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Look Ahead, Not Back, to Forecast Demand

Look Ahead, Not Back, to Forecast Demand

For years, revenue managers and hoteliers have typically forecast demand by looking at historical booking information and then the pickup or pace of ongoing reservations leading up to an actual stay date. By charting past and present, hoteliers have been able to get an idea of how much future demand there will be for any given date. This is important to not only establish room rates to maximize revenue, but also for operations teams to set staffing levels.

While those sources of data are critical, they are also incredibly limiting. By utilizing only historical and current bookings, hoteliers may get a decent view of future demand for the next month or maybe two. But when very few reservations are on the books, it’s hard to predict much further out. Fifteen years ago, before we even had a name for online travel agencies, that was more than enough information to run a successful and profitable hotel.

In today’s competitive and complex environment, it’s not. Not when OTAs are using more sophisticated information to sell your hotel rooms and charge a higher commission. And not when there is a wealth of readily available data that can not only augment, but also improve your forecast.

It’s time to look beyond inward- and backward-looking data and better understand what unconstrained demand really is. It’s often defined as the forecast or number of rooms a hotel could sell if it had an unlimited supply of rooms. But to measure that, most hoteliers are looking only at the world of people actually purchasing rooms at their property. Unconstrained demand has really been measuring unconstrained purchases and not all consumers who are shopping and convertible.

True unconstrained demand—not just those buying but everyone potentially shopping—is more measurable and predictable today with the wealth of new consumer-centric data available.

Competitive pricing information has become a valuable piece of the puzzle, but it alone is not enough. Tracking the prices of a hotel’s competitive set provides insight into market demand, but other data like local events, flight arrival information, social reviews, web shopping data, and even weather can paint a far more accurate picture of true unconstrained demand.

Events, which any good revenue manager takes into account, are an obvious source of potential demand. If a new festival attracting 100,000 visitors is announced for next summer, a whole new world of potential buyers will be entering the market for those dates. Forecast demand—and pricing—should increase even before a noticeable pickup is seen.

Tracking flight arrival information is another way hotels can also see if and when additional visitors will be in town. If there are twice as many inbound travelers expected compared to another day, for example, demand for hotel rooms should increase as well. The same can be true for weather, especially in resort or seasonally driven markets. If the five-day forecast calls for warm and sunny weather in a beach town, but the drive-from market three hours away looks cloudy that same weekend, it is likely short-term demand will increase for those beach resorts.

Social reviews and ratings can also be an important factor in consumers’ booking behavior. If one property receives consistently strong reviews in comparison to a struggling neighbor, the better-rated property will get more business if all other factors are equal.

Tracking web shopping data—consumers not only booking on a hotel’s website but also those abandoning before booking or being turned away because of availability issues—adds even more visibility. If you’re only tracking actual bookings, two similar dates may have had three reservations made on the hotel’s website. By looking at the universe of those shopping, you can see how completely different the dates might be. What if one had three conversions out of 100 people shopping, while the other had three out of 10? Observing actual customer shopping behavior and comparing looked vs. booked data is the best way to measure true unconstrained demand and price elasticity.

By going beyond just guests purchasing rooms and looking at new sources of data, hotels can see further and more accurately into the future and start capitalizing by improving marketing, revenue management, and operational efforts.

About the Author
Patrick Bosworth is CEO and a co-founder of Duetto, a hotel revenue strategy technology company based in San Francisco.

Photo credit: Looking for the Future via Bigstock.

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