Outside-In Vs Inside-Out Hotel Demand Forecasting

A 21st Century Approach to Pricing Hotel Rooms

By Ravneet Bhandari Chief Executive Officer, LodgIQ | August 28, 2016

Rate optimization is arguably the most critical component of a successful Revenue Management strategy, but most hoteliers still tend to fall into two broad categories when it comes to this discipline: Set-it-and-forget-it, or follow-the-market. Both of these approaches are sub-optimal as they simply ignore the evolving purchasing patterns of increasingly savvy customers. We live in an era of disintermediated distribution, and the reality is that meta search and third party aggregators have made it easier than ever for customers to shop and compare options.

Luckily, computing power, advanced algorithms and more detailed information insight are working in concert in ways never seen before. And it's giving hoteliers the edge. That advantage is arriving in the form of ready access to a multitude of data sources, and advanced machine learning platforms that can quickly transform multi-dimensional data into actionable recommendations. Together they provide hoteliers a myriad of opportunity to create personalized guest pricing, while also allowing price sensitive guests to book earlier and take advantage of lower rates. Simultaneously, it empowers experience-driven guests to craft their own individualized stays.

The breadth of these new data sources and morphing booking patterns are making an already complex job, even more complicated. Add in the reality that segment-based "rate fences" are increasingly out of date as tech-savvy guests shop multiple online sources, it can all add up to an overwhelming sensation for hoteliers that feel they'll never figure out this new rate setting paradigm.

Hoteliers using traditional pricing methods are being left behind by increasingly sophisticated data science. Don't worry though, updating your pricing strategy is not as difficult as you think. Here's why you don't have to panic at the incredible pace of change.

How can revenue managers increase occupancy, ADR and RevPAR by making a single change in their revenue management strategy?

There are a multitude of external factors that can make or break a property's financial success. Revenue managers considering only their own property's internal demand history and forecast – essentially the traditional, "inside-out" view – are missing valuable external business drivers. To fully leverage marketplace potential, hoteliers must look beyond the standard data provided by their internal PMS. No matter how good that information may be, it's simply not enough in today's hyper competitive market.

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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.