The World Cup games have started and as excitement builds I can’t help but think of the lessons that football can teach Revenue Managers. Here’s just a few.
Never underestimate your competition. Statistically speaking, no team in the World Cup has a 100% chance of winning any given game. Remember that Bulgaria beat Germany in the 1994 World Cup. I don’t have enough fingers or toes to count the number of RM meetings that I have sat in where someone says some variation of, “Our comp set is clueless”. That’s when I know the people around me are the clueless ones. If you underestimate your competition, you’re likely to think about RM issues very superficially and that will lead to mistakes.
Corner kicks almost never work. According to the book “The Numbers Game: Why Everything You Know About Football is Wrong”, corner kicks have little effect when it comes to increasing a team’s chances of scoring. The authors analyzed 8,232 matches in the major European leagues from 2005-2011. That’s an odd finding because most of us get very excited when our team is awarded a corner kick because of the prospect of a perfect header winding up in the back of the net. The brutal fact is that math is more powerful than myth, and the unbiased excitement that an owner or brand manager might feel about their property often times forces Revenue Managers into making rate decisions that are illogical and unprofitable. RMs should always know the facts so that they can temper biased excitement and irrational expectations.
Counter-attacks are effective. Based on our research, hotels are highly unlikely to change rates more than once for any given day. That creates an opportunity for those properties that change their rates right after their competitor. In other words, whoever changes the rates second is likely to have the final say. So don’t worry if your competitor changes rates, just worry about whether or not you will react.
On any given day, any team can win. Just because your property is at the lower end of the comp set does not mean that on any given day you cannot get bookings on or above your highest priced competitor. There are factors that lead to guest behavior, including bookings, which are not always rational and unbiased. Being at the top of the comp set on a day when you have a great market mix or have experienced unexpected demand is fine as long as there is a statistical expectation of selling rooms at that high rate. I worked with one three star hotel that sold-out a non-peak weekday night at 50% higher prices than their four star neighbors just because the conditions were right. The math said it would work and the owners were shocked when it did.
The cold kills goals. In 2013, The British Weather Services company tracked the goals scored versus the temperature for one night of Europa League play across European cities. The stats hint at the fact that the cold makes it harder to score goals. While this is a fun and oversimplified exercise, it does highlight the idea that there are macro factors that we should always take into consideration when analyzing any fact. Sometimes you can get caught up in the live action and forget to take a step back and think about a problem in context or even compare the problem to similar business challenges. For Revenue Managers, who rely mostly on very localized and myopic data, it is important to always keep a broad perspective on how global and uncontrollable events affect demand.
Robert Hernandez, Hotel Profit Engineer
Author Info: Robert Hernandez is an expert in the field of mathematical Hotel Optimization and Analytics. He has spent the last 17 years building data-driven forecasting and optimization models for companies in over 20 different industries, from tech to tourism. Robert possesses a very unique skill set including cross-disciplinary experience, advanced mathematical and analytics skills, data transformation, industry-specific knowledge and business-process improvement expertise. Robert began his career at the Walt Disney Company in Revenue Planning. Read More+