Transcript (in English)
OK, I'm Cindy Heo. I'm an Associate Professor of Revenue Management at EHL Hospitality School, and I'm doing several research projects and also providing some industry consulting services about revenue management strategy for tourism and hospitality companies. I said I'm an expert in revenue management and as a revenue management person, I can see that revenue management has been effectively and successfully implemented in airlines and hotel industries. But its application to the small and medium enterprises and tourism businesses are very limited so far, and I think it is mainly due to the insufficient level of digital transformation within SMEs.
Actually, I am just starting some small projects with some tourism enterprises. So, they are not in the hospitality industry, they are in the tourism sector, but they are starting to use some revenue management approach. So, I could see, you know, I had some conversation with industry people, and I realized actually because of Covid-19, you know the pandemic accelerated the digitalization of the workplace in many ways. But at the same time, it also widened the digital skill gaps, especially among SME tourism businesses. So, if you look at the industry, actually even small businesses are using several digital tools already, right, to improve their operational efficiency. For example, you know we are very, you know, frequently using the booking system - to book some small tour services or other travel-related services. And also, small businesses use some kind of digital tools to manage inventory or to kind of automate their administrative tasks.
However, I see they are not really fully realizing the benefits of data analytics, right? Because it is useful for gaining insightful information in terms of the customer behavior and preferences and that actually can help their business strategy and improve their like digital-making process. So, if we're looking at revenue management, actually it's heavily relying on the understanding of the customer behavior and the preferences to find the revenue opportunity. And I think that is the missing part for especially SME businesses. But when I talk to the industry, right, small businesses, tourism industries, actually, they already have many data. They just say like they are using a reservation system, right? So, the data are there but they are not really utilizing them. And I see the data, you know, like, you know, stay as a dot here and there, right? So, if they really like to have a valuable insight, the first step is to integrate data from the different data sources into one, right? And also, many people think that the data is the quantitative data. It is useful, but we can also have more in-depth insights from qualitative data as well.
So, one of the examples: we know the importance of customer review. But customer review is only one side, and I can say it's more passive, only extremely happy customers or extremely unhappy customers will leave a review, but then it's their voice. I think it should be a more active approach to gain customer insights, and then the data should be cooperated with quantitative data, right? And, you know the big data analysis has been a buzzword so far, but I'm not a big fan of big data, especially for small businesses. But instead, I think deep data analysis is more relevant for small businesses, so don't look at just the number as you know, just the transactional data as a number, but it is needed to find the meaning. And the meaning can be obtained when they link the data with more, I would say, qualitative data in a one basket. So that would be the first step they can start with, and when they are able to understand the whole picture, they can find that it's not just operational efficiency, they are able to find some new additional revenue opportunity. That's how I think the revenue management practice can help the small businesses and it's not only just efficiency but improving business performance.
You know, I applied revenue management to restaurants, and I wrote some book chapters about restaurant revenue management, and I wrote articles about revenue management for theme parks. But I like to focus on really small businesses. Let's look at small boats, like rentals, right? In that case, like if you see they have a limited number of boats to rent, right? Every day they have a fixed number of inventories, but the customer demands are not kind of fixed and they need to fluctuate them. But then at the moment maybe they use the reservation tool to make a reservation, right? So, they know when it is full or not full. It helps them to kind of, you know, operate. However, they are not really trying to understand when the preferred time is, because the price can be normally weekdays versus weekends, but the rates are not dynamic. What about if the rate for, you know, Monday 8:00 AM versus 2:00 PM are different? Then maybe if the prices are the same, the customers preferred time will not be changing - but the customer's preference can be changed based on the dynamic pricing approach. So, by using this approach, actually they can distribute the demand, they don't have to have too many people on weekends, but by offering a slightly cheaper rate. Or maybe it doesn't have to be only discount in fact, right? Maybe during weekdays, they can enhance some additional services, right? Because if they start to discount price, this affects the sales negatively, but instead they can try to find what is the real extra value they feel, which does not cost much to businesses because maybe during weekdays they may have enough inventory, they increase the duration of the rental or they add some extra services so they can still utilize their inventory during low peak season, but then also like smoothing the demand fluctuation. And maybe they are able to even - I just mentioned about those qualitative data, right - and then ask just customer how was our service was and how did you feel, how can we improve? What is the extra service they are looking for, right? So that can be added as a new package, for example.
In one of my studies – it was for the hotel industry - but what I tried to do was to measure the consumer's willingness to pay for different amenities, different attributes for example. So, if it's a harbor view versus a city view, when you stay in a hotel, you prefer to stay in the harbor view, right? We kind of know, right, if it's especially in Hong Kong or it's a very nice city, but then the actual question is as you know to the business owner, ‘how much should I charge more’? You cannot just see the product booking information, you should dig into further, what is the real value from the consumers perspective? And another thing I also talk to the industry people, is that we need to differentiate willingness to pay versus ability to pay. That they are rich, or they have enough money doesn't mean that they're willing to pay. Because if they don't see the value of the service, if they don't value the experience, even though they have enough money, they don't want to pay, right? So, we know how much money they can afford right from the transactional data, from their profile, but we should not charge “they will pay for this service”. That is why I think the one of the core messages I'd like to deliver is just do not look at only numbers and just do not use them as the operations but try to operate with different sorts of data to gain real insights. And the insights should be transformed to the business strategy to improve business. So, I think digital transformation is good for business to improve their operations, but at the same time as a revenue management person at the end (because it's an investment, right?), investment should bring additional revenue and profit. So, I think that is the link that we can highlight here today.
Oh, I didn't really talk about, you know, those traditional revenue management industries versus non-traditional revenue management industries. So, the major difference is that airlines and hotels have a fixed number, so, it's easy to optimize. But we just mentioned about the tourism destination and tourism businesses, there is no fixed number of rooms and seats, but still, revenue management approaches can help them to improve the business as well as the customer and visitor satisfaction. And if you see the marketing literature, actually when people have more options to choose, it's not one price that you have to choose, but you can say this is 20% cheaper, but you will have limited flexibility. Or it's a full rate, but you have extra benefit. So, when we give more options to customers, actually they are happy, because it's their decision, it’s not the company’s decision that this is your rate. So, it's also a good way to improve customer satisfaction in this sense.
That is what I write about in 2009. I applied the application of revenue management to the theme parks, because theme parks do not have a fixed number. But actually, during really peak days, like public holidays, I gave them, you know example as a children's day like for example in Asia, because the theme park is for kids and it's a public holiday. So, the number is too much. So instead, we define our optimal capacity. And we apply dynamic pricing to adjust and maybe during those peak seasons we may charge premium price with the extra incentive, extra amenities to justify price differences. Then to apply those premium prices, we need to know what is the experience that our customers will appreciate. That is why again, it's linked to my first argument that is actually one of the areas I always talk about to the industry.
I think the key theme here is digital transformation and it is no longer an option, I would say. It is really a necessity, but then it is important to understand the way of the digital transformation they should just start first, but then it should not be just to, you know, improving efficiency. But in the end, they should focus on catering to customers’ experience, because, at the end, they will have a long-term positive impact to take to their business. And they also need to look at not only just the immediate results, right, but then also more like investment in the long-term perspective, right? And that would be my recommendation and maybe some, especially if we're looking at the small businesses, they feel that investing in you know this digital platform and digitalization seems expensive and costly. But if we really think of the potential financial loss that they may suffer because they didn't do it. Could it be even bigger in the long term? So, I would say this is a time to do - don't think that we can do it later, there's no time to wait anymore.