The AI-armed consumer in hospitality and its impact on revenue management

The AI-armed consumer in

hospitality and its impact

on revenue managementStanislav Ivanov

Email: [email protected]

Web: http://stanislavivanov.com

AIHR Innovation in Hospitality Conference, 11-12 April 2017, Stenden University, The Netherlands

mailto:[email protected]

http://stanislavivanov.com/

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Stanislav Ivanov

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• Professor and Vice Rector (Research), Varna University of Management, Bulgaria (http://www.vum.bg)

• Editor-in-chief of the European Journal of Tourism Research (http://ejtr.vumk.eu)

• CEO of Zangador Ltd. (http://www.zangador.eu)

http://www.vum.bg/

http://ejtr.vumk.eu/

http://www.zangador.eu/

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Content

• Revenue management assumptions

• The AI-armed consumer in hospitality

• Revenue management implications

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What is Revenue Management?

• A set of tools and actions dedicated towards the achievement of an optimal level of the hotel’s net revenues by offering the right product to the right customers via the right distribution channel at the right time at the right price.

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Economic fundamentals of RM

• Product perishability• Limited capacity• High fixed and low variable costs• Unequal distribution of demand during the

day/week/month/year• Possibilities to forecast the demand• Possibilities to segment the market demand• Different willingness-to-pay of market segments• Different price elasticity of market segments• Possibilities for advance bookings

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Revenue management assumptions might be already outdated and probably do not

reflect the new realities

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From Revenue management to

Total profit management

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Room revenue management

Total revenue management


Room revenue

Room revenue

Room revenue

Ancillary revenue

Ancillary revenue

Costs

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From Revenue management to


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Revenues Costs

Performance metrics

Demand Hotel

Channel

Rules

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Price elasticity of demand

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P

Q

D1

D2

D1 – linear demand

D2 – constant elasticity

Explicit assumption

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Price elasticity of demand

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P

Q

D3P1

Q1

D3 – kinked demand curve

Reality

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The “fixed” nature of fixed costs

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FC

VC=VC1*Q

TC=FC+VC

TR=P*Q

QE Q

TR; FC; VC; TC

0

E

FC

Explicit assumption

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The “fixed” nature of fixed costs

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FC

VC=VC1*Q

TC=ƩFCj+VC

TR=P*Q

Q1Q

TR; FC; VC; TC

0

E2

FC

Q2Qmax

E3

QE2 QE3QE1

E1

Reality

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The decreasing returns of sales

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FC

VC=VC1*Q

TC=ƩFCj+VC

TR=Ʃ(Pi*Qi)

Q1Q

TR; FC; VC; TC

0

E1

FC

Q2Qmax

QE1

Reality

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The power lies with the customer

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Explicit assumption

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The power lies with the company

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Implicit assumption

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Customers in the future will be armed with artificial intelligence

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Source: http://vignette4.wikia.nocookie.net/starwars/images/c/c8/Counterparts.jpg

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Source: http://vignette2.wikia.nocookie.net/avp/images/4/49/Terminator.jpg

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Source: http://www.kurzweilai.net/images/robot-thinking-one.png

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Robots and AI application:

• Manufacturing

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http://www.businesskorea.co.kr/sites/default/files/field/image/Industrial-Robots-Hyundai-Heavy.jpg

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• Warehousing, supply and logistics

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http://spectrum.ieee.org/automaton/robotics/industrial-robots/german-warehouse-robots-tackle-picking-tasks

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• Agriculture

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http://sparc-robotics.eu/wp-content/uploads/2014/05/polni-robot-amazone-bonirob-44e031.jpg

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• Transportation / Self-driving cars

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http://www.google.com/selfdrivingcar/images/home-where.jpg

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• Medicine

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http://vignette3.wikia.nocookie.net/robotics/images/2/21/Medical_robot.jpg/revision/latest?cb=20140602041221

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• Hotels

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http://www.mirror.co.uk/news/uk-news/futuristic-hotel-thats-like-robotic-6449905

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• Warfare

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http://spectrum.ieee.org/automaton/robotics/military-robots/why-should-we-ban-autonomous-weapons-to-survive

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• Legal services

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http://www.kurzweilai.net/will-ai-replace-judges-and-lawyers

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• Households

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http://www.roboticstrends.com/images/photos/xiaomi-mi-robot-vacuum.jpg

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• Search engines

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• Social media chatbots

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http://chatbotsmagazine.com

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• Finance

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http://static3.businessinsider.com/image/581cd80d46e27a2e008b4cf3-1920/fintech-ecosystem-diagram.png

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• Online trade

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• Sex services

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https://www.minds.com/blog/view/638819052533329937

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The AI-armed consumer in hospitality

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The Future

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• AI will filter the information that reaches the consumer > not every offer will reach the consumer

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• AI will compare offers more effectively and efficiently than a human customer can do > an alternative to meta search engine (or meta search engine 2.0?)

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• AI will make purchase decisions within specific limits

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• AI can make / amend bookings at most convenient time > no need the customer to be present or even awake!

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• AI will make payments within specific limits > access to credit card details

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If AI can perform all these activities who is the customer

then:

the AI or the human being?

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Revenue management implications

• The consumer will not be helpless in his/her relationships with tourist companies

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• Companies’ AI will communicate with customers’ AI

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• Increased number of properties checked (by the AI!) before the purchase decision is made

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• Greater utilization of discounts through rebooking / booking amendments

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• Greater booking fluidity – increased multiple and/or last minute booking amendments

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• Companies will need to invest heavily in AI and expand their engineering / software development teams.

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• Companies need to overcome the filter imposed by customer’s AI > the ‘right’ distribution channel is the one that could pass the filters

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• The distribution channels landscape will change –division of distribution channels into ‘preferred’ (‘trusted’) and ‘regular’ depending on their relationships with the PDA producers > concentration of bookings in the ‘preferred’ distribution channels > larger distributors.

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Revenue managers need to target not only the customers,

but their personal digital assistants (and their producers!)

as well

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Concluding thoughts

• The future is here and revenue managers need to face it

• The AI will change not only the travel, tourism and hospitality industry but every business sector – no one is safe

• We actually do not know what the complete effects of AI adoption would be

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THANK YOU FOR THE ATTENTION!

QUESTIONS?

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The AI-armed consumer in hospitality and its impact on revenue management

Marketing

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