IHG Competing for INFORMS Edelman Prize

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HANOVER, MD, March 21, 2011IHG (InterContinental Hotels Group), the world's largest hotel group by number of rooms, is among six finalists that will compete for the INFORMS 2011 Franz Edelman Award for Achievement in Operations Research and the Management Sciences in Chicago on April 11 at the Marriott Chicago Downtown.

The finalists for the competition, sponsored by the Institute for Operations Research and the Management Sciences (INFORMS®), include:

IHG for “Retail price Optimization: IHG uses pricing and revenue analytics to drive key strategic priorities such as improving brand performance and generating excellent hotel returns.”

Since their widespread adoption by the hotel industry in the early 1990s, revenue management systems have evolved to become a key capability to optimize occupancy and revenue. A fundamental assumption of these systems has been that demand by segment---particularly rate segment---is independent. In effect, industry leaders assumed that demand was independent of the price offered. Under this assumption, the benefits of revenue management derived from optimizing the allocation of inventory when demand exceeded capacity. Prices were predetermined via manual processes using little or no analytics. Most recognized the fault in the assumption of independent demand, but revenue management worked well enough under normal economic conditions.

The hospitality recession of 2002--2003, when the industry suffered occupancy declines of 10%--15%, coupled with the growth and transparency of Internet distribution channels, motivated a reexamination of revenue management methods. IHG resolved to enhance its revenue management capabilities by relaxing the assumption of independent demand by segment and directly modeling demand as a function of price. In 2005, IHG initiated a series of projects that led to the development of a price optimization capability.

 IHG’s Retail Price Optimization is a significant, large-scale enterprise implementation of price optimization within the hospitality industry. This capability was designed to accommodate a globally distributed hotel organization with more than 4,000 users distributed with varied knowledge levels.

The key operations research components include a market response module and a price optimization module. The market response module computes price response models for each hotel. The team developed various segmentation schemes and facilitated a hierarchical implementation allowing segments with insufficient data to be estimated using aggregate data. The core price optimization module is innovative and new to the industry. Modeling demand as a function of price and competitor rates requires that the objective function is nonlinear. Additional decision variables accounting for length of stay significantly increased the complexity of the model. A special optimization method was implemented and rates are generated in an automatic fashion based on hotel capacity, forecasted demand, current bookings, and competitor prices.

Retail Price Optimization has been rolled out to more than 2,000 hotels globally, and benefits measurement studies point to a 2.7% increase in revenue. This number was verified and acknowledged in the IHG 2009 Annual Report.

IHG is the world’s largest hotel group based on number of rooms. IHG owns, manages, leases, and franchises through various subsidiaries over 4,400 hotels and more than 650,000 guest rooms in nearly 100 countries and territories around the world. The group owns a portfolio of well recognized and respected hotel brands including InterContinental Hotels Resorts, Crowne Plaza Hotels and Resorts, Hotel Indigo, Holiday Inn Hotels and Resorts, Holiday Inn Express, Staybridge Suites, and Candlewood Suites, and also manages the world’s largest hotel loyalty program, Priority Club Rewards with 56 million members worldwide.

Revenue Analytics is a leading consulting firm in designing visionary capabilities in pricing and revenue management for a wide range of industries. Revenue Analytics helps Fortune 500 companies make more money by selling the right product to the right customer at the right time for the right price.

The six 2010 Franz Edelman finalists are:

  1. CSAV
  2. Fluor Corporation
  3. The Industrial and Commercial Bank of China Limited (ICBC)
  4. IHG (InterContinental Hotels Group)
  5. Midwest Independent Transmission System Operator
  6. New York State Department of Taxation and Finance

This is the 40th year of the prestigious Franz Edelman competition. The winner will be announced at a special awards banquet on April 11, 2011 during the INFORMS Conference on Business Analytics & Operations Research. The conference takes place at the Marriott Chicago Downtown from April 10-12.

About INFORMS

The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. INFORMS serves the scientific and professional needs of operations research analysts, experts in analytics, consultants, scientists, students, educators, and managers, as well as their institutions, by publishing a variety of journals that describe the latest research in operations research. INFORMS Online (IOL) is at www.informs.org. Further information about operations research can be found at www.scienceofbetter.org.

About IHG

InterContinental Hotels Group (IHG) [LON:IHG, NYSE:IHG (ADRs)] is the world's largest hotel group by number of rooms. IHG franchises, leases, manages or owns, through various subsidiaries, over 4,400 hotels and more than 640,000 guest rooms in 100 countries and territories around the world. The Group owns a portfolio of well recognized and respected hotel brands including InterContinental® Hotels & Resorts, Hotel Indigo®, Crowne Plaza® Hotels & Resorts, Holiday Inn® Hotels and Resorts, Holiday Inn Express®, Staybridge Suites® and Candlewood Suites® and also manages the world's largest hotel loyalty program, Priority Club® Rewards with 56 million members worldwide.

IHG has almost 1,300 hotels in its development pipeline, which is expected to create 160,000 jobs worldwide over the next few years.

InterContinental Hotels Group PLC is the Group's holding company and is incorporated in Great Britain and registered in England and Wales.

IHG offers information and online reservations for all its hotel brands at www.ihg.com and information for the Priority Club Rewards program at www.priorityclub.com. For our latest news visit www.ihg.com/media, Twitter www.twitter.com/ihgplc or YouTube www.youtube.com/ihgplc.

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