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HSMAI Special Section: A Revolution in Revenue Management

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March 01, 2016
Kurien Jacob

Over the past few years, there's been an increasing level of awareness about the critical discipline of revenue optimization. And while the user community has become quite sophisticated, the technology available to it isn't scaled appropriately to meet its needs. Most revenue management systems still rely on decades-old paradigms of forecasting and optimization. Even though we've seen a great deal of hype around concepts such as open pricing, channel-based pricing and total profitability optimization, delivery has been unimpressive. They haven't yet been fully integrated into mainstream revenue management.

At Highgate, we've seen a great deal of success by keeping things simple: Hire the best team possible, make sure they have all the tools needed for holistic/optimal decision making, and stay committed to a constant ethos of innovation. We've been using proprietary revenue optimization technology for many years now with tremendous success. In fact, over the years, we've had a deep history of proven performance in revenue management, distribution and marketing for our partners.
What is different today from a few years back – and I mean only a few – is that the world has changed drastically. The prospect of self-driven cars as a reality, a potential Hyperloop promises to get passengers from LA to San Francisco in 35 minutes and drone bring deliveries to your doorstep. Along with these inventions, the disruption taking place in the Web and mobile has led to a challenge of the conventional and an unearthing of opportunities.
With the explosion of big data in this era, our business has become more complex and it becomes humanly impossible to analyze all this information to make revenue management decisions. The use of computing power that effectively captures big data, along with built in artificial intelligence and machine learning, will put instant decision making ability in the hands of a revenue management professional. This approach will allow hotels to achieve tremendous success.
As part of our emphasis on innovation and commitment to this space, Highgate Ventures has recently invested in a NYC-based startup that we're very excited about. As the operating environment becomes increasingly complex, we believe these are the critical “must-have” components of any next-generation solution:

1. MARKET-LEVEL DEMAND FORECASTS: It isn't enough to pay lip service to the fundamental truism “know thy market”. Too often, that's simply interpreted as a high-level understanding of major events in the market, and how your competition is reacting. What you truly need is a detailed understanding of booking patterns in the marketplace and an accurate, easy to understand forecast of demand for future dates.

2. DYNAMIC, FLUID SEGMENTATION: Every current solution forecasts demand by segment or demand bucket. These are typically determined at the time of initial setup based on the market segments, rate codes or channels that have been set up in the property management system. The challenge with this approach is that most systems are simply unable to cope with evolving customer buying behavior and changing booking patterns.

3. RELATIVE PRICING POWER: Most hotels subscribe to some level of competitive intelligence or rate scraping tools, and lock themselves into a pre-defined competitive set to benchmark against. How do you react when a luxury property in your neighborhood suddenly has a major group fallout, and drops its price to your range, seven days out? How would you even know? Intelligent technology needs to be able to adapt to evolving market dynamics in real-time, and keep you informed about your relative positioning. The most important thing is to understand your pricing “power” on any given day, relative to your neighborhood and market.
4. VACATION RENTALS: Let’s face it: the sharing economy and the Airbnb phenomenon are here to stay. As intelligent hoteliers, we must recognize this for what it is. Now it's absolutely critical to understand demand in the immediate vicinity of your property. You're competing against vacation rental properties for your leisure guests, in particular. Why would you not want to understand their price-elasticity or booking patterns?

5. BIG DATA, MACHINE LEARNING AND SIGNAL ANALYSIS: So much has been said about Big Data, to the extent that it's the new buzzword. But how do you make sense of it all, and convert it into something actionable? How do you combine market demand, flight arrivals, review scores, relative positioning, customer shopping behavior and intent, real-time news feeds – not to mention a zillion other data sources – into a composite algorithm that can analyze all the relevant demand and pricing signals that matter to your property? This is only possible through a self-learning, self-calibrating deep machine learning platform.

6. USER EXPERIENCE MATTERS: Odds are that your revenue manager is a millennial. Let’s examine that for a moment – think of how today’s generation uses technology, and its attention span. User engagement is key if you want optimal results: A well-designed solution needs to present all relevant information in three clicks, adapt itself intelligently to any user’s unique clickstream and usage patterns, and must include the ability to instantly collaborate and socialize.

7. MOBILE: It amazes me that this has never been addressed in our industry. If you can do practically anything from your smartphone or tablet, why wouldn’t you optimize your hotel through a smart app?

With a crystal ball in my hand, I believe we're about to witness a revolution in revenue management with disruptive and complex systems doing all the hard work and making life easier for revenue managers. Those that adapt to these changes will be the winners. Those that stick with traditional and conventional practices will be left behind.

KURIEN JACOB is a principal for Highgate Ventures at Highgate Hotels. With over 18 years of experience in revenue management, distribution and marketing, he's a specialist in the field who's regularly called upon to deliver keynote addresses at leading travel events and conferences. He currently spearheads Highgate’s investments in disruptive technologies related to revenue management, distribution and marketing in the travel business. Prior to this role, he was chief revenue officer at Highgate Hotels.

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