The interview also includes questions from readers obtained via Twitter earlier this month.
I think the perception you outline is not limited to small hotels, but even after 20+ years, yield or revenue management is still perceived as something that only rocket scientists understand. In fact, any time you have a situation where you have fixed capacity and predictable demand you can apply the principles of revenue management.
Many hotels that use our solutions have less than 100 rooms and when we explain the concepts of revenue management we use samples of one, two and five room hotels to demonstrate that applying very basic revenue management concepts like managing length of stay and booking pace management can have a significant impact on a Hotels top line independent of the size.
Our Consulting arm, IDeaS Advantage, has done some great work with clients in declining markets who have experienced significant, double digit percentage improvements in RevPar as a result, purely by applying the fundamentals of revenue management and making some tweaks to pricing strategies. Like anything you want to do well, applying revenue management requires a discipline and time commitment and many hotel managers and operators still do not realise the significant amount of money they leave on the table.
Yield and pricing strategies can be a paradox, how should hoteliers navigate in these turbulent times when many hotels are making â€ścrazyâ€ť promotions because they hope to catch more of the market with their low rates?
The last 18 months have definitely been very interesting to see if the global industry has learned from the errors made in previous difficult economic periods and in general, I think the verdict is a resounding yes. There are immense pressures from owners, managers, lenders and investors to grab every piece of business no matter what the cost.
This is especially true in the emerging markets. However, we have also seen many instances where hotels are taking a measured approach and carefully and strategically discount with great results. Savvy hoteliers understand it takes 3-5 years to recover previous price levels and they increasingly look towards very specific, time bound and targeted promotions to grab market share. We have also noted a considerable uptick in interest from both global and regional chains to assist them with â€śsmart discountingâ€ť.
Many hoteliers make a choice to have a customer in their hotel, even at a low rate and with bad RevPar because they hope to make additional money from these customers inside their hotels (services, food, bar, etc). What would you say to these hoteliers?
You are absolutely right; the trend in revenue management is towards dynamically and automatically establishing the optimal price point and towards total customer value optimization. Having said that, except in some Asian Markets with high wedding and C&E business, room revenue is what makes or breaks a hotels success and hoteliers have to carefully evaluate the long term implications of lowering rates â€“ especially if they think they can recover some revenue through ancilliary in-house revenues.
Research from Cornell University and other leading institutions confirms time and again that pure discounting almost always damages a hotel’s ability to optimize revenues, but I also think there is a general need to evaluate mini-bar, telephone, broadband or laundry pricing in the industry. We also look at cost and margins for these ancillary revenue centres allowing hotels to find the best balance for attracting customers to their hotels through giving some discounts but subsequently benefit from additional other revenues. Together with SAS and many of our casino clients â€“ who are really the most innovative in this area – we are looking at some very exciting solutions for the near future.
A significant portion of your hotel clients run the Opera PMS from Micros Inc. Â Now that Micros is developing the ORMS (Opera Revenue Management System), as an integrated RM module within Opera, what impact do you expect on your long term ability to sell to this user base? Â Is ORMS a threat to IDeaS in the Opera PMS user base or is it a logical development from this PMS supplier?
Micros has had a revenue system for many years and ORMS is the latest upgrade. Â The tight IDeaS V5i integration we have developed with the Opera PMS for many of our major chains that do use Opera is very good, functionally rich and according to our Opera clients offers superior functionality. Since our founding 20 years ago, we have always prided ourselves on providing not only great software but also the best support and services in the industry to create long term partnerships with our clients and our extremely high retention rates â€“ even in the currently very difficult environment – are proof that our clients are very satisfied.
Additionally, to offer successful revenue management to hotel groups and hotels is not only about the system itself but also about the quality of services. Compared to Micros, IDeaS is only focusing on revenue management and yield management and our reputation in the area of high quality services is unmatched.
As a counter-strategy to the release of the ORMS, do you see potential to offer an integrated PMS module in IDeaS V5i to maintain market share, or does that move your business away from its core competencies?
Our strategy has always been â€“ and will continue to be â€“ to provide to the Hospitality industry the best solutions to maximize revenues. As revenue management has more and more touch points, including channel optimization and non-room revenues, our aim is to be able to get accurate data from the many systems our clients use and provide outputs to the systems which in turn will result in better performance for the Hotels. We already connect to 65+ systems covering PMS, CRS, Channel Manager, C&E and others and as a member of HTNG are continuously working with the industry to provide the connectivity our clients demand.
How has your revenue management value proposition for hotels changed since the acquisition by SAS?
We are very excited about the acquisition. Already before we were acquired we had started to bring new and innovative solutions and services Â to the market, including the launch of our IDeaS Advantage Consulting division to offer non-system related services and IDeaS CarParkPRO, the worldâ€™s first automated revenue management system for pre-paid car parking operators. Being part of the largest privately owned software company in the world allows us to push innovation even further and react even faster to changes in the market place. Our clients are starting to see the considerable value-add of a combined SAS-IDeaS offering, especially in the areas of overlaying revenue management, market automation and customer intelligence processes for a much more granular and sophisticated revenue management approach than has ever been possible before.
Any plans for further acquisitions by SAS in the hospitality space? Â If you had the capital, what product set would you look to acquire? Â Channel management? Â Hotel booking engine? Â A PMS?
Both SAS and IDeaSâ€™ approach is to lead the market with solutions and services that help solve real business problems. Â With technology evolving fast we constantly look at the best strategies to solve the industryâ€™s most pressing revenue optimization issues and being part of SAS allows us to explore any opportunities for growth more aggressively. We are currently investing significant funds and resources into the next generation of Revenue Management solutions which will make it even easier for our clients to optimize their revenues.
What are your predictions for the yield market in 2010?
While the first half of 2010 will still be flat, we should see some positive signs in late Q2 and especially Q3 & Q4 as business travel picks up again.
Questions via Twitter:
@andrewghayes – For small operators who only have limited time/budget, what’s the most important things to know? (Yup yup. So, yes, any tips for smaller folk would be appreciated!)
Start tracking data by segment by day, make a good forecast, tweak your prices and learn from mistakes.
@alexbainbridge – RMS only gets chance to work if you get to or exceed 100% occupancy. In recession (less nights like that) is RMS still useful?
IDeaS V5i offers functionality to help with strategic decisions independent of occupancy. RMS has biggest effect on shoulder days, not 100% days.
@HHotelConsult – How do you retain rate when every single of your comp set has lost all rate parity/integrity?
Price wars are lose-lose. Smart, targeted, strategic discounting to drive Market Share and Revpar are key.
@HHotelConsult – Or how do you maintain an intelligent revenue management plan with ownership that is freaking out about recession?
RMS provides range of tools to help RM convince owner of benefits. Smart discounting will allow you to roll back discounts if needed.
@new_hotel – What tools could you make available for hotels to maximize RevPAR within the parameters specific to the hotel but mostly situational parameters?
RM is always specific to property. IDeaS V5i is always build on Hotel and constantly monitored.