Footsteps Analysis: The Key to Total Revenue Management
By Michele Walters Co-Founder, Origin World Labs | March 17, 2013
The highest evolution of a hotel's rate strategy is to get as close as possible to Total Revenue Management. This is the utopian state where hotels can offer a different rate to each reservation based on each guests potential lifetime spend. While true one-to-one yielding may never be attainable or even desirable, the potential revenue upside and loyalty effects of moving closer to such a pricing scheme could be enormous for most properties.
The biggest obstacle to creating individual pricing, however, is that you have to understand your guests behavior down to the most granular level of activity. For many hotels and resorts that means that you must be able to predict, with some reasonable certainty, the spend pattern of a guest before they are offered a rate. This analysis begins by digging into the behavior of past guests and this is where things get complicated.
Many hotels, who have CRM level data, have the ability to group guests by total spend or potentially even by spend on a certain outlet. That's great and useful if you are offering rewards after the stay, but what we are trying to accomplish is to get a sense of what the guest might spend before they arrive. This means that we need to recreate the entire path of activities from the second the guest left the hotel to the first contact that guest made with the hotel. Then we aggregate the number of guest who took similar paths of behavior and finally we have to calculate the probabilities that a future guest might do the same. If it sounds complicated it's because it is, but thankfully we have the powerful algorithms of data mining to help us get through this process.
For decades, forensic scientists have relied on footprints to recreate crime scenes. By following the path of a set of shoe marks, investigators could determine how many people were involved and what they likely did or, more importantly, did not do. In the hotel business we have very detailed digital footprints in the form of transactions. Every time a guest interacts with the front desk, enters or leaves their room, makes a call, has a meal, makes a purchase, or even uses the hotel wifi, a digital transaction is recorded with a timestamp and other relevant data.
All these transactions can be linked back to recreate the specific actions taken by each guest while at the property. More importantly, you can also see what activities the guest did not engage in within the property, such as never having dinner at the hotel. This is very important for properties in metropolitan areas where many of the dining and entertainment (i.e. spend) options are outside of the property.