Marriott International: Group Pricing Optimizer (GPO)
The Problem
Marriott has a 20-year history applying revenue management to individual bookings. GPO represents a significant extension, allowing it to maximize revenue and profit from all of the hotel’s customers.
The Analytics Solution
GPO uses price elasticity models for each statistically derived market segment to recommend room rates for group inquiries. GPO has replaced the static target rates of the past with rates based on advanced analytics techniques that have resulted in revenue gains for Marriott. The rollout of GPO was accompanied by a critique tool that measures the actual results for a hotel against the optimal that could have been achieved with perfect hindsight. This critique tool gives Marriott a barometer with which to measure the success of GPO.
The Value
Comparing 2006 (before GPO) and 2007, two years with similar levels of demand, Marriott measured an increase in pricing effectiveness across the hotels adopting this functionality that amounted to an incremental $46 million in profit. Although overall demand fell considerably in 2008, preliminary analysis of year-end data shows pricing effectiveness remained at nearly the same level. Revenue per available room and average group rates are also higher in hotels using the new system when compared to non-GPO hotels.
GPO is now used by over 1,500 sales managers to sell nearly 200 hotels across North America. Sales teams are complying well with the rate recommendations, and customers are buying at the recommended rates, as demonstrated by the fact that contracted business that has been priced using GPO since its implementation is over $1 billion. Business booked through GPO has ramped up quickly, to the point that GPO-booked revenue in 2008 was 21.5% of group revenue for all managed full-service hotels in North America. Finally, the GPO rates are appropriately sensitive to changes in the hotel’s forecast. This is a critical factor when economic conditions change, as they did in 2008.
For customers, GPO enables Marriott to sell the way they want to buy. Customers experience faster response times when they call sales offices because sales managers are able to provide quick, finely tuned rates for multiple dates and hotels. In use for two years, GPO provides more than a room rate. GPO facilitates better communication of the sales strategy between revenue managers and sales managers. Beyond the recommended rate, GPO provides the answers to the next few questions a sales manager might have. It provides a range within which the sales manager is permitted to negotiate and additional information such as the probability of winning the business at the recommended rate, the comparative rate for an individual booking, and comments about local market conditions. For example, GPO can communicate that a citywide convention is driving rates over a specific period, or a holiday has created a need time. If the rate is too high for the customer, or if rooms are not available, it simplifies the identification of alternative dates or hotels.
