INTRODUCTION

This paper presents an overview of the future of revenue management (RM) based on interviews conducted with industry leaders around the world. Table 1 provides a list of our interviewees. Four major areas were identified as having the greatest growth potential in hotel RM:

1. integration of customer relationship management (CRM) and RM
2. pricing, segmentation, packaging
3. group RM
4. organisational structure.

Table 1 - List of interviewees.

Full table

Below we briefly expand upon each of these areas.

CRM AND RM

The integration of CRM and RM was a theme we heard repeatedly throughout our various phone calls. Yet, as stated by Tim Genovese of Intercontinental Hotel Group, 'Revenue management practices at this stage of the game do not take a great deal of relationship management into account, except for special corporate rates for volume accounts'.

However, industry experts see the integration of CRM and RM as one of the areas with the most potential for the future of RM. Puneet Mahindroo, with Taj Hotels, believes that it is becoming increasingly difficult for hotels to differentiate both their products and their pricing among their competitors. 'Amalgamating customer relationship management and revenue management will be critical for hotels to create new, more creative differentiation strategies'. John Riddel with PROS Revenue Management also illustrates this idea: 'Companies are going to need to focus more and more on total customer value and not on just the myopic perspective of one sale'.

The integration of PMS, RES and RM systems is still a challenge for many companies as the technology systems are not all fully compatible. 'Right now, we have a number of fragmented systems in the industry that try to play along well together', says Jimmy Suh from the PLC Group. Tim Coleman of the MGM concurs: 'There are tremendous problems of integration still today in the industry'. In the next few years, further collaboration among software vendors will need to take place in order to solve conflicts between systems, such as having different aggregation levels in customer segmentation. Further investment in upgrading and integrating systems will also help solve the current data management problems.

The analysis of customers' buying patterns based on their lifecycles can also be an interesting area for the future of RM, especially for hotel companies that focus on long-term relationships. For example, even if three customers have spent the same amount of money over a certain number of years, the buying behaviour of a 40-year-old married businessman may differ from a 65-year-old leisure traveller or a single 25-year-old female. Mahindroo argues: 'There are practical realities to face. If a customer has been supporting a hotel for many years, the customer has gone through many different life cycles. The question is how to assess which life-cycle is the most profitable. I don't yet have an answer for that question, but would like to'. Identifying the parameters by which the lifecycle can be measured and translating them into pricing solutions is a challenge. 'I would be interested in seeing a study that quantifies the life cycle of customers', Coleman acknowledged.

PRICING, SEGMENTATION, AND PACKAGING

Companies have recently started to realise the importance of pricing for revenue maximisation in addition to optimising inventory allocation. John Riddel argues that the discipline of RM should, in the future, be called price optimisation. 'You can't change rooms very fast but you can sure change the price. It gives you final control'. At present, pricing strategies do not make a distinction between customers' frequency of stay. 'Pricing is currently a commodity type of pricing, where a customer that has stayed 100 nights is quoted the same rate as one that stays only one night over a peak time', argues Tim Genovese.

Understanding consumers' buying behaviour and price elasticity in order to be able to charge the right price to each customer will become increasingly important. 'Yield management opens and closes each rate. The key question is what should the rate be', highlights John Higbie with Revenue Analytics. Tim Coleman further illustrates this point: 'The finer we can segment our market, the better we can target and get the right product in front of the right customer in the right channel at the right price'.

There is also much discussion in the field about one-to-one pricing as a future trend. This involves the ability to price each individual customer differently. Interviewees were asked whether they saw it as a future trend. Not everyone is in agreement as to its practicality. John Riddel believes that as we continue to understand customer buying behaviour, in the future every single customer will be charged a different price. James Ruttley, on the other hand, argues that the issue is not to have a particular price for each particular customer but more to identify what segment each customer is coming from. 'Getting down to that level of detail (individual customer) wouldn't necessarily make sense', he explains. Hoteliers seem to agree with Ruttley. Some leaders foresee that customer segmentation will only have smaller market groups in the near future. Genovese points out: 'Segmentation is only going to get larger but it will be a long time before it can get as detailed as one customer per segment'. Mahindroo also agrees: 'It (one-to-one pricing) sounds very good in theory. In reality, how can you achieve that? ... In the near future, we can only hope to provide customized offerings for a select group of preferred customers out of a database of a million customers'.

Tim Coleman provided a wonderful insight into one-to-one pricing when he said: 'You don't need a price for each customer. What's important is that customers feel that the price is unique to them'.

The industry agrees that dynamic packaging and pricing is a major future trend in RM. 'From a customer's perspective, it will be important that customers feel that the product, service and price they are given are based on their needs', says James Ruttley. Chris Bishop with Harrah's Entertainment explains: 'In the near future, customers will be able to use drop-down menus to choose if they want a bottle of wine in their room, use the spa or attend a show'. This will be particularly important for experience-sensitive customers, who can be offered a variety of options to choose from and charged accordingly with bundled prices. A key issue to solve is what the right price would be for each particular package to each particular customer. A distinction was made by Tim Coleman between making unique offerings to customers and making a customer feel special. The former is not necessary because it would involve getting to such a level a detail that even if technologically feasible, it would be operationally unachievable. According to Coleman, the key is to create the perception that customers are treated in a unique way, although technically it may not be the case.

GROUP RM

Industry leaders were also asked to comment on the main future trends of group RM. One of the areas where group RM is likely to grow in the future is in the area of group forecasting. 'Group revenue management should get down to the same level of detail as transient yield management and group-acceptance decisions should be made based on alternative group displacement instead of only transient displacement', argues John Riddel.

