CASE STUDY: CARLSON HOTELS
Winning the Price War
Carlson Hotels Maximizes Revenue and Profit With Help From JDA
M
arket transparency and the rapid growth of Internet bookings have
led to a new price war in the hospitality industry, creating significant challenges
for hotel operators. Even with Carlson Hotels’ worldwide reputation for service
and quality, the company is constantly looking for ways to differentiate itself —
and maximize its revenue — in this competitive, price-driven environment.
“In 2008 and 2009, we began to realize that the traditional market
segmentation in our industry had collapsed with the move online, at the
same time occupancy rates were plummeting as the economy tanked,” said
Frederic Deschamps, vice president of global revenue optimization at Carlson
Hotels. “Consumers were using the Internet and other distribution channels
to evaluate their hotel options based solely on price, and not on quality. Every
purchase was starting to gravitate toward the lowest available rate, with fierce
competition across an industry with half-empty hotels. We knew that we had
a pricing problem during the downturn — but we also wanted the capability
to price better when a high-demand period presented itself.”
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“In terms of all the projects
we have out there to
generate incremental
revenue for our partners,
our franchisees and our
own hotels, these JDA
solutions represent one
of the highest-value tools
we have.”
– Frederic Deschamps,
Vice President of Global
Revenue Optimization,
Carlson Hotels
When market conditions lead to fewer sold-out
nights, traditional yield management is only
sporadically effective. For Carlson Hotels, that
signaled an opportunity for positive change.
“We needed a more sophisticated method of
matching rates to actual demand so we could
measure our success based not only on occupancy
rates, but also on the revenues generated by
individual bookings — and the value of missed
opportunities caused by quoting higher prices
during a low-demand cycle,” said Deschamps.
After determining that its hoteliers needed to
understand the price at which their hotels would
make the most money on all future booking
nights, Carlson Hotels turned to JDA Software for
a radically different approach. They embarked on
a new revenue optimization project called SNAP,
which stands for stay night automated pricing,
to drive higher revenue for its hoteliers using JDA® Demand and JDA® Travel Price
Optimizer. Carlson Hotels is now able to quantify price elasticity and use that output
to generate optimal prices, bringing competitor data into its revenue management
system and forecasting how customers will respond to price changes.
“As a brand that is looking to expand globally and grow profits, our goal in adopting
JDA’s solutions was to bring a very elegant yet deeply sophisticated solution to the
complex pricing issues our hotel properties face,” said Deschamps. “JDA’s innovation
in price optimization helps insulate individual hotel properties from the effects of
irrational competitor pricing, allowing them to price to demand during low and high
occupancy periods.”
JDA Demand delivers a powerful forecasting capability, allowing Carlson Hotels to
react more quickly to shifts in demand or competitive rates. With shorter booking
curves, reacting a day or two before the competition can give Carlson Hotels a RevPAR
(revenue per available room) index performance advantage. By combining JDA
Demand with JDA Travel Price Optimizer, Carlson Hotels is able to shift from pricing
based on the product and guesses about competitive impacts to pricing based on a
demand forecast and price elasticity compared to real-time competitor prices. “We
chose this additional JDA solution based on its ability to set prices at a rational level
based on the elasticity measured with JDA Demand,” said Deschamps.
Carlson at a Glance
Carlson is a global hospitality and
travel company headquartered
in Minneapolis, Minn. Carlson
encompasses more than 1,070
hotels, including Radisson, Country
Inns & Suites By Carlson, Park Inn
by Radisson and Park Plaza, as well
as more than 900 T.G.I. Friday’s
restaurants and a majority stake
in Carlson Wagonlit Travel, the
global leader in business travel
management. Carlson operates
in more than 150 countries, and
its brands employ approximately
170,000 people.
Objective
Maximize the company’s revenue
and profit through improved
demand management and price
optimization.
Solutions
• JDA® Demand
• JDA® Travel Price Optimizer
Real Results
• Improved revenue performance
at a typical hotel by 2 to 4 percent
• Maximized occupancy and
profitability by setting optimal
room rates
• Increased competitive advantage
• Improved forecasting ability
Together, JDA’s demand management and price optimization solutions not only
alert Carlson Hotels to upcoming demand changes, but also enable the company to
maximize occupancy and revenues by setting optimal rates based directly on local
market demand and room availability. “The key benefit is that JDA’s solutions provide
us with the ability to raise or drop rates ahead of when the hotel might otherwise
have, which provides us with a critical head start on the competition,” said Deschamps.
Achieving Rapid Returns
JDA and Carlson Hotels partnered on the revenue optimization implementation,
enabling Carlson Hotels to move away from the emphasis on property systems and build
a true decision-support infrastructure that would yield higher revenue for its hoteliers.
