New Data for Revenue Management: Adding Value or Adding Distraction?
By Breffni Noone Associate Professor, School of Hospitality, The Pennsylvania State University | October 2014
We have seen a major shift in the role of revenue management in the lodging industry from a very tactical orientation to one that is much more strategic in focus. What this means for revenue managers is that their job is transitioning from one where they are responsible for opening and closing predefined room rates such that the best combination of occupancy and rate is achieved for any given night, to one that is now much broader in scope. Revenue managers are often expected to contribute to, and provide analyses to support, decisions that are much more strategic in nature such as the development of market share, competitive positioning, new product and service development, and distribution channel management strategy.
At the same time, in this era of "big data", revenue managers have access to more data than ever before. The decreasing cost of data storage, coupled with increased processing power, also makes it feasible for revenue management systems to handle more data inputs and complexity. At face value, this access to, and the ability to handle, more data sounds very appealing. More data means more informed decisions, right?
We all know that many revenue managers already feel like they are experiencing data overload so, before adding any new data source into the equation, you've got to be pretty confident that it will sufficiently enhance decision making over and above the insights that current data inputs provide. On a related note, you've also got to carefully consider the level at which a potential data source can be most useful. Think for a moment about the differences between the "job" of a revenue manager and the job of a revenue management system. A good revenue management system supports tactical pricing decisions. It doesn't think strategically. It is optimized for tactical day-to-day revenue generation. A good revenue manager, on the other hand, monitors the work of the revenue management system, and then takes the short-term optimized outputs of the system, and uses them along with other data sources to support long-term strategy development. So when thinking about new data, you've got to think about where they have the potential to add the most value. Can the data be applied at a tactical level, feeding into a revenue management system to influence tactical pricing decisions, or are they best leveraged by the revenue manager in strategic planning?
Recently, there has been discussion among hoteliers and systems vendors around the introduction of a number of new data sources to support revenue management decisions, from weather forecasts to forward-looking demand data. Let's take a look at some examples of these potential data sources and consider their potential to support the revenue management function and the level at which they might best be applied.
We all know that weather can impact demand. Consider how we explicitly account for severe weather events (hurricanes, snowstorms, etc.) in a typical revenue management system. We flag those events as exceptional or special events such that, if a similar weather event is expected to occur in the near future, we can use historical special event data to estimate the effect of that event on demand. But should weather forecast data be routinely included as an input to a revenue management system? Think about the consumer for a moment. Unless the booking window on a hotel reservation is very short (i.e., a couple of days), the customer will only know, at best, what the average temperature tends to be at their destination of choice during their planned time of travel.