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Analytics Magazine

Marrying marketing and revenue management, Las Vegas style

March/April 2012

Kelly A. McGuireBy Kelly A. McGuire

It is more important than ever to join customer relationship management and revenue management so staff in hotels and casinos is proactive rather than reactive. Working together, these teams can form the deep and lasting relationships with customers while improving corporate performance.

Marketing is responsible for demand generation including campaign strategies, customer relationship management and loyalty programs. They own the customer, and hold information about preferences, purchase behavior and customer value. They know who the customer is and what offers they are most likely to respond to. Revenue management, on the other hand, is responsible for demand control, including setting rate and availability controls. They own the rooms inventory and hold information about price sensitivity and demand by property, market segment, date and rates. They know when and where demand is expected and needed.

Each department holds key pieces of information about demand that, when integrated, result in critical insight about demand patterns, product preferences and purchase behavior. Unfortunately, these two closely related functions do not always work well together. Misaligned goals and poor communication result in situations where marketing, with a goal of generating demand, sends out discount promotions that dilute rates during peak periods. While revenue management, trying to maximize revenue, closes off promotional rates meant to encourage stays from the most loyal customers. These activities damage revenue performance and customer relationships.

Current economic conditions have encouraged better communication between revenue management and marketing. Weekly demand planning meetings have become the norm for many firms. Departments that used to be siloed have been reorganized to report through the same director or vice president, resulting in better alignment of responsibilities and goals. This cultural and organizational change facilitates goal alignment and communication processes that form a foundation upon which a solid, integrated analytical strategy can be built.

Working together, marketing and revenue management help casinos and other hospitality businesses form lasting relationships with customers and maximize property-wide profits.

Getting Started

Technology can help to support organizational and cultural changes. Weekly meetings foster communication and prevent damaging actions, but the real world moves fast. In the current manual environment, a good deal of time is spent gathering data from multiple systems and formatting reports to be shared at these weekly meetings. If revenue managers and marketers are able to access key pieces of information generated by the other function in the systems they use every day, not only could routine decisions take place in real time, but data integration would mean that routine reports could be automated. Weekly meetings shift to strategic planning or to discuss “tricky” periods that fall outside of normal business rules. Analysts’ time could be spent in strategic analysis rather than pulling data and creating reports. Simple information sharing improves promotion placement, customer targeting and pricing decisions, and weekly meetings become more productive and efficient.

Working together, marketing and revenue management help casinos and other hospitality businesses form lasting relationships with customers and maximize property-wide profits.
Working together, marketing and revenue management help casinos and other hospitality businesses form lasting relationships with customers and maximize property-wide profits.

As the organization works through the cultural change required for truly integrated marketing and revenue management analytics, technology-enabled information sharing breaks down barriers and opens lines of communication. The data integration for reporting and decision support is only the first step in a longer journey. Advanced analytic opportunities exist on both sides as the journey continues to the end goal of innovation enabled by data and analytic integration.

Casinos Hit the Jackpot with Advanced Analytics for Marketing

Many casinos have loyalty or reward programs that enable them to gather detailed information about customer interactions with their firm. Others automate campaign planning functions so that they are able to intelligently segment and target customers based on their likelihood to respond. In some cases these programs are manual or in their infancy. The more detailed information casinos gather about every interaction with the customer, the better they can segment and target these customers. If the company has significant ancillary revenue sources such as casino gaming, spa, golf or restaurants, then customer spend across these outlets should be captured and integrated into the guest profile as well.

On the hospitality side, rooms are a profitable revenue source. Information about stay patterns, booking channels, room type preferences, geographic preferences and any interaction the customer has with your firm can provide insight about behavior, which leads to better promotion and pricing decisions.

Advanced analytics uses this detailed customer behavior data for:

  • Micro-segmentation to identify statistically significant subsets of customers with similar preferences and purchase behavior: e.g., eco-conscious families with children under 10 that travel in the summer and prefer to stay in the West or Southwest.
  • Market basket analysis to identify “missing” products: e.g., customers who stay with you as a business traveler, but never for leisure.
  • Social network analysis to find customers who influence other travelers behavior: e.g., every time a certain corporate customer stays at your property, he or she brings three other customers from the same company.
  • Likelihood to respond to determine which offers should be sent to which customers.
  • Lifetime value calculations to identify the most valuable customers.
  • Cross-sell/up-sell to determine which add-ons or upgrades to offer to which customers.

