Pricing as a Competitive Weapon: How IHG’s Price Optimization Capability Revolutionized Pricing for Hospitality Craig Eister – IHG – Vice President, Global Revenue Management Dax Cross – Revenue Analytics – President Craig C i Eister Ei t Vice President, Global Revenue Management 2 IHG Facts Sheet • System Size – 4,437 hotels; 647,161 rooms, 1,275 in pipeline • 85% Franchised; 14% Managed; 1% owned • $20B in rooms revenue through IHG systems 3 IHG Revenue Management Evolution HIRO (1993) Inventory Optimization HOLIDEX Plus (1999) Global System Integration P i i ffor Pricing Profit (2003) Best Flexible Rate (BFR) PERFORM (2006) Rebranding HIRO Extended Stay PERFORM Price Optimization (2009) Optimize BFR and associated rates 4 $100 $100 $80 $80 PRICE PRICE Understanding the Opportunity – Traditional Revenue Management $60 $40 $60 $40 $20 $20 $1 $1 1 20 40 60 DEMAND 80 100 1 20 40 60 80 100 DEMAND 5 Understanding the Opportunity – Price Optimization $100 PRICE $80 $60 $40 $20 $1 1 20 40 60 80 100 DEMAND 6 Pricing Inaccuracies Increase the Opportunity Benchmark Rate too High $100 $100 $80 $80 PRICE PRICE Benchmark Rate too Low $60 $40 $60 $40 $20 $20 $1 $1 1 20 40 60 DEMAND 80 100 1 20 40 60 80 100 DEMAND 7 Creating The Value Proposition Foremost Challenge: Hotel Acceptance Price Optimization needs to be a “World--Class” “World Capability Belief that financial opportunity is significant Need to g get input from Owners / GMs / Revenue Managers g “Step in the Right Direction” won’t be accepted by Hotels Senior management needs to know impact at portfolio level Excitement about potential to re-establish credibility with hotels Must account for factors that hotels consider, especially competitor prices Desire to “Leapfrog” Competitors Benefits case at hotel level is imperative for acceptance Price Optimization could be “Huge Win” for IHG Quantification of Benefits is Critical Strong Desire to establish New Vision for RM at IHG Price Optimization could be a platform for launching this vision Price Optimization should be a Catalyst for Change 8 Building a GroundGround-Breaking Capability Research and Scoping • Researched models and analytics and developed proof-of-concept models • Used revenue opportunity modeling to calculate opportunity by brand / region Feedback Gathering • Global focus groups with over 50 hotel revenue managers • Working sessions with over 60 corporate & regional personnel Design and Prototyping • Developed Excel-based prototype for proof of concept • Tested by 18 hotels around the globe for 2-3 months • Proven 3.2% uplift in RevPAR Technical Design & Development • Coordinated development effort (Global IT / Global RM / Revenue AnalyticsTM) • Designing enterprise capability and integration with PERFORM and HOLIDEX Plus 9 Integrated Price Optimization into PERFORM to create a Next Generation Capability Demand Forecast Remaining Demand Forecast PERFORM SM Forecast Multiplier Competitive R t Rates Module Price Optimization • Rate Differentials • Business Rules • Overrides • Hurdle Points (or Open/Closed Rates by LOS) • Occupancy Forecast Market R Response Module BFRs by Room Type Hurdle Points (or Open/Closed Rates by LOS) • Optimal BFR • Competitive Rates User Interface HOLIDEX® Plus • Rates • Availability • Bookings OPERA PERFORMSM with Price Optimization 10 D Dax C Cross President, Revenue Analytics 11 Principle Challenge: How to manage the complexity? Seasonalit Seasonality Group Dayy of Week 76,000+ Pricing Decisions Per Hotel Per Day Competition Customer C t Feedback Occupancy Level Over 273 Million Pricing Decisions Across IHG Portfolio Per Day y 12 The Three Pillars of Price Optimization 13 Demand Forecasting requires precision and granularity Forecast Type Level of Detail Budget / Planning by Day • Room Nights and Revenue • Group vs. Transient • OTB and forecasted pickup Pricing by Day • Room nights • Group Gro p definites definites, tentatives and