Industry Update
Opinion Article10 December 2020

How To Choose An RMS That Is Right For You?

By Ira Vouk, Revenue Management and Pricing consultant

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2020 has shown all businesses how important it is to not just recognize changes in the environment but to be able to quickly and efficiently adapt to those changes. Recent events affected the hospitality industry more significantly than other economic sectors. And just like after previous disruptions, the most adaptable and innovative hotels will thrive, leaving others staring at the horizon.

Unfortunately, most hoteliers are still working with the exact same set of tools they had pre-pandemic. However, the environment has changed and many legacy solutions that are built on old technology are no longer suitable for the new world we now live in. Right now, more than ever, hoteliers need to rely on a Revenue Management System that is based on intelligent algorithms and modern technology that would allow them to adapt to constantly changing demand and an uncertain future.

So whether your hotel company is just getting started implementing a new Revenue Management automation process, or you already have an established Revenue Management culture, now might be a great time to consider upgrading your tech stack.

There are a number of Revenue Management software solutions being offered on the global hospitality tech market today. They are all aimed at solving the same problem - to assist hotels with strategic revenue management decisions and improve operational efficiency. But they differ in many aspects: the amount of functionality they offer, the sophistication of the forecasting and optimization algorithms, the level of flexibility and adaptability, and much more.

How do you make the right decision when selecting a Revenue Management system for your hotel or your portfolio of properties?

First of all, my suggestion would be to steer away from viewing this project as a cost. It is not a cost, it is an investment that has a huge ROI associated with it. "Price" shouldn't be the first thing on your list of priorities.

Instead, ask the following questions:

1. Does the product provide the flexibility and automation required to deliver an optimal Revenue Management strategy for today's dynamic and uncertain market conditions?

Agility is key.

Agile means having the tools that are flexible enough to let you quickly and accurately fine-tune your strategy in response to market dynamics and shifts in demand. For example, delivering flexible segmentation and hotel configurations that can adapt to different hotel types, location types, business models and business mix.

It is also very important that the RMS uses an algorithm that is not rigid but rather is able to adapt to the changing market conditions (for example, to rely less on last year's data). That will help you navigate through the volatile demand easier.

Also, make sure that the RMS supports an Open Pricing methodology, which allows you to yield all segments, room types and distribution channels independently and in real-time instead of having a fixed BAR tiered rate structure or the conservative hurdle rate approach.

There are many different pricing models out there in the industry. However, it's been mathematically proven through scientific research that Open Pricing is the most optimal approach that drives the highest results (top line revenue as well as bottom line profits). This was proven in recent research conducted by hospitality professors at the University of Delaware.

2. Will this solution help you solve your business and Revenue Management needs? Or is it packed with features you will not use or, on the other hand, lacks important aspects of functionality?

Make sure that the RMS offers key components that help you deliver on your Revenue Strategy.

At the core of every RMS there is a module that is focused on the day-to-day Revenue Management decision making. As was mentioned earlier, it is best if it's powered by an Open Pricing methodology and based on strong forecasting and optimization algorithms that allow you to arrive at the most optimal pricing strategy for your hotel.

If you have a portfolio of properties - check to make sure that the product also includes enterprise strategy functionality.

If your property strongly relies on group and corporate contractual business - you will most likely also need a group business module that should be working in tandem with the core component to allow your properties to make optimal decisions for managing non-transient business.

And last but not least, there needs to be a forecasting/budget building tool with deep reporting functionality to help you focus on the overall high-level strategy and gain efficiencies across the whole organization.

On the other hand, you don't want to sign up for a bloatware that is packed with features you will not use.

Unused functionality distracts from product adoption and makes you less efficient . The best solution is the one that automates things that are best done by a machine algorithm (like "what if analysis" for example) while offering only those components in the user interface that will help you solve your business problems without distracting you. This leads to the next question...

3. Is the product user-frieFndly and intuitive and does it offer flexibility in "automation" vs "manual user involvement"?

We all know that not everyone loves full automation and also not everyone loves full manual control. Our research shows that most people actually prefer a combination of both, with flexibility to tweak it towards one end of the spectrum or the other.

