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in 2016 Marriott became the world's largest hotel company after acquiring Starwood Hotels a massive group owning and operating 11 brands the news was heartbreaking to many loyal customers of the Starwood chains or more specifically members of the Starwood Preferred Guest program Starwood Rewards weren't particularly exclusive but compared to other high-end hotels were much more approachable for example you could spend only ten thousand dollars using a branded credit card to earn yourself a stay at one of its upscale hotels with Marriott you'd have to gather twice that and the experience wouldn't measure up besides while most hotels would have only 10% of the rooms available for Rewards Redemption Starwood had no limit there was always a room if you needed one Marriott realized that to compete with online travel agencies like Expedia and booking.com it had to become more powerful in both size and volume of loyal customers to redeem their valuable points people had to book directly from a hotel's website and that meant a hotel wouldn't have to share commission with an OTA this is all part of a larger system that helps hotel survive in the current market it's called revenue management the science of ultimate hotel success basically revenue management does a difficult job of matching supply and demand or selling the right room to the right client at the right moment at the right price on the right distribution channel with the best Commission this is something any business has to do to stay profitable but something the hotel industry needs the most why rooms are perishable if a room stays vacant for a night its potential value is lost you will need to sell it at a much cheaper price or give it away to a loyal member revenue management will tell you what to do or it will prevent this dire situation by correcting the supply and demand graph next a hotel has limited capacity you can only stock so many beds restaurant seats and deck chairs all of which have to be maintained whether you have guests occupying them or not you need to get the most value of them this means that a hotel has high fixed costs salaries utility bills and marketing expenses stay the same whether you have a fully occupied hotel or a low demand season so you have a set of rooms that have to be sold in a set of customers that agree to pay a specific price for that room it's time to combine them here's how revenue management works in theory hotel room demand can be predicted if you run a hotel in Barcelona you expect to get a ton of tourists in the summer so you can ask a higher price will these expectations come true in current market conditions it's actually hard to tell in 2014 hotels in Latin America were expecting an inflow of international travelers for the World Cup the demand ended up being even lower than the year before they raised the prices to an average of one hundred and forty eight dollars per night which was more than any other destination in North America Europe and part of Asia besides 40% of emerging hotels were targeting luxury guests but in reality the largest traveler segment was domestic travelers that recently entered the middle class all this ended up in a large imbalance between the number of available rooms and the price customers were willing to pay revenue management could have solved this problem in three steps first by segmenting the customers hospitality is one of the businesses where the price for service can depend on the type of customer a person's age marital status spending habits and whether they're business travellers will define the optimal price a retired couple won't hunt for a cheaper deal ditto for someone visiting the conference in your area if you collect data about past travelers and segment them you'll be able to apply dynamic pricing if you've seen our video on flight pricing you know that airlines have different fares for leisure and business travellers but customers are not the only ones impacting pricing hotels can adjust pricing based on their financial situation competitors and the perceived value of the service what makes pricing truly dynamic is automation or even machine learning that processes live data and responds to the changes in the demand remember how we said that revenue management is about matching supply and demand well to do that you need to look ahead and predict what demand will be like in say a year of course sometimes a local catastrophe or public health emergency may compromise all predictions but in normal circumstances forecasts help you prepare more adequately historical data external factors like holidays events an economic situation in the region and even weather are some of the data used for these forecasts now if there's an established framework for managing demand expectations why do hotels lose money and even brands like Marriott are struggling to keep up with OTAs there's a problem with adopting revenue management in 2010 cheryl eke Iams professor of operations management at the Cornell School of Hotel administration conducted a survey among 500 revenue managers about how they think an area may develop and change six years later in 2016 she followed up with the interviews to learn how their practices changed and compared them with predictions the results were underwhelming while many professionals expected a growth in technology and analytical skills not much actually changed a revenue managers role remained manual with limited technology support and next to no centralization of the processes while IT and data analytics were expected to drive change the most they didn't become commonplace and it's not as if tech developments lagged behind even small independent hotels have access to RM solutions today both booking.com and Expedia have free toolkits for their members that give insight on demand share forecast and allow you to set prices in the calendar which is evidence that this is not a financial problem but a mindset one RMS are willing to grow much more than Hotel ears themselves so called silo mentality makes the adoption of technology more difficult than it should be especially in a world full of possibilities many property management tools already have RM capabilities building a custom solution will bring more profit in the long run teams can be trained an adoption can happen over time from simply abandoning Excel spreadsheets to establishing a revenue management practice at every location after all revenue management is not about doubling transactions but finding your path in this dynamic world [Music]