RMS of the future

I recently read Ira Vouk’s article “RMS of the future” and I think it’s the single best article about revenue management that I have ever read. Everyone interested in revenue management should read it, you can find it here

Here are some comments to the mentioned article.

Profit maximization

All RMS would say they are working in that direction, but they are not. The RMS should focus on fulfilling business ideas and nothing else. In most cases, it means increasing bottom-line profitability not reaching the highest RevPAR.

For a skiing resort that owns the hill and makes most of the profit from ski passes, the profit will be all about accommodating as many people as possible and forcing them to buy ski passes.

With this focus, ADR alone can never be the main objective. The RMS should focus on profit for each rate code, and the hierarchy should organize and rank how much profit they provide after considering both associated revenue and cost. 

Collaboration between departments

One question is why the departments’ collaboration is so poor? First of all, it is because the objectives need to be more holistic. Long-term bottom-line profitability must come first, and all departments must understand why. 

Everything starts with a shared vision of the market demand for each day one year ahead. It is very important to refrain from talking about the hotel’s occupancy. The one who takes that road is lost. It has never been a question of the occupancy for a specific day or even the RevPAR. 

With the knowledge of how the market demand will end, different departments can start to talk about how to mix the hotel’s occupancy with bookings that give the highest long-term profitability. Of course, this should not be done manually in the end. 

Still, before we do it automatically, all departments must know why it often costs bottom-line profitability to bring in a specific business. 

A significant part of the solution is to use a RMS that has a low enough deviation from the expected market demand for each day, that they are confident showing it. It should also be the most visible figure in the software, as it is impossible to take suitable action without it. All departments should see it, believe in it, and live after it.

The RMS should pick what should be open and closed each day, depending on what mix will lead to the best profit. Price My Hotel Room opens and closes rate codes automatically, not depending on the ADR but on what will bring the highest long-term profit.

Intelligent automation of meta CPC/CPA/CPS bids

In the article, the prediction is that hotels will get more direct bookings, giving away less to the OTAs. As a former hotelier nothing would make me happier.

If you are big, you have to be kind. I hope that Google will be just that. However, it differs from the standard capitalistic strategy, first obtaining a monopolistic situation and then raising the prices. 

As for the fact that intelligent fluctuation of meta bids will become part of the next-generation RMS optimization decisions, that is already true for some RMS. Here, however, I would like to place a finger of warning to the populism that Meta-data itself is the holy grail and gives the answer to everything.

Relying only on search data is not successful. It simply does not provide the complete answer to what the market demand will look like on all days for all markets one year ahead.

All other things being equal, the specific RMS with the lowest standard deviation between assessed market demand and the actual outcome wins. Without going in too deep into our machine learning of the future, metadata is one indicator among many that are good to use. Although many do not want to believe it or say it, well-trained and correctly used historical data are also suitable for future predictions, believe it or not.

Forward-looking destination data incorporated into forecasting

The RMS’s objective is to follow the business idea and ensure that the most profitable mix is ​​created according to the market demand. The forecasted market demand must be visible so that all departments can see and work together, and when the market demand is set correctly, forecasting is the easy part. We know what will be sold.

AI and ML-based algorithms

Of course, AI and machine learning must be used in a RMS. However, it is crucial to use it the right way. Many wrongly believe that AGI (Artificial General Intelligence) already exists, an AI that is so clever that it can produce a strategy by itself that is better than the strategy from yesterday, an AI that is not dependent on the human brain at all, an AI that is so smart, that it tells the shareholders the whole business idea and how it instantly should be changed. 

The collective AI research says that AGI will be here in around 50 to 200 years. No one is there yet, and if they say so, they are lying. However, already today, AI and ML are fantastic for teaching the RMS brain to predict the future much better and how to fulfil your business strategies. It is a philosophical question if we want AGI and a world where human beings are no longer necessary.   

Real-time integration with the system of record (PMS or CRS)

One of the essential variables of a price suggestion is “rooms left to sell”. Therefore, a direct connection between PMS (or CRS) and the RMS is necessary. 

We reject integration when the PMS can not deliver booking data in real time.

Calculations must run day and night and provide new data without delay. A suggestion that is based on old data gives you the wrong answer. Some of the RMS out there say that they are “real-time”, but when looking closer real-time for them means 4 times per day.

ChatGPT

For me, ChatGPT is a small step in the direction of going from AI to AGI, but, ChatGPT has still not a brain of its own, it feels like it, but it has not. It is ML and AI that are made better in their field than what we have seen before. 

It is more of a question to integrate as much good AI and ML at the right places in the RMS, but so far, it is still the human being that must design the infrastructure and tame it to avoid it going wild.

The future is already here

If you are as interested as me in revenue management, you are always welcome to contact me for further discussions.

Henrik Dahlbom, founder Price My Hotel Room

henrik@pmhr.se

+46 705 550855