Revenue and Pricing Strategies in Travel, TDS Europe 2008 SpecialStarwood Hotels & Resorts looks at forecasting as a two-pronged approach.

Published: 22 May 2008

Revenue and Pricing Strategies in Travel, TDS Europe 2008 Special

Starwood Hotels & Resorts looks at forecasting as a two-pronged approach.

According to Brian Berry, Regional Director – RM, Starwood Hotels & Resorts, the first prong is a strategic approach which focuses heavily on a view ofunconstrained demand and helps Starwood to establish the 'raw' conditions with whichthe company is working.This forecast includesanalysis of macro-market dynamics, demand generating conditions, and price elasticity models.

"Once we have a clear understanding of these variables, we can then establishall of the strategic elements that makeup Revenue Management: pricing, yield conditions, sales and marketing initiatives and channel/inventory management.Once the strategy is in place, we can then focus on the second prongof forecasting; which we view more in the context of financial reporting. This forecast is the net result of our Revenue Management strategies and represents our clearest prediction of the outcome," shared Berry, a speaker during Revenue and Pricing Strategies in Travel conference as part of EyeforTravel's Travel Distribution Summit Europe 2008 held in London.

Berry acknowledged that the past five years have seen the introduction of very powerful systems, bothfor Revenue Managementand Finance that assist managers greatly in abilities to produce reliable and accurate forecasts.

"These systems incorporate a variety of different models from Bayesian probabilities to Box-Jenkins procedures. The one clear benefit, regardless of the underlying methodology, is that systems can collect, analyse, extrapolate, and present data quicker, more accurately and on a scale that is not possible by manual work alone. However, to a certain extent, every system available does require some human interaction to account for idiosyncratic or irregular variables. It is at these touch points where the Revenue Manager can make or break a forecast; the marriage of art and science," he said.

While systems provide revenue manager the opportunity to analysedata with increased granularity, it is imperative that analysis and use of spreadsheets mirror the detail to whatever extent possible.

"Segmentation is one example where day-by-day forecasts in a manual environment (if the use of Excel can be considered manual) should be incorporated. The purpose of segmentation is to classify customers or demand based on quantitative characteristics like price sensitivity, stay patterns, seasonality, or preferences. It is certainly possible to forecast this level of detail using an excel spreadsheet and more importantly, to utilise this level of information to make informed strategic decisions," he said.

In terms of difference between reactive and proactive revenue management, it being said that reactive opportunistic RM is often evolving around the short-term optimisation of high demand periods, where as the long-term, proactive revenue management is based on clear strategies built on more accurate demand forecasting, price integrity and profitability measurements.

So which is the best way to go about the task of reactive and pro-active RM?

"I would agree that Revenue Management requires both long-term strategic or pro-active processes and short-term tactical or reactive tasks. We tend to be very good at the latter, but struggle to prioritise the time for long-term planning and strategies.However, it is precisely this shift in focus that follows our discipline's evolution from Yield Management to Revenue Management; the strategic concentration on long term strategies. Generally the reactive elements of Revenue Management happen automatically. As the name implies, we react to the demand conditions and situations of our hotels and markets. Conversely, pro-active Revenue Management requires planning," he said.

Berry added, "I recommend taking a chapter from our friends in Sales and Marketing and develop a long-term Revenue Management Plan. This is often coupled with the annual budget/strategic planningprocess or isincorporated in the performance appraisal exercise. It is important for Revenue Managers to outline specific and measurable long-term goals and action plans in a formal way to ensure that they become a priority. In Starwood, wedefine long-term strategies by segment and channel during the budget process. Furthermore, we create individual performance goals annually that address areas such as technology implementation, project management, market share, forecast accuracy, brand management, innovation and training and personal development that are all built around the company's key strategic pillars for growth."