead on the pricing battlefield.
Integration. Surprise. Immersion. Each of these ingredients is critical to optimal revenue management in today’s extraordinarily competitive environment. Hospitality companies with a growth agenda should be asking themselves these three questions as part of their near term strategy:
• If core systems are being re-designed, is anyone owning and managing their ability to integrate to support analytics and personalization?
• Are we building and deploying loyalty program capabilities based on “surprise” concepts that will create real competitive differentiation and lift?
• Is our RMS integrated with analytics rich enough to compete in the fiercely competitive pricing game?
"With advanced analytics and RMS strategies, organizations have the ability to constantly surprise customers by delivering unexpected rewards to them"
Without systems that can seamlessly share and utilize data in realtime, the opportunities for customer-focused RMS are limited. Those same systems permit far more control over pricing in every aspect of the customer experience–including the ability to support “surprise-based” loyalty programs that transcend the traditional point’s paradigm and tie together analytics and customer experience optimization in completely new ways. A powerful RMS that allows analysts to seamlessly put this data to use creates opportunities for better pricing, better loyalty and better operations.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global Ernst & Young organization or its member firms.
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