Predictive analytics is the future of hotel Revenue Strategy

by Ed Watkins, Contributing Editor | November 17, 2016

In case you haven’t noticed, the hotel industry has changed significantly in the past decade, and in many ways revenue management is leading these changes. Specifically, at most hotel companies revenue management has evolved from just a rate-setting function to a strategic discipline that relies on predictive analytics to guide the entire enterprise’s quest for increased profitability.

That’s a major conclusion of a recent study of revenue management leadership, commissioned by the Hospitality Sales and Marketing Association International and conducted by Dr. Lalia Rach, founder and partner of Rach Enterprises and former head of the hotel programs at New York University and University of Wisconsin-Stout.

“In order to be more competitive and more successful, the hotel industry has had to adopt more sophisticated methods and techniques to management,” said Dr. Rach. “Hotel professionals need to make better decisions from better access to better data to produce better results.”

Changes in hotel consumer behavior have in part led the industry to a greater reliance on data sciences, she said.

“Customers are far more sophisticated and their expectations are at vastly different levels so it’s no surprise that if your customers are more sophisticated, then the way you run your business must become more sophisticated,” Rach said.

Research for the study, “Portrait of Revenue Management Leadership,” covered revenue management executives at brands, ownership groups and management companies. One revelation from the study was the educational levels attained by many respondents, with nearly one-third holding advanced degrees. 

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And for the most part, the job functions for those in this group have moved well beyond the day-to-day pricing function: Nearly 60% of the group said they spend the majority of their work week on revenue planning and forecasting and on strategies to drive additional revenue and growth. The group identified moving beyond revenue management to predictive analytics as the most important strategic change that must take place in their progression over the next three years.

We chatted with Dr. Rach by phone to learn more about the study and her opinions on the future of hotel Revenue Strategy:

rach-laliaIn what other ways has the hotel industry changed in recent years?

For decades or even hundreds of years, we valued the hospitality gene. We wanted general managers who understood hospitality. You wanted your general manager in the lobby near the front door. You wanted them to look good in a suit because you wanted them to have a sense of sophistication and culture and awareness of peoples’ needs. It was the hospitality business instead of the business of hotels.

I’m not trying to say experience and instinct don’t manner. But what revenue management has brought to the industry is that (the former thinking) is not enough. In many ways, that should follow not lead, meaning experience and gut instinct should not be the leading element; it should be the following element.

As the industry is approaching a plateau or a downturn, what will be the future importance of revenue management?

Business is always about not leaving money on the table. That has become more complicated so it is going to evolve into a far more extensive approach to the enterprise. It’s not going to be “just about room rate;” it’s going to be about every revenue management decision that is made. Whether you want to call it predictive analytics or decision sciences, that is where it is going. And in times that are tough it should bring a greater discipline of decision-making based on facts.

I hear a lot of times from GMs and certain ownership groups that this is still a people business. Yes it is and will always be, but that doesn’t mean you can’t use more sophisticated tools to be a more successful people business.

How effective has the educational system been in training future revenue managers and also leaders who understand the importance of revenue management?

Hospitality higher education has played a great role in the changing reality of the industry, but I also think it is higher education’s job to work in concert, not lag the industry, not wait for the industry. The fact is it calls for skills and tools that are far more analytical and decision science-based as opposed to hands-on; that’s the change that must clearly occur in the four-year degrees.

How can higher education better achieve those goals?

There are a couple of things. It is how industry talks to students. I’m a firm believer that what you need in a hotel professional today is what we used to call the renaissance person. They need to have very good soft skills; they have to be able to present themselves well; they have to understand the concepts of hospitality and service. But as much time and effort we put into that we need to put equal time and effort into the more analytical curriculum course work.

Do you believe those in the C-suites have come to appreciate the role of revenue management in driving profitability?

Ever more so. We’re undergoing another change that is hand in glove with revenue management; that is the generational change from leadership based on the soft sciences, the leaders who say to students: “I don’t have a degree and you really don’t need one or it’s not that important.” They grew up in a different era and they had far more layers and were able to watch more people above them for a period of time.

We’re now to the point, and revenue management is leading the way, in which a graduate degree is expected for positions in certain areas of an individual property or a corporation.

How important are communication skills for successful revenue managers?

We need to graduate renaissance people. Simply being good with a piece of software or modeling apparatus isn’t enough; you have to be able to communicate the whys, wherefores and how-tos to your colleagues. It’s one of the reasons we have this somewhat contemptuous situation between sales and revenue management. It is as though they speak two different languages.

Where do you see the future of revenue management?

As a discipline it has evolved very quickly, so it is very rational to think in the next five to few years, but not more than a decade, you’re going to see a revenue management professional climb to the top of an organization. It will continue to evolve so it won’t just be revenue management anymore; it’s going to be the more expansive quantitative analysis, decision sciences and predictive analytics.


Ed Watkins, Contributing Editor

Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.

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