The finalists for the competition, sponsored by the Institute for Operations Research and the Management Sciences (INFORMS®), include:
Marriott International for “The Group Pricing Optimizer.”
The Problem: Marriott has a twenty-year history applying revenue management to individual bookings. The company needed a significant extension, allowing it to maximize revenue and profit from all of the hotel’s customers.
The O.R. Solution: The Group Price Optimizer (GPO) uses price elasticity models for each statistically-derived market segment to recommend a room rate for group inquiries. GPO has replaced the static target rates of the past with rates based on advanced operations research techniques that have resulted in revenue gains for Marriott. The GPO is now used by over 1,500 sales managers to sell nearly 200 hotels across North America. Sales teams are complying well with the rate recommendations; and customers are buying the recommended rates, as demonstrated by the fact that contracted business that has been priced using the GPO, since its implementation, is over $1 billion. Business booked through the GPO has ramped up quickly, to the point that GPO-booked revenue in 2008 was 21.5% of group revenue for all managed full service hotels in North America. The GPO rates are appropriately sensitive to changes in the hotel’s forecast. This is a critical factor when economic conditions change, as they have done over the past year.
The rollout of the GPO was accompanied by a critique tool that measures the actual results for a hotel against the optimal that could have been achieved with perfect hindsight. This critique tool gives Marriott a barometer with which to measure the success of the GPO. Comparing 2006 (before the GPO) and 2007, two years with similar levels of demand, the team measured an increase in pricing effectiveness across the hotels adopting this functionality that amounted to an incremental $46 million in profit. While overall demand fell considerably in 2008, preliminary analysis of year-end data shows pricing effectiveness remained at nearly the same level. Revenue per Available Room and Average Group Rates are also higher in hotels using the new system when compared to non-GPO hotels.
The Value: The GPO enables Marriott to sell the way customers want to buy. Customers experience faster response times when they call sales offices because sales managers are able to provide quick, finely-tuned rates for multiple dates and hotels. For customers who want to bookgroups on the internet, the hotel chain has enabled Quick GroupSM on Marriott.com, which requests group rate recommendations from the GPO through a real-time link.
In use for two years, the GPO facilitates better communication of the sales strategy between revenue managers and sales managers. Beyond the recommended rate, the GPO provides the answers to the next few questions a sales manager might have. It provides a range within which the sales manager is permitted to negotiate and additional information such as the probability of winning the business at the recommended rate, the comparative rate for an individual booking and comments about local market conditions.
The six 2009 Franz Edelman finalists are:
- CSX Transportation for “CSX Railway Cashes in on Optimized Equipment Distribution.”
- HP for “Analytics for Product Portfolio Management.”
- IBM for “Analytics-Driven Solutions for Increased Sales Force Productivity.”
- Marriott International
- Norske Skog for “Norske Skog Benefits as Operations Research Plays a 'Pivotal' Role in the Battle for Improved Profitability.”
- Zara for “Zara Uses Operations Research to Reengineer Its Global Distribution Process.”
This is the 38th year of the prestigious Franz Edelman Competition. The winner will be announced at a special awards banquet on April 27 at Applying Science to the Art of Business: the 2008 INFORMS Conference on OR/MS Practice.
Additional information about the 2009 Edelman Competition can be found online here. Additional information about the INFORMS Phoenix conference is here.
About INFORMS
The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. The INFORMS website is www.informs.org. More information about operations research is at www.scienceofbetter.org.
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