Hotels have been reluctant to change their ways but new methods of increasing profitability have emerged challenging the status quo.
Prior to approximately 30 years ago, the concept of revenue management did not really exist in the hotel industry. Prices would be set based on the intuition of hotel owners and the manual checking of past historical records. So what changed 30 years ago? The airline industry was looking for better methods for filling up flights and getting as much as they could for each ticket. Through somewhat sophisticated mathematical principles, the airline industry was able to do just that – and came the advent of yield management. The hospitality industry adopted the idea and has not looked back. While not all hotels subscribe to the theories of revenue management, many are now on board.
Initially, the hospitality industry hired revenue managers who received specialized degrees from hospitality departments of universities which taught them how to apply these mathematical principles that had worked for the airline industry. However, such methods were still not very efficient as it required revenue managers to sit at a desk all day with little more than pen, paper, a calculator, and a basic spreadsheet program to determine best prices and space allocation based on requests for proposal (RFPs) that were coming in. RFPs are the first step for a group looking to book an event and sleeping rooms for its group in contracting with a hotel. A common RFP is sent by a group which sets out the maximum price they would be willing to pay for event space along with how many sleeping rooms they suspect they will need. But as the years went by, it became easier and easier for groups to send in requests RFPs using hotel websites, with the advent of e-RFP solutions in late 2012. As a result, the RFPs kept pouring in and there were just too many RFPs for the revenue managers to handle, sometimes hundreds in one day.
Now we are up to the present day in the story of revenue management and some hotels who have noticed the problem of RFP influx are scrambling to find the best way to handle their revenue management issues.
On an alternative front, one solution some hoteliers have been looking to is just basic cost cutting without worrying about the complexities of switching price setting methods.
Hotels in Japan, for example, have decided to really embrace the 21st Century by going as far as “employing” artificial intelligence and using them in roles such as receptionists and bellhops. One hotel, the Henn-na Hotel in Sasebo, employs many robots, including one with an animatronic dinosaur head. Aside from providing gimmicky antics that tourists love to see in lifelike robots, the robots do not need health insurance and 401Ks so as one could imagine, this is one method to cut some costs.
Other technological solutions have been more related to ideas such as big data and artificial intelligence. Companies such as up and coming startups like EventForte have been creating products ranging from event management software to RFP analysis and optimization as decision support systems to assist revenue managers to make more informed decisions in lesser time.
To see how it works, let’s take a conventional day for a revenue manager. Hundreds of RFPs are coming in every day. It has been estimated that analyzing each manually, at best, takes 30 to 45 minutes each. If you do the math, that means that a revenue manager can get through maybe 30 RFPs a day. Keep in mind though that as one RFP is selected, that is a price and space allocation. And perhaps while the revenue manager was analyzing that particular RFP, another one came in which turned out to be a better choice for profit maximization. Software, such as EventForte’s, looks at the hotel’s historical data in real time as each new RFP comes in so a revenue manager can see what is the most optimized RFP to pick immediately. Artificial intelligence is used at this point where the software can “learn” in real time what types of RFPs are coming and what type of RFPs the hotel prefers, updating optimization procedures for future RFPs that come in.
Event planners have expressed satisfaction at this type of software as well due to the faster turn-around times with RFPs.
If even 10% (it would probably be a lot more) of revenue manager choices would be improved with the use of big data and artificial intelligence, the profit margins could be dramatically different for that hotel. So while hotels may be hesitant to change their methods, the long term outcomes would speak for themselves.
One other newer industry that has spawned due to the increased demand for new and affordable revenue management solutions is the idea of the independent revenue management consulting firm. These firms are less technology based than other solutions but they have provided a gateway for hotels to take in attempting to maximize profit outside of an in-house revenue manager.
One may ask, however, how a consulting firm would be better suited to revenue management issues than an in-house team of revenue managers. First, depending on the size of hotel, hoteliers generally are unwilling to put enough aside for more than one revenue manager (some hotels have no revenue managers). The average salary of a revenue manager is in excess of $60,000 a year. With a revenue management consulting firm, a hotel is getting a team of revenue managers on an hourly or fixed fee. Additionally, having a team of revenue managers from an independent consulting firm focused solely on revenue optimization has proven to be more effective and efficient than one in-house revenue manager.
Revetality, one such revenue management consulting firm, has been able to make a name for itself with its efficiency. For instance, the general industry standard is that while an in-house revenue manager at a hotel could go through approximately 30 RFPs a day, a consulting firm such as Revetality can handle any volume size, adding consultants during peak demand periods, and reducing them during lower demand periods. Revenue management entering the on-demand industry so to speak..
If companies such as EventForte, Revetality and Henn-na Hotel can succeed by changing the ways hotels think about revenue management and artificial intelligence, it will further prove that hotel industry is making a general shift toward alternate solutions.
Time will only tell if these solutions will be adopted but changing trends seem to indicate these forward thinking hotels are experiencing long term growth.
Revetality is a premier hotel management consulting firm that empowers hotels worldwide to maximize profitability in both the group and transient segments. Revetality works directly with hotels, allowing hotels to generate savings in software costs, infrastructure investment, personnel retraining costs, and opening them to a world of new revenue opportunities previously only available to large hotel chains. Learn more about Revetality at http://www.revetality.com
ABOUT EVENTFORTE, INC.
EventForte, Inc. offers a cloud-based event management, RFP management and event portfolio platform with integrated business intelligence tools, with a mission to revolutionize the event management industry through integration of modern big data and data science methods. Visit http://www.eventforte.com for more information.
ABOUT HENN NA HOTEL
Excitement meets comfort. Introducing state-of-the-art technologies, Henn na Hotel is the world-first hotel staffed by robots. At the front desk, you will be greeted by multi-lingual robots that will help you check in or check out. At the cloakroom, the robotic arm will store your luggage for you, and the porter robots will carry them to your room (only available in A Wing). Mechanic yet somehow human, those fun moments with the robots will warm your heart. Furthermore, once you register your face with our face recognition system, you will be free from the hassle of carrying the room key around or worrying about losing it. Find out more at http://www.h-n-h.jp/en/