Why Revenue Management Systems Fall Short on Unconstrained Demand
Today’s revenue management system (RMS) tools help hotels forecast overall occupancy and rate for future arrival days largely based on historical data from previous years. That’s where current tools come up short. They don’t go beyond the hotel to see the bigger picture of market opportunity. Right now, RMSs provide no insight regarding true demand available from the significant transient segment, including both leisure and unmanaged business travel.
Unconstrained demand is a term in revenue management to mean total demand you have for a specific date with no constraints, such as number of rooms in the hotel or the price needed to make money. Obviously, the concept cannot be taken too literally as GMs and revenue managers have to put some reasonable boundaries around what is possible, and even desirable.
RMSs do very good job of constructing this view from the past data, such as denials and regrets, of various demand channels:
- Negotiated corporate business
- OTA and third-Party
- Online Direct
- Call Center
Additionally, RMS platforms account for factors such as how on-the-books production is pacing by channel, demand drivers such as major events within the destination, and changes in supply as additional inputs.
But what if this year is different than last? What if there is new political/economic unrest in the market? Or new competitors, e.g. Airbnb, that are changing the market dynamics. Then hotels need revenue management solutions that look at what’s happening in the market right now to capture the broader opportunity inherent in real unconstrained demand:
- Hotel demand for future arrival dates – unbooked
- Competitive set demand for future arrival dates – unbooked
- Overall market demand for future arrival dates – unbooked
- Hotel share of overall consumer demand – unbooked and booked
- Consumer response to prices for the hotel and comp set for future dates, e.g. comp set pricing is generating higher volumes of search and bookings for future arrival dates
Having this type of information helps hotels make smarter rate and distribution decisions for future dates. For example, if a hotel knows from forward-looking shopping data that market demand is strong – even higher than last year or last month – and competition is lowering rate in a panic because lead times are shorter than in the past, the hotel can opt to hold rate and ultimately increase ADR in the long run.
Insight to true unconstrained demand helps hoteliers increase profitability based on the following advantages:
- Improved forecasting: Unconstrained demand data shows consumer shopping peaks and valleys for future arrival dates, based on specific hotel and comp set rates.
- Optimize ADR: An integrated view of future rate and demand tells hoteliers when to hold, raise or lower rates based on consumer behavior.
- Increased certainty: actual demand available for future patterns is important because it gives a level of certainty in uncertain situations.
In a new environment, hotels have to make decisions in new ways. That means no longer relying on trends based on historic data, but putting unconstrained transient demand for future dates into the mix.
To help hoteliers take advantage of unconstrained demand, nSight offers the Hotel Online Traffic Report. The predictive hotel analytics report benchmarks a hotel website’s performance against third-party websites. For a limited time, the report is available in a 60-day free trial. Go here to learn more and to sign up.