The Price Is Always Right

Marriott applied its business wisdom to building an IT system that has successfully tackled its greatest challenge -- maximizing revenue.

When Nell Williams was the director of revenue management responsible for the 400-room Long Wharf Marriott in Boston, there were certain days of the week-Wednesdays, Thursdays and Saturdays-when she could easily sell out the hotel twice over. But on other nights, like Sundays, occupancy rates dipped so dramatically that she would've been lucky to have filled the rooms three times a year.

Both situations presented challenges for Williams, whose job was not just to sell rooms but to sell them in such a way that would make the most money for the hotel. She used a combination of pricing and inventory controls to maximize profits. On the high-demand nights, she had to be careful not to sell out early at low rates. She also had to consider lengths of stay. There were plenty of business travelers wanting to stay one night and willing to pay top dollar. But those customers would not help her fill the hotel on less busy days the way a three-night stay might. Meanwhile, on Sundays, she needed enough rooms available at the lower rates to attract customers, but not so many that she might give rooms away to someone willing to pay more.

Back then (some 17 years ago), Williams and her counterparts tackled these challenges on an ad hoc basis, with only homegrown statistics and their wits to help them decide what rates to offer to any given customer. Such prognostication took up the better part of her day.

Today, Marriott's revenue managers can do the same work in less than an hour thanks to One Yield, an enterprisewide system that automates the business processes associated with optimizing revenue for more than 1,700 of the company's 2,600 properties. Unlike earlier systems that attempted to tackle this seminal issue of the hospitality industry-that is, maximizing the revenue for every available room-One Yield takes most of the guesswork out of setting rates by providing recommendations to Marriott employees about what rates to offer at any given property on any given day. The system has enabled the $9 billion company to extend its competitive advantage at a time when many of its peers were struggling just to survive.

"Because the system was foundational in nature, we got about 80 percent of the value when we first put it in," explains Marriott Executive Vice President and CIO Carl Wilson. Marriott hotels that have installed One Yield have seen an increase of up to 2 percent in revenue from leisure travelers in 2004, providing an annual profit increase for individual hotels totaling $86 million. In 2003, operating income rose 17 percent, while Marriott added 185 new hotels and over 31,000 rooms, approximately one-third of which were conversions from competing hotel brands. Marriott attributes these results in part to One Yield. Because of these results, One Yield has the potential to change the value proposition for the hospitality industry, and thus earned Marriott a Grand Enterprise Value Award. "One Yield is impressive because it fundamentally alters the dynamics of the industry it operates in," explains Enterprise Value Award judge and Unicef CIO Andre Spatz.

To get such returns, Marriott had to manage inherent risks. It built a system in-house from scratch. It chose a Web-based application based on J2EE architecture and WebSphere development tools, technology that no one at Marriott had worked with before. It had to juggle several constituencies-from the inventory managers who would use the system to the franchisees that would have to pay for it. And it had to pull off a rollout across the enterprise and its disparate brands in 64 countries.

Birth of a System

Marriott has been known as an industry leader in revenue management since before the practice had a name. According to company lore, when Marriott's senior vice president of sales first approached CEO Bill Marriott Jr. in 1985 to discuss the importance of a new business discipline called revenue management, Marriott had to chuckle. The senior VP explained the benefits of the nascent practice (just taking off in the airline industry), which focused on boosting profits by timing price increases and discounts as well as using inventory controls. The company could use computer models to figure out the best pricing and sales procedures for its hotels.

If that was revenue management, Marriott told his senior VP, then the company had been practicing it for a long time. He recalled nights he spent at his father's first hotel venture, the Twin Bridges Motor Hotel in Arlington, Va., which opened in 1957 and featured a drive-through registration desk. His dad knew that when cars spanned the parking lot, he would soon have more customers than rooms. So the elder Marriott kept an eye out for the cars with two passengers, because he could charge them the double room rate. Certainly, you didn't need a computer to do that, Marriott teased.

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