Revenue Measurement Is Not Revenue Management
By Bill Kotrba VP of Industry Strategy, Leisure, Travel & Hospitality, JDA Software | August 14, 2011
In pricing and revenue management, hedging your bets with a tried-and-true process may actually be riskier than taking a chance on something different. It sounds counterintuitive, but the fact is that the conservative route to pricing practices is costing big hospitality firms millions in revenue, risking their future viability.
Over the past few decades most hotel chains have adopted some form of automated revenue management (RM) system. But there are still some medium and large chains that have not. Worse yet, as some of these chains churned through acquisitions and ownership changes, their RM systems were abandoned or shut down. During the last decade's brand consolidations, industry realignment and ownership changes, business intelligence (BI) tools were growing in maturity and sophistication.
Fifteen years ago, when I was a brand new analyst learning pricing at a major airline company, business intelligence tools were more humbly known as "reports." Woe to the analyst assigned to produce reports - it was an arduous and time-consuming task.
he old paper BI reports gathering dust in binders on an executive's shelf. Where there used to be a data warehouse, best-in-class companies now have a data "convenience store" that enables all manner of fancy, web-based, interactive, real-time dashboards showing every profit coming in the door, every cost, every price, every trend, every year.
In fact, the ability to track, measure and review revenue trends has become so timely and sophisticated that revenue managers have been wowed into thinking that pricing and revenue management systems aren't necessary.
Today, we find many medium and even large hotel chains have sophisticated BI tools and legacy revenue management systems that fall into two categories - disuse and misuse. The result is that revenue management departments lack RM systems, and instead maintain a robust set of BI reports and tools. At first glance, these reports resemble many of the screens one would find in real revenue management software. With scarce capital to invest in software systems the last few years, some users of slick, interactive reporting tools are talking themselves into believing these are just as good as automated RM - or at least "good enough." But at the end of the day, reports are reports, and while a sharper, crisper rear-view mirror might make the drive more pleasant, it's not much help in navigating what lies ahead.
Using BI tools as a primary means of revenue management, managers and analysts pore over dashboards and reports for hours, adjusting pricing or inventory based on recent trends and gut reactions to the measurements they see. If they are dedicated and work hard, they can certainly improve results, but the fact is that mental brute force is not a good way to position a multimillion - or billion - dollar enterprise for future success and growth. No matter what kind of rock stars are doing the heavy lifting, this approach to revenue management is not sustainable - and should not be confused with the true science of pricing and revenue management.