Look for an RMS that offers that level of flexibility (what is also referred to as "controlled automation").

In addition, when considering a new RMS solution, make sure to ask about the renewal rates, average time from contract to deployment, as well as how long it takes the system to ramp up before it can be fully used.

Numbers always speak for themselves!

4. Is the RMS solution based on modern methods of data analysis, forecasting, and optimization? Or does it use a conservative approach that was relevant decades ago but not relevant in the modern dynamic world?

Using the right data, modern methodologies and algorithms that allow you to build the most optimal strategy for your business is crucial.

When market dynamics become volatile you can't rely on historical data. At these times, you need an RMS powered by an algorithm that is able to pick a strategy that is best for your hotel. This ensures that your forecast projections are made based on information that best represents the world/situation surrounding your business.

It has also been scientifically proven that when you combine the elements of machine algorithms and human input - this yields better results than either of those elements would produce on their own.

The most optimal approach is one that allows for the machine and human to work in tandem.

In addition, make sure to ask about the market signals that are ingested by the forecasting algorithm to identify strength of demand.

There are 2 types of data that are used by modern RMS algorithms: internal (micro data) and external (macro).

Internal data comes first and it is traditionally sourced through an API integration between an RMS and your PMS (bookings, transactions, availability, OOO rooms, group blocks, ADR, occupancy, RevPAR - in other words, everything that is related to your hotel's performance and booking dynamics).

However, in order to accurately assess demand fluctuations, internal data alone is not sufficient. External data is additional information about what is happening in the market outside your property that ultimately affects your hotel's performance. The most relevant market data types are:

  • Competitive pricing data from rate shopping providers (that allows to see what other hotels in the market are charging for any given day in the future)
  • Information about your hotel's and your competitors' perception in the market (reputation data, review scores, social media comments, etc.)
  • Competitive booking volumes from providers like Travelclick or STR
  • Web shopping volumes, regrets and denials that allow to identify patterns and anomalies in search volumes and web traffic

5. Is the technology in the cloud? Will it allow for flexible updates and continuous improvements to the product offerings?

While many RMS solutions are only just now migrating to the Cloud, it is preferable to look for one that was initially built in the cloud. A cloud-based solution is more adaptive and able to push updates quickly, which is crucial in a dynamic environment.

While cloud solutions may be different in what they offer, make sure to ask for the following:

  • Access to as many users as you like with no additional fees
  • Zero downtime
  • Frequent updates and improvements
  • Check to make sure that your data will be securely stored and handled
  • All products should be accessible on-the-go, 24/7, via any devices of your choice, in any corner of the world

And one more extremely important piece of functionality that is only offered by RMS companies that are built on modern tech - is on-demand optimization. It is very important to be able to instantly refresh the data and update your rates when you want it with a push of a button. Believe it or not, not all RMS solutions offer that ability. It is also important that those optimizations cover 365 future days or more.

6. And last but not least: will your RMS partner be able to properly support you through this journey, understand your pains and hold your hand when needed?

Make sure that the company has a good track record, industry expertise and is built by hoteliers and run by hoteliers with deep Revenue Strategy experience.

Proper support requires a team of experts who understand your pains, who know how to solve your business problems and how to support you.

Ira Vouk

    More from Ira Vouk

    About iRates

    iRates is a new-generation software-as-a-solution Revenue Management system that was developed specifically for limited service and middle-tier hotel properties. The tool was designed with these types of properties in mind. It addresses unique characteristics and requirements of this segment, based on years of experience in this segment.

    The extremely user friendly interface along with complete automation of the most important revenue management decisions allow even a junior level employee with no experience to drastically increase production and improve RevPAR. iRates employs the newest adaptive algorithm based on the theory of reinforcement learning that automatically adapts to each hotel's local market conditions and re-adjusts the strategy according to the demand fluctuations, with the goal to maximize the bottom line profits.The algorithm has been successfully applied to other industries but is unprecedented in hospitality.

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    Ira Vouk
    Co-founder at iRates LLC
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