to-be’s • Transient rooms by segment • Retail • Corp • Package / Promotion • Account for room types Breakdown 14 Competitor rate changes impact market p position $229 $209 The Hotel California $199 Competitor Competitor Benchmark Benchmark $199 $192 $189 $159 15 Price sensitivity models how demand will respond p to changes g in price p positioning p g Demand d Modeling Demand as a Function of Price Pickup Pickup Low price sensitivity High price sensitivity Price Position How does the answer change for different segments? • Weekdayy vs. weekend • Direct vs. third p party y web • Season • Retail vs. package/promo 16 Price Optimization distills modeling into key optimization factors to ensure t transparent, t actionable ti bl recommendations d ti Key Optimization Factors 17 Practical pointers – Demand forecasting Reducing forecast error by 50% generates a 1-2% revenue uplift Replace “Last Replace Last Year” with a moving average Interact with RMS f RMS forecast t early and often • Ex: 4-6 week moving average by DOW Make your forecast price sensitive • Ex: Lower forecast if competitors are undercutting you on rate • Ex: Wash groups aggressively 18 Practical pointers – Competitive price positioning Don’t lead the way down! Track a benchmark rate Focus on 3-4 key competitors Ex: If competitors typically follow suit, a rate decrease won’t grab share Ex: A 20% rate reduction by one competitor may not require an equivalent response Ex: Top 3 competitors for transient retail business 19 Demand Practical pointers – Price sensitivity Low price sensitivity High price sensitivity Price Position 1. Perform market tests to assess price-response • Ex: Increase rate vs. comp set and measure pickup 2. Rate price sensitivity by segment 2. Conduct breakeven analysis for decreases • Ex: “High” price sensitivity on summer weekends • Ex: How many room nights must we sell to break even on a $25 rate decrease? 20 Craig C i Eister Ei t Vice President, Global Revenue Management 21 “IHG’ Price “IHG’s P i Optimization O ti i ti Capability C bilit Is The Greatest Single g Achievement In Revenue Management This Decade” Over 2000 hhotels O l on P Price i Optimization whose revenues are over $8B 22 “IHG’ Price “IHG’s P i Optimization O ti i ti Capability C bilit Is The Greatest Single g Achievement In Revenue Management This Decade” Measurable 2.7% 2 7% increase in RevPAR (2009 Annual Report) 23 “IHG’ Price “IHG’s P i Optimization O ti i ti Capability C bilit Is The Greatest Single g Achievement In Revenue Management This Decade” Fully deployed - $400M per year 5 Year NPV - $1.6B 24 “IHG’ Price “IHG’s P i Optimization O ti i ti Capability C bilit Is The Greatest Single g Achievement In Revenue Management This Decade” Continues to lead the innovation in the industry with respect to retail pricing 25 High Praise from User Feedback “Great Great Tool! Challenges you to question your pricing practices.” - Balazs Szentmary, Revenue Manager InterContinental Madrid “You’ve nailed it.” - Bob Krypel GM, Holiday Inn Memphis “Highest revenue week ever, aside from the Derby weekend, using the recommended rates of the tool. The GM became a big believer in pushing rate after he saw the revenues from the fi t night first i ht off the th week.” k” - Brian Cauwels, Revenue Manager Louisville Holiday Inn Express “I am now officially hooked on Price Optimization!” Optimization! Michael Tolbert, GM Holiday Inn Express, Express Bonita springs “It’s It s bloody brilliant!” brilliant! - Patrick Wimble Director of Revenue Management EMEA “We enjoyed “W j d using i th the ttooll and d ffeltlt it was a great benefit in terms of the discussions we had for Rate Management …Seeing all the information on the same page, i.e., occupancy, selling rate, competitors rate, t forecasted f t d occupancy and d then a recommendation was a real bonus.” - Kay Sawyer Birmingham Crowne Plaza, Birmingham, England 26
© Copyright 2024 ExpyDoc
