Smarter Revenue Management Systems

Sophisticated RMSs grow more sensitive to customers and users by forecasting behavior.

By Joan Marsan, Technology Editor -- HOTELS Magazine, 3/1/1999

As more hotels adopt improved revenue management

strategies and systems geared specifically to the lodging industry,

the question hoteliers are asking themselves is no longer "How do we set

room rates?" Rather, the newest revenue management systems (RMSs)

allow hoteliers to delve deeper and ask "Which guests staying

for how long are willing to spend the most money?"

In the earliest days of hotel revenue management systems (RMSs),

forecasting and optimization focused on overall demand. If seasonal

demand was predicted to be high, lower rate categories were closed.

If demand forecasts were grim, lower rate categories opened.

However, demand is highly segmented. Early systems acknowledged

historically high-volume patterns, but closed rate categories regardless

of price sensitivity. The newest, refined breeds of RMSs account

for far more than historical demand patterns; they anticipate consumer

behavior.

Give More, Get More

Sensitivity to rates is but one of many consumer motivators. In

what is known as cross-price elasticity of demand, the availability

of similar products affects the intensity of consumer demand for

a particular product.

In the hotel market, advanced RMSs that handle multiple properties

with many room options can determine the cross-price elasticity of

demand when room options are opened and closed. Based on recommendations

from the IDeaS system, IDeaL/Yield, John McEwan, director of revenue

management at Keystone Resorts, Colorado, discovered he could achieve

longer-term stays by upgrading guests during key dates.

"If I know one-bedrooms are all sold, I look at upgrading into

two-bedrooms if they are going to be empty," McEwan says. The

policy frees up one-bedrooms for longer-stay guests and has helped

to raise occupancy. A believer in the RMSs' revenue-generating potential,

McEwan says, "We can attribute a 3.6% increase solely to the

technology and half that again to our ability to make

better decisions based on the reports."

What Time Is It?

Increased sensitivity to guest behavior has contributed to the successful

implementation of Talus's maxim system at Hilliard, Ohio-based Red

Roof Inns. The system offers intra-day forecasting, tracking reservation

patterns in portions of days.

"In hotels where 50% or more of arrival demand occurs that

same day, if you get it wrong, you could get it really wrong if you

just forecast once a day," says Tom Walker, hotel industry product

manager for Atlanta-based Talus. So maxim updates recommendations

12 to 14 times a day, analyzing no-shows, early outs

and late cancellations.

The system's ability to adjust recommendations during near-capacity

periods lends confidence to property managers who must choose between

booking one-night walk-up business or waiting for more profitable

bookings to materialize.

"We went with the approach appropriate to our economic segment," says

Larry Daniel, vice president of reservations at Red Roof Inns. "In

our market, there is high sensitivity to week-to-week

price manipulations. We vary not rates, but instead, length of stay."

Group Management

RMSs also weigh the anticipated value of potential guests against

the revenues a group booking would bring to the hotel. While no system

offers true group forecasting, most currently allow users to introduce

hypothetical groups and balance their value against the alternative

forecasted business.

Uwe Liebetrau, a project manager for Starwood Hotels and Resorts,

based in White Plains, New York, values the sales incentive program

that is paired with the group analysis function of OPUS2's TopLine

PROPHET. Sales representatives are rewarded for the marginal value

of group bookings that draw revenue from more than just room reservations.

Similarly, Talus's maxim system incorporates

a "marginal value

engine" that considers the multi-dimensional value of reservations.

The cost of taking one reservation for one room may be

similar to the cost of taking one reservation for twenty rooms, but

the relative profit will be drastically different. The marginal value

engine accounts for this difference as it weighs the value of group

business.

Improved Interfaces

The greatest enabler of RMS advancements has been the improvement

of interfaces between property management (PMS) and central reservation

systems (CRS). Products such as OPUS2's TopLine PROPHET offer interfaces

that optimize for the varying capabilities of the global distribution

systems (GDSs) and specific PMSs and CRSs, adjusting the availability

of rates by stay separately for the unique demands of each system.

