RMS Connectivity Is Crucial

Focus shifts from room revenue to property revenue, making RMS connectivity to all property systems and distribution channels paramount.

By Nicole Chase -- HOTELS Magazine, 2/1/2007

Revenue management practices and procedures are being redefined around the globe thanks to a universal commitment among the industry, the latest advancements in dedicated technologies and enhanced yield-management software modules. In his book titled “Revenue Management,” published by Broadway Books in 1997, Robert Cross, the father or guru of modern revenue management, defines the concept as: “The art and science of predicting real-time customer demand at the micromarket level and optimizing the price and availability of products.” Conceptually, revenue management is a microeconomic concept about how to manage the relationships between supply and demand to maximize revenue potential. Simplified, it means: Selling the right product to the right customer at the right time for the right price.

Getting An Education

“Revenue management has become the competitive advantage of the future,” says Jon Hales, assistant professor at the Northern Arizona University School of Hotel & Restaurant Management. “The mantra ‘location, location, location’ is fast becoming replaced with ‘revenue management, revenue management, revenue management.’”

Today’s revenue management technology enables hoteliers to process massive amounts of information instantly and make it easy to view, apply and understand to make recommendations and decisions, Hales says. Fifteen years ago, this process didn’t exist because the sophisticated level of today’s technology didn’t exist.

“Thankfully this technology has made revenue management much easier to implement and understand,” Hales says. “However, general managers and directors of sales can’t generate these numbers themselves. It’s the revenue managers who really are today’s corporate leaders. Not only do they possess the technical and financial skills needed to implement today’s RM strategies, but they maintain critical communication skills as well. Revenue managers have the innate and highly coveted ability to absorb, analyze, recommend and apply the technologydriven information that many others don’t understand.”

Daniel Connolly, assistant professor of information technology and electronic commerce at the University of Denver’s Daniels College of Business, School of Hotel, Restaurant and Tourism Management, concurred, saying: “Revenue management is changing the competitive dynamics of the hospitality business.

“All hotels can take advantage of revenue management to try to better manage supply and demand, maximize profitability and reduce shoulder periods,” Connolly says. “To date, the focus has been on top-line revenue. Moving forward, however, the industry needs to get more sophisticated and focus on maximizing profits since not all revenues translate to the bottom line. Technology and the ongoing education of our revenue managers will play a big role in making this possible.”

While all of the large chains are doing a decent job with revenue management, Connolly says Marriott is probably doing the best job at RM development and implementation because it made a decision early on to devote its resources to developing its RM program and understanding how to best utilize the knowledge derived from its technology. As early as the 1980s, Marriott was looking at reservations, operations and the bottom line from a different perspective—profitability.

“One of the key reasons Marriott’s centralized demand-forecasting or revenue-management program is so effective is because it is well integrated with its MARSHA central-reservation system,” Connolly says. “Moreover, it has been able to work effectively to bring franchised and managed hotel owners together to work in a complementary fashion to implement revenue management across more than 2,800 properties around the globe.”

To effectively and uniformly deploy revenue management practices across a chain, Connolly says inventory needs to be centralized. Thus, the revenue management system must be well integrated with the CRS and the property management system. These systems provide historical information used in the revenue management algorithms to forecast future demands, set rates, and establish selling rules and conditions.

“Additionally, it should be linked to booking engines and dynamic packaging engines, as well as channel management and content management systems,” Connolly says. “Any system tasked with populating rates, availability, and sell rules across the various distribution channels needs to be interfaced to the RMS in order ensure rate integrity and to reduce the amount of manual effort and time spent overseeing and monitoring this information in channels today.”

Challenges For Chains Several hotel companies are taking a total property revenue outlook by adopting the RevPAC (revenue per available customer) model versus the industry’s standard RevPAR (revenue per available room) paradigm. Marriott is no exception.