Taking into account the total value of a group and not just room revenues is an area that is getting more attention in the group business. Variables should be expanded to include size, room and non-room spend, length of stay, use of function-space, etc. Also, it is important to calculate the number of actual reserved rooms out of the total number of rooms blocked. Non booked rooms, no shows (wash), early check-outs in groups are a common occurrence. The later usually depends on the activities programmed by the company for the last day. 'Being able to forecast all these factors becomes critical', says Tim Coleman.

A possible current limitation in group forecasting may be technological. Systems at present are only able to take into account several variables at a time, argues John Higbie. Software vendors acknowledge that most present RM systems are not so powerful and are not fully suitable to compare the profitability of two groups as opposed to just looking at the opportunity cost of traditional transient displacement. Purveyors, however, are working on new and more complex group RM software solutions and progress will be seen in the near future.

The ability for groups to do online booking represents another challenge from a technological and a pricing perspective. Quoting small groups online is certainly more achievable than quoting large groups with different needs or groups that require more personalised attention. A problem to solve in online booking is the calculation of unconstrained demand. 'Every time a group makes an online request, it is used to calculate demand, which will necessarily increase the rates for the next group that tries to book an event during the same dates', explains Sameer Mehra with Oberoi Hotels. The convenience of the internet, however, makes online booking an attractive option for meeting planners and it is expected that more of it will be seen in the future.

ORGANISATIONAL STRUCTURE

The RM function is undergoing critical changes in hotels. Industry leaders were asked to define the optimal organisational structure of the RM function at hotels. Some favoured the idea of having a centralised RM structure while others argued in favour of having a local RM team.

Jimmy Suh, for example, argues that having a centralised RM team at the corporate office could be beneficial for the hotel as more skilled individuals are attracted to a single location, and are able to execute strategies more effectively. They can also receive a better compensation for their work. Along the same lines, Tim Genovese contends that as the RM function increases in complexity, less and less revenue managers will be seen on properties, especially small and mid-size hotels, because there will be fewer individuals with the necessary skill set that hotels can afford to have at each property. John Riddel further emphasises this point, highlighting the fact that RM in the future will need such specialised human capital that the function will have to become more and more centralised.

One advantage of having a centralised RM team is distributing the cost over several properties. With technology, remote RM is becoming increasingly more feasible. Moreover, it would help bring more revenues to all properties rather than each individual property maximising its own revenues. 'Demand can be shifted between properties, instead of steeply discounting prices in one property in order to steal demand from another property of the same chain', indicates John Riddel.

On the other hand, Bill Carroll with Cornell University is in favour of a local RM function. He argues that the nuances of the transient and group markets demand individuals who are knowledgeable on the specific area and market where the hotel is located. Having a centralised function with a single revenue manager for several hotels will deprive the RM function of a vital input, which is the knowledge of the market that being at the property provides to revenue managers.

Another point of contention about the organisational structure in a hotel is the interaction between sales and RM. This can oftentimes be conflictive as the departments may work towards achieving different goals. Most interviewees view marketing and RM in hotels as having equally important roles and working side by side to understand and fully integrate CRM and RM.

Regardless of the organisational structure, argues Tim Coleman, the leadership potential of revenue managers is paramount as the role gains more and more centrality in the organisation. Another aspect highlighted by interviewees was the need to make departments accountable for their decisions. Warren Lieberman with Veritec Solutions explains: 'Performance measurement is critical for maximizing the long-term impact of a RM team. Negotiation can take place but, later on, departments should be accountable for the decisions that were made through performance measurement'.

Going a step further into the future, some industry leaders are talking about a fully integrated RM function that oversees the marketing, sales, pricing and distribution functions of a hotel. Owing to the lack of individuals trained in both areas, and particularly, the need to change people's mindsets, this integrated structure is still a long way away. The RM function, however, is evolving at a fast pace. 'The position of director of revenue management is more often seen at hotels as they recognize the importance of the position', highlights Carryl Helsel with Inspire Resources. Before this can happen, companies need to recruit and train individuals who can competently respond to the needs of the RM function. 'Right now, hotels have purchased systems that they do not have a chance of fully exploiting because of the lack of sufficiently skilled personnel', argues John Higbie. Jimmy Suh agrees: 'A huge understated initiative in the industry is the need to start attracting more talented people and not only attracting them but placing them in the position in which they could oversee the decision-making process for some of the sales and marketing strategies'.

Extracting the full potential of technology ultimately depends on the people using it. Proper utilisation of systems is still an issue in the hospitality industry, as Kathleen Cullen with Inspire Resources well illustrates: No matter how sophisticated technology can be, a challenge of today is the lack of sophisticated users of the RMSs. Too many RMs believe that they can out-think the system. Many end up placing overrides on the RMSs without fully understanding the negative impact this is having on the system recommendations. This continues to a point of the RMS being blamed for a lack of proper recommendations.

CONCLUSION

Differentiating the product and service through CRM enabled companies to take better care of customers' needs. The future of RM calls for the alignment of marketing strategies with revenue goals in a more fully integrated manner to be able to provide customers with a customised product at a price they are willing to pay. How customers will react to increased scrutiny, dynamic pricing and a myriad of other situations is an interesting point for further investigation. It is foreseen that as much as technology has been the driver and enabler of RM in the last decades, the customer will be the driver of RM in the years ahead.