Carlson Hotels Maximizes Revenue Through Improved Demand Management and Price Optimization in Collaboration with JDA Software Group

The Problem

Global economic conditions in 2012 have not only led to fewer sold-out nights for hotels, but also contributed to customers being more sensitive to the prices they are paying for rooms. Because of increased price transparency via the Internet, customers can now easily compare prices offered by different competitors. In this highly competitive environment, Carlson Rezidor Hotel Group identified major shortcomings in their traditional revenue management systems, such as depending heavily on busy nights for their benefits and using complicated length-of-stay controls, that prevent time-pressed hotel operators with coming up with optimal pricing.

The Analytics Solution

Under changing market conditions for hospitality, Carlson partnered with JDA Software Group to use analytics to drive higher revenue for its hoteliers and to stay ahead of the competition.  Carlson and JDA decided to pursue an innovative revenue optimization project, SNAP, which stands for Stay Night Automated Pricing.  The SNAP project started with enterprise demand forecasting, which utilized multiple linear regression-based hierarchical time-series forecasting techniques in the JDA Demand solution, which is used by more than 400 companies worldwide. This initial phase went live with 600 U.S. properties in 2007.

For the next phase, JDA designed a large-scale network optimization solution, in collaboration with Carlson, to dynamically optimize stay night rates based on price elasticity of demand, competitor rates, remaining inventory availability, demand forecasts, and business rules. The solution was supported by supplementary modules, such as a discrete time simulator for evaluating the expected bookings to come at the current rates, a constrained regression module to estimate best weightings for each competitor, and a market reference price computation module to estimate the willingness of customers to pay, given the competitor rates. This solution was designed generically across industries and later implemented in other travel and leisure industries such as passenger rail, luxury yacht rental, and golf.  The whole North American estate, approximately 650 properties, was using SNAP by March 2011.

The Value

Starting from the optimization prototyping results in 2008, the Carlson consistently measured a 2%–4% revenue improvement in compliant hotels over noncompliant ones. Detailed analysis of the price recommendations demonstrated the quick response of the solution, ahead of the competition, to move rates up or down for all nights, particularly for nights that achieved more than 95% occupancy at the end. To date, compliant hotels increased revenue by more than $8 million annually. After a successful deployment in the Americas, Carlson extended the partnership with JDA to roll out SNAP globally with an initial focus on Europe, the Middle East, and Africa, as well as Asia Pacific. Price optimization is now part of the attractive package of services that Carlson provides to its franchisees, and this capability is a critical component of its aggressive 2015 strategy, which entails growing its global portfolio to more than 1,500 hotels by 2015. The worldwide revenue from the solution is expected to exceed $30 million annually.