>
Want to Know More?
Visit jda.com/Carlsonresults to hear more.
VOLUME 6 / ISSUE 2
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CASE STUDY: CARLSON HOTELS
“The JDA solutions have been very good
tools in producing incremental revenue,
as well as in educating our management
team about the degree of rigor that can
be applied to the pricing mechanism.”
– Frederic Deschamps
“As with any change, there was a healthy amount of
skepticism that this would be a value-added proposition,” said
Deschamps. “The way we approached the implementation
was to have a few ‘test’ hotels demonstrate the value of the
JDA solutions, then enlist those hotels to promote the use of
these tools across a broader set of hotels. That strategy proved
to be very effective. We also used the JDA solutions to audit
ourselves on the decisions we were recommending and, on a
case-by-case basis, demonstrate that this new way of working
was better than our traditional decision-making processes.
Using those two approaches, we were able to get all of our
Americas hotels to adopt the JDA solutions.”
With the solutions up and running, Carlson Hotels was able to
see a return on investment within weeks of a hotel adhering
to the rate recommendations — as well as a significant
competitive advantage in its local markets across the
Americas. “We estimate that the increase in per-hotel revenues
from the JDA solutions is in the 2 to 4 percent range,” said
Deschamps. “The JDA solutions have been very good tools
in producing incremental revenue, as well as in educating
our management team about the degree of rigor that can be
applied to the pricing mechanism.”
JDA Demand and JDA Travel Price Optimizer have helped
Carlson Hotels gain speed and agility. “We have a very short
booking curve, and we don’t have many days to decide if we
should raise or drop our rates. By creating an early warning
system for both high and low demand periods, the JDA
tools have given us an edge on our competition, which has a
material impact on our revenues. As a medium-sized business,
we have been able to capture an incremental piece of the
revenue pie,” said Deschamps.
Gaining New Market Insights
Beyond incremental revenue, Deschamps believes that
the JDA solutions have created important learning
opportunities within the Carlson Hotels organization.
“We have found JDA’s technology — and the associated
business processes — to be incredibly potent in some
unexpected ways,” said Deschamps. “The JDA solutions
definitely do a better job of managing demand complexity
and setting optimal room rates. But the solutions have
also functioned as internal educational tools that drive
accountability for all of our daily pricing decisions. We
really underestimated the amount of learning that’s been
possible within our organization, simply because we have
this huge volume of information at our fingertips now.”
“We spend a lot of time analyzing the data generated by
the JDA solutions and discovering new insights about
demand elasticity and our distribution strengths that we
didn’t recognize before,” noted Deschamps. “We have a
much better understanding of our place in the market.”
“Because the JDA solutions are rational measurement
tools, they represent a perfect platform for us to discuss
strategies broader than pricing,” said Deschamps. “The
insights reach into marketing; they reach into sales. The JDA tools have ended up providing us with guidance in
more areas than we initially anticipated.”
Supporting Future Growth
Throughout the initial pilot and the Americas
implementation, Carlson Hotels was impressed by the level
of service and attention the company received. “JDA was
very supportive,” said Deschamps. “The JDA team took a
collaborative approach with us, which worked out very well.
That collaboration and success led us to consider further
investment in our JDA partnership across the globe.”
After a successful deployment in the Americas, Carlson
Hotels is partnering with JDA to roll out SNAP globally with
an initial focus on Europe, Middle East and Africa as well as
Asia Pacific. According to Deschamps, the company’s ability
to optimize prices and revenues is a critical component of
Carlson Hotels’ aggressive Ambition 2015 strategy, which
entails growing its global portfolio to more than 1,500 hotels
by 2015.
“We’re confident that our expanded relationship with
JDA will continue to help us tackle our pressing business
challenges and achieve our growth goals,” said Deschamps.
“As a brand that is in the midst of expanding by 50 percent
within just five years, Carlson Hotels views rate optimization
as a critical part of operating profitably and supporting
future growth. Price optimization continues to be one of the
leading strategies at Carlson Hotels today.”
“In terms of all the projects we have out there to generate
incremental revenue for our partners, our franchisees and
our own hotels, these JDA solutions represent one of the
highest-value tools we have,” added Deschamps. “Measured
versus new tools in the pipeline and measured versus tools
we have developed in the past, our JDA solutions have
proven to be one of the top ROI tools we have at Carlson
Hotels.” ¢
This article originally appeared in Real Results Magazine, Volume 6, Issue 2, jda.com/realresultsmagazine ©2011 JDA Software Group, Inc.
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