Welcome to revenue management's 'Soaring '20s'

One of the key trends behind the evolution of revenue management today is the unprecedented choice of options for travelers. Photo credit: IDeaS (IDeaS)

To understand why this is the golden age of revenue management, it’s important to look at some of today’s growing trends. In doing so, we can quickly see how these trends are inspiring this statement. 

If we look back in time, we can see the similarities in technological advances between the 1920s and today. In fact, beginning in the mid- to late 1800s, we saw staggering inventions that have since changed how we live, work and communicate. From electricity to the telephone and from moving pictures and cameras to the internal combustion engine, the world experienced advances like never before. 

Fast forward to the past 40 years and we can see a direct correlation to these advancements. The rise of the home computer, unprecedented access to information via the internet, the development of the mobile phone and the ability to take that information anywhere via the cloud, and now the unimaginable increase in the collection of data that has resulted in what we call business intelligence. These and many other breakthroughs have brought upon us a new “Roaring '20s.” In fact, it might be more appropriate to call them the “Soaring '20s” or the “Roaring '20s 2.0.”

Several trends are key in making this the “golden age” of revenue management. We see macroeconomic trends that will continue to be extremely positive for the next 15 years or so that encompass the changes in consumer behavior and demands for an experience-led economy. We are also in the middle of what is being touted as the Fourth Industrial Revolution, with technology improvements and the ubiquitous, mobile supercomputing that allows businesses to adopt the consumer experience-led economy. 

Let’s explore these trends in greater detail. 

Positive Macroeconomic Trends

We’ve seen a lot of positive news surrounding economic trends. One of the most important is the rapid expansion of the middle class over the next 10 to 15 years. The Brookings Institute reported the middle class has reached a tipping point and is currently around 3.6 billion. They estimate this will increase to 5.6 billion in the next 10 to 15 years.

Why is this important? The expanding middle class spends money in experience-related areas, like travel, amounting to $2.3 trillion annually. This in turn will support a doubling of international air passengers by 2037 according to the International Air Transport Association. 

Changes in Consumer Behavior and Expectations

In the past what people looked for was consistency, quality and security, hence the emergence of brands in the 1960s as people began to travel by air both in the U.S. and across developing countries. Obviously, over the last few years that has changed dramatically as the cloud, mobility and artificial intelligence have increased our access to information. Now instead of standardization and branding, people are looking for experiences that are relevant to their own lives.

Similarly, we are also seeing an expansion in the hotel industry. For instance, 81 percent of consumers are willing to switch from brand loyalty and select those products that can provide a more personalized experience. 

We see hotels responding in a variety of ways, such as the Seminole Hard Rock Hotel in Hollywood, Fla., which holds the unique distinction to be the first brand to build a hotel into the shape of a guitar. Obviously, this is very micro-segmented, targeting music and guitar fans. But I believe we will see more and more of these hotel types targeting micro-segments. Some of these include Nutella and Taco Bell popup hotels that opened last year in California.

In addition, there are many more examples of this type of micro-targeting, such as the convergence of Ikea with Jo&Joe, the Accor brand, in Vienna. This is a direct indication of hotel companies reacting to this trend.

If we harken back to days gone by, hotel brands were mindful about thoughtfulness, marketing different services, such as roomservice, in order to provide security and standardization. Previously strong barriers to entry have perished; fixed assets such as car fleets, hotels, bank branches and landline infrastructure have become weaknesses. Today we are obviously moving toward satisfying consumer demands of this experience-led economy versus products or brand loyalty. This is again driven by big brands, but also by a lot of independent companies.

So, we know this shift is happening, but what is the return on investment or result of such tactics? Statistics are showing us that 30 percent of hotels are experiencing higher revenues by delivering exceptional experiences. Why? Because research shows that if you meet consumer demands you can ask for more money—and people are willing to spend it. In other words, if you do deliver experiences exceptionally well, you can see direct revenue-related increases.

Of course, the trend that continues to grow is that of the unprecedented choice of options for travelers. Consumers now know they no longer need to stay in a box but can enjoy, sometimes at greatly reduced rates, experience-focused accommodations as evidenced by the plethora of choices provided by the alternative accommodation providers of the world.

