The Impact of Machine Learning and Personalization on Your Revenue Management Strategy

By Ravneet Bhandari Chief Executive Officer, LodgIQ | July 31, 2016

The hotel business is in the midst of a peer-to-peer revolution, and it's seriously threatening the industry's financial stability. A new wave of accommodations spurred by the birth of the sharing economy is radically altering how many people prefer to stay while traveling. According to a survey of US travelers, consumer preference for staying at traditional hotels is halved (79 percent vs. 40 percent) once they've experienced peer-to-peer housing.

In addition to Airbnb, there's a rising number of peer-to-peer accommodation sites appealing to specific market segments. Those include the high-end home rental group OneFineStay, and the family friendly HomeAway, which are both nipping at the traditional hotel business. And if hoteliers don't meaningfully respond, that nip could become a significant bite to the bottom line.

So how can hoteliers make their property stand out from the other hotels in their destination? And how can hotels ensure that their rates are competitive with the alternative accommodation options?

First, it's critical secure a grasp on a property's macro and micro markets. Perhaps that's business travellers and weekend baseball tournaments, for example. With the right future-focused machine learning revenue management system (RMS), hotels can automatically collect and compute large amounts of data to determine the best room rate - including competitor pricing, historical market rates, and supply and demand. You can even track the immediate and long-term impact from major events such as an annual music festival or that massive snow storm from last winter. That gives hoteliers using machine learning the edge.

By implementing an RMS utilizing machine learning technology, profits are dramatically increased. These systems empower revenue managers to make the significant leap in creating rate offerings specialized to different market segments, increasing likelihood the potential guest will choose to book with you rather than your competitor.

So what is machine learning? Machine learning is the newest frontier of computing, and it creates the ability for computers to learn and adapt in unheard ways before now. It's kind of like the computer HAL from 2001 Space Odyssey, but without all the bad vibes. Machine learning is achieved through using advanced algorithms to process data and perform calculations with logical, adaptive reasoning to perform specific actions. The more the system is utilized, the more it learns and the better it becomes at increasing revenue profitability.

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.