The steady increase in sophistication of RMS

interfaces "pressures

PMS vendors to improve products," says Warren Lieberman, president

of Veritec Solutions, Belmont, California. Still, collecting

the historical data from PMSs and CRSs necessary to take full advantage

of a RMS may be the biggest challenge to getting a system

to work.

Some properties report spending more than a

year preparing to implement RMSs. Hilary Baker, a spokeswoman for

Hilton International, London, says "A lot of it has to do with doing the homework first." PMSs

must be adjusted to collect more information. Employees

must be trained to use the new revenue management techniques. And

everyone involved with the system needs to learn to trust it.

Trusting The Technology

Analytical measures help RMS users gain confidence in the systems.

Most RMSs offer some type of performance measurement component. They

may back-cast, checking market activity the system forecasted for

a past period against what actually happened. They may create scenarios

and contrast the results of decisions the system would recommend

with the course of action hoteliers would take. Or, they may look

at changes to specific values, such as length of stay over peak periods,

after system implementation. Of course, no measure can assess whether

changes are attributable strictly to the RMS or in part to outside

forces, Lieberman adds, but most systems now employ some type of

measure to assuage hoteliers who are skeptical of systems and system

providers.

Once the system is up and running, enriching

its own data stores and convincing hoteliers of its reliability

with the accuracy of its predictions, it only gets better, Baker

says. "We see results

within three months, and in six months to a year, we

see strong results after staff confidence and predictions are in

place."

"The toughest thing is that it's expensive," McEwan says. "When

competing for capital dollars, it's a hard justification

because it's not tangible. But seeing is believing."

Tech Briefs

Carlson Unveils "Curtis C" CRS

Carlson Hospitality Worldwide, Minneapolis,

unveiled the latest version of its "Curtis C" central

reservation system (CRS) in January. The new system takes reservations

for more than 550 hotels via the global distribution system (GDS),

the Internet and toll-free telephone numbers in 48 countries. The

system's three-tier client server architecture combines extensive

data storage, advanced system logic and graphical user interfaces.

Curtis C offers direct, instantaneous links to hotel property management

systems (PMSs), allowing individual properties to update reservations

and inventory continually as well as create and manage rates according

to current demand. The new CRS also interfaces with all technology

systems in use at Carlson properties.

Further, all properties on Curtis C are linked

with "CustomerKARE," a

database that tracks individual guest preferences. Carlson

expects the system's guest-tracking capabilities to enable a shift

from transaction-based to customer-based revenue analysis.

Hyatt Enhances "Perfect Stay"

The Hyatt Regency Chicago has reduced response

time and furthered its "Perfect Stay" program by using

200 Motorola Radius GP series two-way radios. Housekeeping, maintenance

and banqueting services use the hand-held radios to track people

and items, enhance guest services and heighten security. The basic

250,000-sq.-ft. (23,226 sq. m) range was extended with repeaters

that provide coverage for high-rises, expansive grounds and convention

facilities.

Motorola, Schaumburg, Illinois, recently introduced a new HT series

of professional, two-way radios. Upgrades include a longer-lasting

but less weighty Lithium Ion batteries and X-Pand, an improved sound

compression technology. Sophisticated models offer Caller ID, emergency

signaling, built-in alarm clocks, noise-canceling, voice activation,

programmable call lists and headsets for hands-free communication.

Off-site operation is also possible.

Terminally Connected

Six public e-mail terminals drew crowds up to 10 deep during a North

American Veterinary Conference at the Orlando World Center

Marriott Hotel in January. The e.port terminals, installed by Orlando,

Florida-based Public Information Network, provide guests with a T1

connection that allows them to access personal e-mail accounts from

any source that is not protected by a corporate firewall. Guests

without personal accounts also can send

e-mail from the terminals.

Users pay for the service directly at the kiosk, which accepts credit

cards and pre-pay cards. Each station provides 24-hour connectivity,

without staff assistance.