All Science, No Guesswork : The Benefits of Algorithms in Hotel Revenue Management

Dec 01, 10 | 1:58 am

By Jean Francois Mourier, CEO of REVPAR GURU

In the world of business, where systematic problem-solving and decision-making are the norm, the use of algorithms provides a wealth of advantages for hotel owners when it comes to managing revenue and increasing profits. The use of algorithms - which are defined as a precise rule, or set of rules, specifying how to solve a problem - can be a very effective way for business owners to accurately conduct calculations, process data and gather important information about the buying habits of consumers.

Particularly in the field of hotel revenue management, which heavily involves the application of different tactics to predict consumer behavior and optimize product availability, using algorithms allows revenue managers to solve problems with a sequenced, scientific decision that encourages the examination of wide ranging factors.  With algorithms, coming to conclusions becomes more of a rational process, producing better and more profitable results for the business.

Yet, many hoteliers are still skeptical of using algorithms, especially when they are the basis of new and advanced software that can come up with optimal rates and manage them across multiple channels, automatically and in real time. What these skeptics may not know is that we all rely on algorithms in many instances in our everyday lives. 

Did you know that airlines' onboard navigation systems which are used to navigate passengers along specified routes and land them safely, avoiding bad weather elements and other factors that may impede flight safety are based on algorithms? 

Did you know that every time you do a search on Google, an algorithm is used to generate the search engine results?

Did you know that the stock market also relies on software heavily based on sophisticated algorithms to trade millions of dollars every day?

And that's not all... did you know that mail carrier companies like UPS and FedEx also utilize programs based on algorithms, as do financial institutions, and even the military?

So, if we're willing to trust these algorithm-based businesses with our money, our mail, our information searches and our safety, why wouldn't the hotel industry put their trust in algorithms as well?

Maximizing Profits

By being able to come up with the most accurate information, the use of algorithms can help determine crucial information like demand for past dates and the average length of stays. Using algorithms, hotel revenue managers can also make forecasts and predictions more easily to ensure they are always selling their hotel rooms at the most profitable rates. Rather than simply accepting bookings as they come, the information generated by these algorithmic sequences affords hotels the opportunity to conduct their sales more strategically and reserve space for more valuable forecasted customers. This way, hoteliers can be ensured their hotel rooms are always selling at the highest possible price based on the current levels of demand.

On the other hand, in a market where supply is high and demand is low, the use of algorithms helps reduce the risk of hotels setting prices that are too high and having their rooms go unsold.

In the hotel industry, this is extremely valuable, as hotel rooms are a highly perishable commodity. Therefore, it is imperative that hoteliers plan strategically to make the most of their sales and ensure that their rooms aren't going unsold as each hotel night unsold is revenues lost for the property.

Decreasing Errors

Much like in the process of buying and selling stocks, hotels constantly face the challenge of selling their rooms to the right customer, at the right place, for the right price, at the right time. While this sounds like a simple enough idea, how can a hotel make sure it's getting to these potential customers at the right time? This is where the use of algorithms becomes essential.

The best approaches to revenue management in fact, include those that use RevPAR as the dominant metric and utilize systems that can enhance revenue managers' efficacy, rather than making them spend all their time manually keeping track of never-ending calculations and pricing updates.  With an  automated  revenue management system that determines information using complex algorithms, as well as continuously managing information 24/7, revenue managers now have the opportunity to think proactively, not reactively and focus more on optimizing processes and developing and implementing long-term pricing strategies that are most beneficial to increasing revenue.

So what are you waiting for... isn't it time that you implemented algorithms into your hotel's revenue management strategy?


About REVPAR GURU

REVPAR GURU provides hotels around the world with an alternative revenue management software solution, designed to deliver maximum bookings and profits. As REVPAR GURU's custom-designed Yield Dynamic Price Engine is the only real-time revenue management software available on the market, it meets the rapidly changing needs of hotels in a very demanding business environment.  REVPAR GURU's  solution offers dynamic rate optimization, real-time pricing, integrated internet and extranet yield channel management and GDS sales distribution, to increase a hotel's RevPAR intelligently and effectively, while maintaining rate integrity and automated rate parity. Since 2004, REVPAR GURU's software solution has been used by hotels worldwide to increase occupancy and RevPAR.  Headquartered in Miami, Florida, additional information can be found at www.revparguru.com or by calling +1.786.478.3500.  Follow REVPAR GURU on Twitter, Facebook, LinkedIn or YouTube.