When this powerful information about the customer is integrated with demand patterns and price sensitivity analysis from revenue management (described below), proactive demand sourcing becomes a reality.

Advanced Analytics for Revenue Management

Revenue managers are responsible for setting rate and availability controls such that revenue is maximized across the enterprise. In the hotel industry, where room revenue is the primary revenue source, revenue management focuses on this highly profitable stream. In the casino industry, gaming revenue is a primary focus, and the hotel rooms support the gaming revenue. Many hotels and casinos are also beginning to move toward total asset profit optimization, where revenue streams from all ancillary outlets, including gaming and hotel rooms, are considered in the revenue management decision. Regardless of the approach, the limited capacity of hotel rooms is carefully managed in order to increase property-wide revenue and profits. The increasing sophistication of revenue management technology and revenue management practice provides continued opportunities for advanced demand analysis.

Careful analysis of demand patterns by location, date, room type, length of stay, market segment, channel and rate, as well as competitor price and positioning, provides a comprehensive view of demand and enables advanced analytic applications such as:

  • Contract evaluation to determine the optimal pricing for contract business.
  • Rate rationalization to determine the optimal mix of rates and rate plans for transient demand.
  • Channel management to know what prices and products to offer on which channels and when to open and close these channels.
  • Revenue opportunity modeling to track the performance of revenue management programs, comparing actual results to the theoretical optimal.
  • Non-traditional revenue management to apply revenue management techniques to non-traditional outlets such as meeting space, golf, restaurants, theater tickets and spa.

Marrying Marketing and Revenue Management Analytics

Bringing advanced intelligence from each function, the integration of the two becomes even more powerful. Deep insight about customer behavior combined with strong analysis of demand patterns across the system provides the opportunity to:

  • Incorporate total customer value in the RM decision: Optimize property-wide revenue by considering the total customer spend profile beyond the room rate (or gaming revenue).
  • Promotion demand forecasting: Incorporate expected lift from promotional activities into demand forecasts for an accurate picture of the impact of incentivizing demand.
  • Create dynamic packages: Allow the guest to choose the elements of the package, and then price the entire package appropriately based on forecasted demand for all components. Suggest alternate times and dates that would push demand to slower periods, while providing a lower cost option for the guest.
  • Next best offer: While guests are exploring your Web site or speaking with your agents, using the guest profile or searching behavior combined with pricing from the revenue management system, encourage conversion by creating an offer designed just for them. For unknown customer, browsing behavior on the Web site compared with experience with previous customers can provide the basis for an offer that they are most likely to accept, and revenue management data provides a profit-maximizing price.
  • Cross-sell/up-sell: Find opportunities to cross-sell or up-sell products based on customer preferences and the optimal price for those products based on demand.

With revenue managers and marketers pulling from one data source, communications with customers achieve a higher level of personalization and professionalism.

“By combining data mining and revenue optimization, our properties can allocate rooms based on the potential profitability of each customer and the opportunity cost of the room,” says Rom Hendler, chief marketing officer at the Las Vegas Sands. “Casinos and hotels using predictive modeling and revenue management are smarter about pricing; we wish all casinos were using analytics this way.”

Consider this scenario: Revenue management alerts marketing that demand is soft during weekends in February for leisure travelers for suites at the city center hotel in Philadelphia. The system has determined that up to a 20-percent discount off of the weekend rate would still maximize revenue for those weekends. Marketing reacts by developing a promotion that targets customers who are likely to book at that price during that time period, and stimulates just enough demand to fill the empty rooms. Promotional details are sent back to the revenue management system, which automatically incorporates the expected lift into the revenue management forecast.

Or this scenario: A customer is browsing your Web site for Caribbean properties, paying particular attention to diving and restaurants. While the customer is browsing a message pops up offering a package at the Turks and Caicos resort including six hotel nights, a dive trip and dinner at the resort’s new restaurant featuring the Caribbean’s hottest chef. The pricing for the package comes directly from the revenue management system, with date ranges that maximize the property profitability.

Without accurate intelligence from each department, these scenarios are simply not possible but, working together, marketing and revenue management are equipping employees as proactive decision-makers. This unbeatable combination helps casinos and other hospitality businesses form lasting relationships with customers and maximize property-wide profits.

Kelly McGuire leads the Hospitality and Travel Global Practice for SAS. Before joining SAS, McGuire consulted with Harrah’s Entertainment. McGuire has a Ph.D. in revenue management from the Cornell School of Hotel Administration.

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