Expanding the standard definition by Robert Cross, Marriott executives today describe revenue management as “Selling the right product (guestrooms, function space, spa, restaurant) to the right customer (group, transient, catering), at the right time (days or years out) for the right price (rate, price, package).” “When Mr. Marriott opened his first hotel in 1927, he looked at the number of people in the car before quoting a price for the room,” says Bruce Hoffmeister, senior vice president of global revenue management for Marriott. “Those were our first glimpses of revenue management. It wasn’t until the mid- to late 1980s however that Marriott International Inc. got serious about RM.”

Hoffmeister explains that Marriott takes a three-pronged approach to RM: people, processes and systems. This approach is implemented through pricing and inventory decisions.

“At Marriott, we work hard every day to maintain our competitive advantage in revenue management,” Hoffmeister says. “We do that by continually integrating RM with other disciplines across the property, from room sales to group sales to event management, and from looking at RevPAR while focusing on RevPAC. Everything must be tied together—not only at the property and corporate levels, but across all distribution and marketing channels. In this way only can we truly begin to understand our customers on a micro level and work beyond generating revenues to achieving profitability.”

For Omni Hotels, revenue management is the “be all, end all” operations technology— at least it is for Brad Anderson, corporate director of revenue management and a former Marriott employee. Anderson says he defines revenue management as: “A culture and mindset, a set of business processes, not tactics.”

“While technology has come a long way, no system will know what each hotel’s exact occupancy rate and RevPAR will be,” Anderson says. “No software program will be able to identify the differences in market variables, such as market flux, hotels under construction and competitive set information. Any system needs manual intervention and interpretation from the revenue manager. “The solution we use from JDA Software Group Inc. does an exceptional job at picking up on those nuances,” he says. “But we couldn’t navigate through it alone without the input from our revenue management team.”

The Omni revenue-management system, called OmniCHARM (centralized hotel automated revenue management), was designed by Manugistics (recently purchased by JDA) and The Rainmaker Group to interface with all property systems including PMS and CRS, and to look at all disciplines with supporting report documentation.

MultiProperty Environments

For Aimbridge Hospitality, a hotel real estate and management company representing a portfolio of branded and independent hotels, revenue management means constantly monitoring inventory and pricing as it relates to the competition, prior year pace, recent pace and market conditions. Other variables, such as group rooms on the books, citywide events, prior year market conditions and local supply and demand also are taken into consideration.

Chad Goodnough, senior vice president of sales and marketing who also oversees the revenue management department, defines RM as: “An approach to optimizing revenue through managing hotel availability and pricing based on supply and demand.”

“Our revenue management program is customized based on the technology available through the brands that Aimbridge is partnered with,” Goodnough says. “The tools that allow us to project future demand are crucial to the success of a revenue-management program.”

Nolan Wrentmore, Aimbridge corporate director of revenue management, says with a multibranded portfolio you work with the technologies provided; some are great while others are more limited in their functionality.

“We’ve developed a daily and future pace chart that utilizes historical demand and recent transient booking pace data extracted from each property’s CRS and PMS,” Wrentmore says. “This report is updated daily and is used to quickly identify periods where potential changes in pricing and/or stay controls should be implemented.”

Something For Everyone

While customized brand-developed revenue management systems have proven to work for large chains and management companies, there are equally as efficient hospitality solutions available through dedicated RMS developers. Companies such as Bloomington, Minnesota-based IDeas Revenue Optimization, EasyRMS Ltd. in London, EZYield in Orlando, and AltiusPAR with offices in Corinth, Texas, and Latin America, are a few companies offering global RM solutions.

Property-management system providers also offer yield-management modules. For example, The St. Paul (Minnesota) Hotel successfully utilizes the Maestro PMS with multichannel yield management from NORTHWIND, based in Markham, Ontario, Canada.

“As an independent hotel, I appreciate being able to work within a yield system that is centralized by my PMS,” says Tabatha Kidder, St. Paul revenue manager. “By having just one system, the decisions I am making are consolidated and easy to implement. The tools developed by NORTHWIND are designed to kick in automatically, which works very well in our environment. In addition, the real-time interface to the ResEze booking engine is a real time saver. We are very happy to work in partnership with NORTHWIND for both PMS and RMS. I can implement controls and know that regardless of where people are across the country they are getting the same rates, same room types and availability as everyone else.”