AWS for Industries
The future of revenue management: An interview with Ben Vinod, revenue management author and expert
We frequently ask travel and hospitality companies, including airlines, hotels, travel sellers, ground transportation companies, and more, “What is your focus now that demand for travel is returning?” Invariably, they answer, “Improve our pricing strategy and sales, and enhance our revenue management (RM) capabilities.”
We decided to dive deep into these topics and put together the ebook “AWS for RMS: Modern Revenue Management on the Cloud.”
While writing the ebook, I sat down with my friend Ben Vinod and asked him about his views on the topic. Ben worked in the travel industry for over 3 decades at Sabre and American Airlines, and he serves on the editorial board of the Journal of Revenue and Pricing Management.
Ben, thanks so much for talking to us. Can you please tell us why RM is so important in travel and hospitality?
Over the past 2 decades, the industry has seen tremendous growth worldwide and matured into a fiercely competitive marketplace. Brand recognition and customer loyalty are synonymous with a successful operation.
How you sell your products and serve your customers is what defines a company brand. RM is the process of selling the right product to the right customer at the right price at the right time to maximize revenues.
One of the biggest challenges facing the industry is to preserve margins, given the cost of customer acquisition. A modern RM program is no longer considered a luxury in the industry. Instead, it’s a necessity to respond to competitor actions with agility to retain and improve market share without the risk of revenue dilution.
What have you seen, and what is happening today on the RM front?
Hotels and airlines are faced with business and technology challenges to adopt RM effectively at scale.
The business challenges include:
- Level of control of the RM process to manage inventory
- Alignment with corporate objectives for strategic agility
- Implementing a consistent and repeatable business process
- Access to industry data for fact-based decision-making
- Control of customer acquisition costs through the various channels of product distribution
There are also several challenges related to technology and the digital revolution. They include:
- Addressing outdated technology, legacy hotel central reservations systems (CRS), property management systems (PMS), passenger service systems (PSS), and RM systems
- Developing a single image of inventory between the hotel CRS and PMS/PSS for a single version of the truth
- Maturing RM sophistication, intelligent retailing based on context for travel and personalization
- Adopting cloud deployment as a competitive strategy to minimize operating costs and address continual deployment using on-demand compute power during peak transaction processing periods
Today, RM is central to the digitization and personalization of products based on a customer’s unique preferences and provides a competitive advantage.
What is the future of RM?
There are two broad themes that will dominate the future of RM in the industry. They are attribute-based room pricing and personalization for a segment of one, the individual traveler.
Let’s take the lodging industry as an example: Attribute-based room pricing and inventory control represent the future of intelligent retailing in the lodging industry. This new framework provides an opportunity to offer infinite bundles along the price-demand curve to maximize revenues. With a focus on selling experiences instead of rooms, this new approach to retailing also increases customer satisfaction because customers can purchase exactly what they want.
This approach to retailing requires mapping of the fixed room attributes to individual rooms. Examples are rooms close to the elevator, the top floor of the property, a king bed, two queen beds, a single queen bed, oceanfront rooms, ocean view rooms, mountain view rooms, connecting rooms, and so forth. Flexible attributes in a room are a printer, yoga mats, exercise equipment, a Nespresso coffeemaker, and so on. Early check-in and late checkout also qualify as attributes for the booking. Room attributes might or might not have a price attached to them. Based on the customer request, the bundled price is calculated dynamically to determine the total price of the stay.
Attribute-based room pricing requires enhancements to the reservations process. It has to support rate simplification, where all rates can be derived from a single reference rate. Hotel shopping algorithms must be enhanced to support attribute-based shopping where hotels can be displayed during a search based on the room attributes selected by the user.
How do you think the cloud, and specifically AWS, can help customers accelerate attribute-based pricing and personalization?
The competitive differentiation for the product lies in leveraging the vast resources available with cloud providers like Amazon Web Services (AWS). AWS, for example, can be used to migrate, build, calibrate, and deploy components of an RM system.
The benefits of migrating core components of a hotel’s and airline’s operations to the cloud—such as their CRS, PMS, PSS, and RM system—are reducing the cost of compute, avoiding investment in a dedicated or shared data center, eliminating deployment to address time to market, facilitating dynamic compute capacity during peak periods, and avoiding hardware-related capital expenditures in favor of monthly operating costs.
Then come the building and enhancing of current RM techniques.
However, probably the biggest issue faced by an organization is how to adopt artificial intelligence (AI)–enabled applications at scale instead of sporadic one-off initiatives that might not have the commitment from the executive team. Corporations are frequently faced with challenges such as knowledge transfer associated with cloud computing and rapid deployment of applications, not having the right data architecture, expertise to operationalize models, and executive sponsorship to accelerate adoption.
That is where AWS can help by providing off-the-shelf services, a comprehensive machine learning (ML)/AI framework, quick access to first- and third-party data, and operational expertise.
Learn more about RM
You can find more of Ben’s vision on ML/AI, customer segmentation, and RM in our new ebook, AWS for RMS: Modern Revenue Management in the Cloud.
If you want to know more about Ben’s work, please check out his books on Amazon: The Evolution of Yield Management in the Airline Industry: Origins to the Last Frontier (2021) and Revenue Management in the Lodging Industry: Origins to the Last Frontier (2022).