Why Some Hotels Are Rethinking Software to Price Rooms and Extras

I like to keep an eye on travel tech companies that boost their revenue in seemingly profitable ways despite the pandemic-related crisis.

Listening to these vendors can provide helpful clues about what’s on the minds of hoteliers and other travel execs.

• But to be clear: When I summarize their viewpoints, I’m not saying these vendors are perfect. They’re not the last word on any topic, either.

This week, I listened closely to IDeaS.

• The key phrases I heard from its execs were: “automation,” “profit optimization,” and “providing offers to guests that are more relevant based on what we know about them.”
• Some backstory, first. IDeaS is one of the largest makers of software that helps hoteliers set their room rates.
• IDeaS grew its revenue and profit in 2020, year-over-year. It said it has had a similarly strong performance in 2021 so far.
• As a private company, it didn’t release specific financial numbers. IDeaS (once called Integrated Decisions and Systems) is a Minneapolis-based unit of SAS.
• I spoke with IDeaS’ top executives in late September. We met at the annual HITEC conference.

The pandemic prompted many hoteliers to change their approach to a practice called revenue management.

• Whether or not you like IDeaS’ revenue management products, the company certainly seems to have played its cards well lately.
• It’s worth summarizing what its executives are telling hoteliers about the future of hotel revenue management. Their message is topical now in the market given their recent traction, with 16,000 clients worldwide.

Here’s a short version of a possible future for hotel revenue management:

• Automation is one key tactic.
• Profit optimization is overtaking revenue management as a goal.
• Hoteliers want to provide more relevant offers.

Many hotels are automating back-end processes. 

• The labor and revenue crises are prodding many hoteliers to automate many manual workflows. In short, hotels have fewer revenue managers, and these managers are juggling more tasks and properties than before.
• Most revenue managers today are tweaking their strategies to thrive.
• “Hotel customers have shifted the conversation away from revenue managers just pricing guest rooms to them having complete automation of all the manual data entry that’s happening for everything that’s related, such as upsells and ancillary revenue,” said Stephen Hambleton, director of product.
• By ‘manual’ entry, Hambleton referred to how many hotel employees have to do data entry with conditional formatting in Excel spreadsheets. This work is less necessary wherever computers today can instead gather, standardize, and analyze the data on behalf of decision-makers.

Profit optimization is the new revenue management.

• “Hoteliers increasingly want to optimize their pricing for total profit after accounting for all the costs of providing a room and related service,” said Mike Chuma, vice president, global marketing, enablement, and engagement.
• “That’s a change from when they just were setting room rates based on supply and demand signals,” Chuma said. “When cash is king, you need to think holistically across the entirety of your organization.
• Hotels need to make sure every part of their organizations is singing from the same songbook. That task often means unifying or syncing company databases.
• For instance, a revenue manager might be tempted to offer a discount because of the limited information they see about how popular a destination might be on a given night.

Cyndi Lauper sang, “Money changes everything.” Hoteliers are currently singing, “Ancillary changes everything.”

• A hotel company needs the total cost picture to avoid making mistakes in pricing. Extras and upsells, known as “ancillaries,” are key to that.
• “The boards of directors of hotel companies increasingly want to know about the total picture that includes ancillaries, such as parking, etc.,” said Sanjay Nagalia, co-founder, chief operating officer, and chief technology officer.
• Sometimes it can be a mistake to discount an upgrade, such as a spa pass. That’s because sometimes providing the extra service erodes a hotel company’s bottom line profit at a particular time because of operational issues, such as a labor shortage.

Hotels want to up their game at making “relevant offers” to guests.

• Personalization has been a buzzword, but it’s still a faraway dream. Yet some hotel companies are getting halfway there. They’re doing this by becoming better at providing relevant offers to guests.
• To do this, hoteliers need to collect and properly analyze data on their customers. They also need to better match a guest with similar customers, sometimes known as “lookalike segments.”
• “Hotelier are asking how their CRM [customer relationship management] systems can become more intelligent and provide more helpful information to their marketing departments?” Nagalia said.
• Hotel companies must also better sync up the work done by managers of their distribution channels, such as online travel agency extranets, with the work being done by other teams.
• “Profit optimization is the ultimate goal for hotels,” said Ravi Mehrotra, president, founder, and chief scientist. “Data science and cloud-based software are finally making this dream more widely available as a reality. But some hotels need to reorganize and change some of their practices to gain.”

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