Technology has irrevocably altered the relationship between sellers and buyers. Information transparency and accessibility has created a seismic shift of power to consumers, who now are empowered to shop – in just seconds, from home or wherever they choose – for the best product at the best price.
Yet all is not lost for sellers. Companies that have become adept at revenue management are discovering they can still win over hyper-informed consumers and price their products to drive organic revenue growth.
One company that has battled back in today’s transparent economy is Starwood Hotels & Resorts, which operates more than 1,200 properties under such brands as St. Regis, W, Westin and Sheraton. With guidance from Atlanta-based consulting firm, Revenue Analytics, Starwood installed an industry-leading revenue management system capable of optimizing prices at every hotel at every moment of the day.
Former Starwood CEO Frits van Paasschen and I recently discussed this transformation.
van Paasschen: In the wake of the financial crisis of 2008, we faced not only an economic recession but also a new, transparent economy for hotel rooms. This created the hyper-informed consumer, people who knew their alternatives even better than our General Managers did. We had tough decisions to make. With one hand, Starwood cut staff, painfully. With the other, we embarked on an ambitious multi-million dollar program of managerial jiu-jitsu, to use the transparency of the market to our advantage.
Cross: Today, more than half of all hotel bookings occur online. The market is completely transparent and instantly accessible through mobile devices. Hundreds of comparison sites like Hotels.com and Orbitz, along with the hoteliers’ own websites, make shopping comparisons easy. That also makes revenue management all the more critical.
van Paasschen: With the help of Revenue Analytics, we enhanced our revenue management capabilities to gather and evaluate competitive rates much as a consumer would shop for a room. Each day, Starwood’s price optimization system reviews and analyzes 3.9 million alternatives and then makes about 350,000 optimal rate recommendations. The system predicts the number of rooms we will sell as well as the percent of future demand we will capture based on current price positioning at each hotel. The goal: predict how the consumer will react.
The Bottom Line:
van Paasschen: Forecasting and pricing are fundamental building blocks to send consumers targeted offers. We know which hotels are trending below where we think they should be, who we should be targeting and what price the offer should be. At Starwood, we learned how to react with agility to hyper-informed consumers and to embrace them as a vector for profitability.
Cross: Hyper-informed consumers reach instinctively for comparison shopping sites Shopzilla, eBay, Nextag or Kayak.com. The search cost is negligible to the hyper-informed consumer, and the consequences for retailers are dire. The hyper-informed consumer has gained the upper hand. That’s a fundamental shift in power. Starwood adapted to it.