Where Revenue Management is Broken | National Apartment Association

Where Revenue Management is Broken

Dr. Kelly McGuire, Dhar Sawh and John Pringle discuss revenue management trends on the Beyond Buzzwords: Real Improvements in the Revenue Management Customer Experience? Panel at the 2013 Apartment Revenue Management ConferenceAs expected, it was a no-holds-barred critique of revenue management’s fatal flaws in the airline and hospitality industries from Dr. Kelly McGuire, PhD and Executive Director, Hospitality and Travel Global Practice for SAS Institute during her presentation at the 2013 Apartment Revenue Management Conference.  “We need to be more strategic, more customer focused more technologically advanced. We are behind and we need to move forward quickly,” she said on the Beyond Buzzwords: Real Improvements in the Revenue Management Customer Experience panel that also featured Yardi Industry Principal of Revenue Management Dharmendra Sawh and JHP Consultants President John Pringle.“If we don’t do something soon in our revenue management practices,” McGuire said. “We will lose it.”

Of course, before an industry can fix the problem, there needs to be an understanding of what is broken or may break the system. “Market forces over the last 15 years changed the way a consumer buys and revenue management systems have yet to adapt fully to these forces,” said McGuire. “And social media has only compounded the issue. Consumers can now look to their peers for pricing information. There is no longer price transparency, it is now about value transparency.”

Disconnect between revenue management and marketing further compounds the issue, the panel said. In particular, the lack of communication between pricing teams, marketing teams and executive management creates confusion of what the final customer experience should be. While marketing is trying hard to create a positive consumer experience, a somewhat limited understanding of pricing and supply and demand can create the opposite effect by overwhelming the consumer with too many choices. 

“This is both the problem and the opportunity,” said McGuire. “We need to be more strategic, increase our presence and be more consumer focused. Revenue managers need to be asking about business strategies and why we are doing certain things in markets and with branding. This all influences pricing strategies and our ability to cut through the noise and be more effective.”

Improving effectiveness in the ever-changing consumer landscape can be daunting. Even as hyper-connectivity among consumers provides the opportunity to ask questions and engage through social media, it is also changing customer service expectations. Consumers are creating a market of 1: requiring revenue managers to know who they are and not put them into submarkets and subsets. “The customer experience changes from our internal need to optimize pricing,” said Sawh. “We [multifamily] aren’t yet at the single consumer data information and matching pricing, unit and amenities. From a revenue management perspective, that is how we can grow the customer experience and improve our pricing capabilities.” 

But is the multifamily industry really able to drill down to a market of one? With a relatively small data set compared to large volume transaction industries like hospitality and travel, there is actually the potential to lose visibility on the consumer by segmenting too much, which makes building value transparency and brand loyalty more difficult according to Pringle. “By example, I have not seen revenue management effectively deployed in lease up,” he said. “I have not felt comfortable trusting a pricing system by itself to reposition a community. I believe you need to be monitoring all the amenities as the data and parameters we give our systems are so limited.”

The panel additional touched on building social sentiments into value? In particular, even as consumers shift from using price as indication of quality to using reviews instead, the jury is still out on whether that data should be used on a day-to-day basis in pricing or in an overall strategy. But keep this in mind, research presented by McGuire shows that for every 1-point increase in a rating relative to a peer set, there is a 11.2% increase in pricing power. 

For more, download the Beyond Buzzwords: Real Improvements in the Revenue Management Customer Experience presentation.  

This information was presented at the 2013 Apartment Revenue Management Conference.


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