14 Jun

The Price is Right

Last week I was moderating Travel Technology Initiative’s Summer Forum that I organised.  The subject was Revenue Management.  I called the Forum ‘Money for Nothing.’  My thinking was that this is a good title for a revenue management event as the discipline is about conjuring more revenue/profit from an existing, finite inventory.  Of course, tour operators might well call the discipline yield management as their inventory might not necessarily be finite.  There is always the possibility of laying on more flights or finding some additional hotel accommodation if a certain package or product is selling well.  On the other hand, I remember a certain flights specialist that gained an interesting reputation for consolidating flights by cancelling departures and moving passengers over to other flights.  This was not well loved by the travel trade with whom they did a considerable amount of business, but it did contribute to making this flights specialist very profitable.

At the Forum, we heard presentations from a hotel group’s director of revenue management and two revenue management consultants, one of whom used to work for one of our largest tour operators.  He talked about the incredible complexity of managing yield in a tour operating environment.  He suggested that perhaps you should start with target based yield management, then move to forecast-based, choice-based model and eventually a network optimisation, but the latter might be overkill.

Our hotelier described the topic in much easier terms.  She had me wishing I had called the forum “The Price is Right” rather than “Money for Nothing.”  She stated the well-known revenue management maxim:

  • Sell the right product
  • At the right time
  • To the right customer
  • At the right price
  • To achieve the best profit.

She also spoke about the new discipline of Total Hotel Revenue Management where you are no longer interested in just managing the room inventory but you also want to include the revenue from spas, food & beverage, function rooms, and so on.  (You can download the presentations from my Events page.)

When I started to consider ‘total revenue management,’ whether in the context of a hotel chain, tour operator, airline or any other travel entity, it got me thinking.  At the various conferences I have been to, I have seen some fantastic presentations from online analytics experts who are using Google Analytics and other tools to maximise return on investment in online marketing.  I have seen customer data analytics specialists who are working on personalisation and 360 degree customer communications.  Channel management engineers have spoken about maximising profit through analytical channel management.  Marketing executives have been there who put out offers and incentives.

It struck me that all these individuals might be working in their own silos and not necessarily coordinating their activities to maximise profit at the company/group level.  They could well be more concerned with justifying their own existence.  So should a marketing manager put out a special offer in preference to a revenue managed adjustment in inventory levels or price?  Should the revenue manager hold off his/her decision as the customer data analytics people are about to put out some personalised communications that will drive the customers in?  Who should be in overall charge?  Who is going to coordinate all these activities and do they even have the tools and data to do so?

It seems to me that revenue management might be as much about your organisation and your people as your skill in analytics.  What do you think?