By Alisha Goldberg, Assistant Editor
Revenue management is a big data challenge. Next-generation solutions process vast amounts of data and optimize pricing in highly compressed timeframes.
In terms of scale, the terminology one might use to describe the data set that is required to generate accurate pricing decisions, even for a single large hotel, is not dissimilar from the terminology that an astrophysicist might use to describe the stars in the cosmos.
Combining all of the data sets for just one hotel can amount to several hundred million observations. Calculations need to take into account multiple years of historical booking and reservations data, a dozen or more room types, and varying length-of-stay. They also need to take into account any number of hotel-defined market segments.
Segmentation is fundamental to hotel revenue improvement. Guests can be grouped together using meaningful behavioral, demographic and needs-based segmentation schemes. For existing guests, these segments can serve as the basis for creating carefully tailored services, communications and promotional offers that serve to enhance the quality of the guest experience.
Transaction history can be an especially important factor. Segmentation schemes based on analysis of guest spending patterns can be highly informative for knowing, for example, when and to whom to offer complimentary package and amenity upgrades.
These segmentation schemes also serve as the basis for optimizing revenue and profitability.Different offers will elicit different response rates based on the characteristics of the target segment.Guests who book through a discount site, who want to purchase a package deal or who seek to take advantage of a special rate promotion may be grouped together for price sensitivity.
Length of stay and frequency can be important segmentation factors from a pricing strategy perspective. So, too, can the extent to which guests are likely to utilize the spa, golf course and/or other facilities. In the case of a casino property, the amount of time the guest is likely to spend gambling (the “theoretical win” –e.g., the amount of profit the casino makes from each guest) factors into the equation. Travel purpose may be another valuable consideration.
Business travelers tend to have different wants and needs than leisure travelers, and also different budgets. It may make sense, therefore, to group them together. Travel occasions (business conferences, weddings, birthday celebrations, etc.), are oftentimes knowable, as are life stages (single professional, family with kids, retirees, etc.). These, too, may be valuable for segmentation purposes and influence overall revenue strategy.
Indira Gandhi, the former prime minister of India, once famously said: “I do not like carving the world into segments; we are one world.” Her perspective is admirable. At the same time, at least when it comes to hotel revenue segmentation, carving the world into segments makes a world of sense.
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