Forecasting has always been a valuable tool for revenue managers. However, given the uncertainty that the hospitality industry has experienced over the past few years as a result of pandemic-related travel restrictions, it is now more important than ever to be able to predict and adapt to demand and market fluctuations.
Let’s take a look at 6 forecasting tips to help you manage uncertainty in the hospitality industry.
Identify demand trend changes
When you create your hotel forecasting reports, make sure you analyse your current performance and compare it with your internal STLY (Same Time Last Year) performance. This will help you to identify patterns and predict potential changes in demand.
Once you’ve spotted a historic demand trend, you can focus on identifying what the underlying cause might be. The best way to do this is by analysing the environment in which your hotel is operating. For example, demand trends might have arisen because you have changed your pricing strategy, or because a new competitor has entered the market. Changes might also have occurred because the macro-economic climate is affecting demand, there was a major new event in your town, or even because an event that happened last year hasn’t been held this year. Any small change in your environment is bound to have an impact on your demand.
Compare historical data with market trends
You also need to understand how to weight historical data and market trends in your forecast calculations. In other words, you need to decide which data are most important at any given period: current market trends or historical data.
There are two main factors that will impact this. Firstly, it will depend how far in advance you are calculating your forecast. Essentially, the further you are from the period of time you are attempting to forecast, the more you will need to rely on historical data. This is because you have no way of knowing how the current climate will change between now and your forecasted period. In turn, the close you get to the period of time you are forecasting, the more relevant market trend will become for your algorithms.
Secondly, it will depend on the environment in which you are operating (especially the current economic situation). For example, comparing OTB and STLY was a waste of time during the pandemic as hotels were experiencing an unprecedented economic climate. Historical data was therefore irrelevant and meaningless. Instead, hotels had to shift their focus to current market conditions in order to attempt to predict demand. In contrast, during times of economic stability, it is far easier to confidently expect historical market conditions to replicate themselves.
The most effective way to monitor both your historical data and current market trends and determine which holds more weight at any given time is by using a Revenue Management System to keep track of your data on a daily basis. That way, you can ensure that you are always prepared for any predicted uncertainty in the industry.
Another valuable strategy to help you handle unpredictable demand is market segmentation. This is where you break down your customer base into defined segments in order to identify your most profitable guests. You can then create tailored segmented pricing for each guest profile.
This is an effective strategy for forecasting because the more you get to know the demographics of each segment of your customer base, the easier it will be to understand and predict demand.
Make sure you analyse the behaviour and booking habits of each customer type. This includes who they are, how they book, how long they stay, and which ancillary services they are interested in. That way, you can accurately forecast their demand and create strategies that appeal to each segment.
It’s important to include your price/quality positioning in your forecasting reports. This is the level of perceived quality that your hotel offers compared to the prices that you charge. In other words, whether your guests believe they are getting value for money when they stay at your hotel.
At BEONx, we have developed a unique Hotel Quality Index™ (HQI™) that enables you to assess your hotel’s perceived level of quality so that you can make the necessary adjustments to your prices and market positioning. The system uses an advanced algorithm that understands how weight should be given to historical data at any given time, in line with changes in customer behaviour, competitor pricing, and predicted demand trends.
Use the right technology
Perhaps the most vital element of any forecasting strategy is having access to the right data. And the only way to get hold of the data you need to accurately predict future demand is by using the right tools and technology.
For example, you need to make sure you are using revenue optimisation software to collect and analyse historic and external market data. The right software should enable you to track performance data in real time and create realistic and accurate forecasts. That way, you can effectively anticipate demand and make the necessary data-driven adjustments to your pricing strategies.
Find alternative revenue streams
Finally, in the words of renowned management consultant Peter Drucker, “The best way to predict the future is to create it”. And this means finding alternative revenue streams to boost your total revenue growth.
Instead of focusing exclusively on room revenue in your forecasting analysis and reports, make sure you also take into account your ancillary services. For example, are there any historic patterns in the services that guests use? If so, try to identify why specific ancillary revenue streams are more profitable during certain times of the year.
The more you focus on finding and promoting alternative revenue streams, the less your total revenue for the year will be impacted by market uncertainty and demand fluctuations. And that will help you create secure, long-term revenue growth, even when market conditions are not in your favour.