Industry Update
Opinion Article11 February 2010

Demand Management: An Update*

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Bill Carroll | Senior Lecturer Marketing and Tourism

*In an article published in the Journal of Revenue and Pricing Management in 2007, (Vol. 6, 4-260-263), two faculty members from the Hotel School at Cornell, Assistant Professor Chris Anderson and Senior Lecturer Bill Carroll wrote a very insightful piece on the subject of demand management as it has emerged from its more traditional antecedents of revenue or yield management. What follows is a concise updated summary on that piece.

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Channel and Segment Focus

Demand management involves dynamically managing overall demand by optimizing the use of distribution channels to reach target customer segments, leveraging and enhancing existing customer relationships, and taking effective revenue management (RM) actions. Demand for rooms, seats, cars and services by business, leisure and group customers come from a variety of sources. These include loyal or repeat customers, corporate customers with negotiated rate programs, and professional and casual event planners. Business from these segments may come directly through a brand or contracted reservation centre/website, or through online and offline intermediaries. Intermediaries accommodate the wishes of individuals or influence their choices, usually for compensation. These intermediaries may also combine services of more than one travel provider in packages designed to meet consumer travel experience needs.

Applying demand management concepts involves tracking the propensity of customers to use each distribution channel and promoting services effectively through those channels to reach targeted customer segments. The role of the internet in demand management is just starting to be realized as travel suppliers are competing with online travel agents (OTAs) such as Expedia, Orbitz, Traveloctiy, etc. While many customers are still using OTAs to shop, they are subsequently buying offline or online with suppliers.

The increasing role of paid search and pay-for-position also plays a potentially critical role in demand and channel management. As well, the evolution of social media marketing (through Twitter and Facebook, etc.) and the use of smart phones may yet prove alternate direct distribution channels.

In this context, demand management includes tracking channel path accesses in order to asses channel value. Did customer access come from a search engine, an online (guidebook or other intermediary) web site, a destination (tourism) site, an affinity site, or some other site? Did the guest use a travel agent, a travel management company or a professional event planner? Was the access made by a loyal customer? Did it result in a booking? Was that booking incremental to the supplier, i.e., one that the supplier might not have received otherwise?

With such information, the most important demand management activity is possible: testing various demand sources to determine if revenue or even awareness can be generated which ultimately produces incremental net contribution. Expenditures on intermediary sites including fees and merchant margins, and on services marketing activities must produce or retain incremental customers, and/or effectively promote brand, image and reach to attract future customers to make them worth the investment.

Managing Relationships

For the purpose of generating future demand, demand management involves marketing to past customers and encouraging them to directly or indirectly recommend others. It also means treating loyal customers differently and more favorably when implementing yield management. Finally, it means reaching out to past customers in personalized ways during off-peak periods with attractive value driven packages and programs and maintaining control over availability posted with intermediaries during peak periods so that ‘loyal’ customers may use the inventory. Keeping the demand funnel full requires understanding where both loyal and new customers shop for and book services. In the case of the loyal customers, this involves understanding how customers want to book and making that process easier. It also means encouraging customers to book directly by phone, in person or online. This enhances the opportunity to treat loyal customers differently, i.e., more favorably, from the start of the shopping and booking process. It also means avoiding intermediary costs or fees that can unnecessarily deplete potential revenue. However, care must be taken to avoid the extremes of such disintermediation lest competitors capitalize on the potential negative reputation effects that can accrue through such activities.

Additionally, demand management operations include allowing loyal customers to self identify at the point of delivery or reservation through an easily accessible loyal customer database.

Hotel Demand Management and Distribution Channel Change

Below the surface of the current economic and behavioral tsunami pervading the travel industry is a major rip tide of change involving suppliers and intermediaries. Simultaneously, the discrete discipline of revenue management is yielding to demand management. The most dramatic change is in the hotel industry where pricing and marketing, along with channel and customer relations management (CRM), are being molded into a unitary format with systems that support decision taking primarily at the property level.

Hotel pricing decisions have historically been made at the local level and coordinated with sales activity. Now, depending on the type of property and destination, search and social media marketing decisions must increasingly be made at the local level and coordinated with pricing decisions. The more unique the destination and/or property, the greater is the need for search and social media identification and promotion. The use of social media such as Twitter and FaceBook, and on site management of small and large events with local sales forces, presage a major shift from chain to local control. It is rapidly becoming clear that the local property must be able to take a bigger role in its own outcomes.

Conclusion

Demand management is a logical expansion of traditional yield management. It raises the level of responsibility and activity of users from merely controlling demand at the bottom of the demand funnel to cost-effectively keeping the funnel full placing a more concerted effort on the marketing aspects of RM in an attempt to thwart the commoditization that exists due to price transparency. Moreover, its application defines how yield management is executed at the bottom of the funnel.

A Ph.D. economist, author and recognized expert in the areas of travel technology in marketing distribution and decision taking, Dr. Carroll is a Senior Lecturer at the Cornell School of Hotel Administration, teaching courses in economics, yield management, pricing and marketing distribution. He is also a Member of Cayuga Hospitality Advisors and CEO of Marketing Economics, a consulting firm specializing in travel industry pricing, distribution, yield management and strategic planning. With over 25 years experience in senior positions in the travel industry, he was the Division Vice President for Global Marketing Planning at Hertz, responsible for global pricing, yield management, marketing information systems, and counter sales. He implemented the first decentralized yield management system in the car rental industry and a comprehensive Executive Information System (EIS) that gained national recognition.

Malcolm A. Noden, the (Retired) Senior Lecturer in Management, Economics, Marketing and Tourism at the School of Hotel Administration at Cornell University, is a well known expert in the applied economics of hospitality and tourism policy, promotion and development. During his thirty-two year tenure at the Cornell Hotel School, Mr. Noden taught several courses including Resort and Condominium Management, Airline Management, Franchising, and two tourism policy and development seminars. Noden is a Managing Director of Cayuga Hospitality Advisors, the leader of the tourism division of the practice, and the Managing Editor of the Cayuga Hospitality Review, the quarterly e-journal of the consultancy.

Reprinted from Cayuga Hospitality Review. All rights reserved

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