The current state of the hotel sector
The race to exploit the large amount of data stored by companies has been very uneven across industries. The hotel sector is possibly one of the sectors that has not taken advantage of the boost in analytics in recent years unlike others, such as the travel sector, where analytical techniques have dominated the customer’s shopping experience. Today, Advanced Analytics in the hospitality sector is very important.
The hotel sector has been slow to respond to this revolution. However, consumption patterns have changed and customers have more accommodation choices available on digital platforms such as Airbnb or HomeAway. All this is forcing the industry to wake up from this lethargy and adapt to new times. Therefore, the sector will need to make a big push to adapt to the new times if it wants to improve its profitability.
Some of the causes are due to the outdated nature of their information systems, which are obsolete from a technological perspective. Today many of a hotel’s most important decisions are still made by hand through spreadsheets or poorly integrated systems.
In addition to changes in consumption patterns and precarious information systems, there has been a gradual increase in operating costs —by more than 25% in the last decade— and an increase in marketing expenses aimed at attracting customers. This is four times more than other industries, such as airlines or the car rental.
How to change this reality in order to be more competitive?
But this can change if they focus their efforts on improving processes such as:
- Sales, through more advanced pricing systems
- Logistics, through solutions for stock optimization
- Operations, by incorporating Workforce Management Solutions aimed at optimizing their operational costs
If we look at one of them, the sales process for instance, we see that hotels have traditionally used historical booking data to forecast future demand. But they are too imprecise to be used as a reference. Other variables affecting the sales forecast calculation have not been included. In contrast, companies in other industries such as Amazon or Iberia constantly analyze their information and incorporate other variables into the model to improve their marketing processes. Adding other sources to your room demand forecast such as competitive pricing information, airline information or relevant social media data can improve the sales process.
For example, if an airport has 30% more traffic than the previous year on a certain date, it is likely to have an impact on the demand for local accommodation. If there is an increase in bookings on Tripadvisor or Booking, it is very likely that demand for rooms for those dates will be affected. Or if rooms are being booked at a specific price, we can more accurately determine the price sensitivity of our potential customers. We can take this into account in our offer to increase our sales.
Analyzing the past to predict the future is no longer enough
We know that it is no longer enough to analyse the past to predict the future. It is necessary to apply predictive models that incorporate variables and rely on Prescriptive Analytics in order to optimize the price offered or to present a more personalized offer. Currently, we already have advanced analytical techniques that take all this into account. The algorithms are similar to the ones used by airlines.
Predicting future behavior based on the above data sources and customer value, we can apply mathematical programming techniques and operational research to create optimization models to calculate room prices.
By combining demand forecasting data and pricing algorithms, we can define much richer revenue management strategies than the industry is used to.
And this information ecosystem can be crossed with information from other actors such as travel agencies, airlines or search engines. This allows for a pricing approach beyond the traditional approach, which can produce great advantages for the hotel industry. Benefits of using Advanced Analytics in the hospitality sector.
The areas in which we can apply it are very diverse. In the case of the customization of the offer, it can be segmented by client, channel, room type and date. The process is similar to how other sectors apply optimization to marketing campaigns, such as banking or insurance. There are countless areas where these techniques can help improve business processes.
The application of Advanced Analytics is allowing companies in highly competitive sectors, such as Inditex, to make the difference. Companies in the hotel sector have the tools to optimize each booking, just as other companies use them to position themselves in their sectors.
It is time for this sector to promote innovation projects that will allow it to recover the margins lost in recent years.
