In pricing and revenue management, travel companies hedging their bets with a tried-and-tested process may actually be riskier than taking a chance on something different. It sounds counterintuitive, but in reality the conservative route to pricing practices is costing big travel firms millions in revenue.
We’ve come a long way from old paper Business Intelligence (BI) reports. Where there once was a data warehouse, best-in-class companies now have a data ‘convenience store’ enabling all manner of fancy, web-based, interactive, real-time dashboards showing every profit coming in the door, every cost, every price, every trend, every year.
The ability to track, measure and review revenue trends has become so timely and sophisticated that revenue managers have been wowed into thinking that pricing and revenue management systems aren’t necessary.
Today, many travel companies have sophisticated BI tools and legacy revenue management systems that fall into two categories — misuse and disuse. The result is that revenue management departments lack revenue management systems, and instead maintain a robust set of BI reports and tools.
Although these reports resemble many of the screens one would find in real revenue management software, reports are reports, and while a sharper, crisper rear-view mirror might make the drive more pleasant, it’s not much help in navigating what lies ahead.
Using BI tools as a primary means of revenue management, managers and analysts pore over dashboards and reports for hours, adjusting pricing or inventory based on recent trends and gut reactions to the measurements they see.
If they are dedicated and work hard, they can certainly improve results, but this approach to revenue management is not sustainable and should not be confused with the true science of pricing and revenue management.
The pitfalls of ‘measure and react’
In all companies every year, some of the best and brightest team members who know each region inside and out, make critical decisions about top-line revenue and are instrumental to maximising profit margins will leave. The message here is that relying solely on people can be a risky move.
A leader of pricing and revenue management at a major travel company told me recently: “We are very proud of our manual RM process. We have honed our reports and dashboards to a razor-fine edge. When we a see a change in pricing or booking trends, we jump on it. We measure and react.”
He went on to say that a few years ago they shut off their automated demand forecasting and optimisation software because it was a “black box” that had withered over the years from lack of use and no longer produced reasonable output.
That’s too bad, because the reality is that a room full of even the smartest people with the best BI tools simply can’t capture all of the revenue upside that a revenue management system provides.
Profit through automation
Measuring trends and reacting quickly isn’t bad. In fact revenue managers should do just that. But true pricing and revenue management goes beyond measurement, especially with demand forecasting and optimisation at the heart of the solution.
Pricing and revenue management is about intelligently placing a bet on what will happen in the future – predicting and optimising – which unlocks revenue upside far beyond simply measuring and reacting.
The travel industry’s best-in-class companies embrace automated pricing and revenue management systems and are pushing the limits of science and innovation. Revenue management systems can allocate rates and inventory to thousands of future length-of-stay permutations – a combination of hotel or airline hub origin/destination – quickly and accurately to balance supply and demand and maximise revenue.
The latest area of innovation is price optimisation where the travel industry, in particular, has begun systematically untangling the terrible pricing pressure resulting from today’s web-enabled instant transparency and severe price competition. Measuring price elasticity and quantifying customers’ willingness to pay is a reality in today’s revenue management systems.
This sophisticated approach uses powerful algorithms to unlock revenue potential, which cannot be duplicated by people reacting to recent trends. Today, companies must look beyond people and sophisticated BI tools.