But while they search, and as they travel and shop for experiences online, consumers are leaving behind more and more digital breadcrumbs. Google reports that there are more than 7,000 touchpoints over four months, including 534 Google searches, leaving a lot of data and actionable insights as they search. It’s a known fact today that all of that data will be very useful going forward, allowing companies that use it wisely to tap into the minds of potential customers. Based on this same research, Google reports that when you get customer-centric marketing right, it delivers conversions. When it’s effective is when it’s done right, with travelers spending up to 35 percent more when you meet their needs.

To find the right blend of rapid, personalized responses that detect or predict consumer behavior, cutting-edge brands are turbocharging their test-and-learn capabilities through automation, predictive analytics and machine learning.

Booking.com, for instance, uses a blend of digital technologies to personalize the customer experience in ways far beyond the capabilities of manual segmentation. Its tools in deployment include an artificial intelligence system that searches tens of millions of destination photos for fresh options to fit a customer’s preferences. Meanwhile, data-led experimentation and testing is at the heart of the company’s culture.

Three-quarters of the travelers in a Bain & Company and Google study continued researching choices after booking, while one in 10 canceled and rebooked.

According to Harvard Business Review, the greatest challenge companies face today is not keeping up with their competition. Instead, they find it challenging, and more critical, to keep up with their own customers. As already noted, today’s consumers are willing to switch their loyalty and go with brands that offer them the best experience, the most relevant product or service or the best personal experience.

Technology, the Biggest Driver of Them All

We’ve been talking about the advancements in technology for quite some time now. The advancement of the cloud, the vast oceans of data being collected on our online behavior and the artificial intelligence needed to sift through that data. 

We will see an increase in IT spending of up to $1.3 trillion by 2022 as a direct or indirect result of the shift to the cloud. We will see an incredible 175 zettabytes of unstructured data generated by 2025 and global spending in AI software will increase five times between 2020 and 2025.

As we look back to corporations such as Princess Cruises and Disney, we can marvel at the unparalleled personal experiences these companies are producing by bringing together all of these technologies. 

We also will continue to see an emergence and demand for more zero-click experiences such as that offered by Domino’s Pizza, with more and more consumers looking for this type of experience within the hotel and airline industries.

The Golden Age of Revenue Management

So how does all this relate to the golden age of revenue management? Let’s review—we have better technology, more sophisticated systems and more data than ever before, and we have macroeconomic trends that are very positive. 

We continue to see a convergence of technology and data in the cloud. But we are also seeing a convergence in revenue management as the tendency shifts into areas that were originally quite unrelated in order to become more closely integrated, and even unified as they develop and advance. This includes revenue management, distribution, sales and loyalty programs. 

Revenue management is akin to a GPS. In the same way the GPS combines disparate data sources to help accelerate decision-making through better science, the key to its effectiveness is trust. In the case of revenue management, the process is surprisingly similar, and each element is required to make the best possible decisions.

We also will see an expansion of personas beyond the traditional revenue manager. We are witnessing a movement that is leading into finance positions and eventually commercial leaders as we look at the convergence of revenue management, marketing, sales and distribution over the next few years. Successfully aligning these siloed realms of the commercial organization will be the key to driving total profit optimization. 

Revenue-management roles are continuing to evolve. In fact, we are beginning to see the rise of the chief commercial officer in the C-suite, as detailed here, a role that harnesses the entire commercial power of an organization and brand. We also are beginning to see a need to incorporate food-and-beverage forecasting into the mix in order to better align with overall revenue goals.

Into the Future

Fritz Lang’s classic 1927 film "Metropolis" predicted flying cars, elevated trains and futuristic cities by 2027. I’m not sure what is going to happen by 2027, but one thing we can expect in the next seven years is that revenue management will expand to more types of businesses, beyond just hotels. We will witness the expansion of revenue science into more revenue streams, from parking to food and beverage to meeting spaces and finally, we will see an ever larger number of personas make better, more rational business decisions through analytics as revenue management is applied to solve a wider range of business objectives and problems.

Not unlike the unbelievable emerging technologies that took place from the late 1800s to the roaring '20s of the 1900s, we are in the throes of exactly the same type of technological advancements the world experienced 100 years ago. 
With that in mind, let the “Soaring '20s” begin.

Klaus Kohlmayr is chief evangelist for IDeaS.