Will AI Finally Drive Innovation in Hotel Commercial Strategy?

I was fortunate recently to sit among a group of about 60 of the smartest minds in hotel Commercial Strategy for an hour-long discussion on current industry challenges and opportunities, and what struck me most is that I’d heard it all before. 

The challenges that hoteliers in the revenue, sales and marketing departments face today are largely the same challenges they’ve been tackling for the past decade. Why have we made such little progress toward solving the top issues that hinder the hotel industry’s ability to evolve? It’s certainly not due to a lack of talent or creativity. 

It was evident that, while some challenges can accurately be pinpointed to the fragmented nature of the hotel business, some lack of innovation can be blamed on legacy technology. Despite recent advancements toward “open” systems, in many cases hotel businesses are operating on a patchwork of poorly integrated systems that prevents data sharing for improved visibility and a better guest experience. 

I’m optimistic that the rapid development of generative Artificial Intelligence (AI) and adoption in the hospitality space could be just the right accelerant we need. AI has already revolutionized the way we price our hotel rooms, and we saw the clear benefits of those smarter pricing strategies as we drove ADR while emerging from the industry’s worst downturn. Let’s explore how AI might help solve these other nagging Commercial Strategy challenges that just won’t seem to go away.

Aligning Hotel Stakeholders

As an industry, we’ve made a lot of progress in breaking down the silos between revenue, marketing and sales, and as a result we’ve seen a growing number of chief commercial officer roles with responsibility over all three departments. Perhaps the next communication barrier to break is among all the key stakeholders involved in a hotel, from management company to ownership group to brand and asset management.

Revenue leaders are central and critical to this process as performance and forecast data often sets the baseline for aligning various stakeholders on goals and objectives. Not only must revenue leaders be able to aggregate the data and build reports, they should also be adept in “data storytelling,” or illustrating what the data means and how it should affect business decisions moving forward. For more effective communication, revenue leaders are encouraged not to “hide behind the data,” and ownership should provide a comfort level where the revenue team isn’t afraid to make mistakes.

Here, AI will provide an increasing amount of the value in the near future by helping necessary tools move from descriptive modeling to predictive modeling and, ultimately, prescriptive modeling, in which much of the analysis has been automated and next-step actions are recommended.

Pricing Pressure from STR

I overheard one hotel commercial leader say that travelers are becoming “lodging agnostic,” referring to the increased competition from Short-Term Rental providers like Airbnb and Vrbo as “The Great Convergence.”

The challenges here are evident: More STR supply means more competition for hotels. And many travelers who consider Short-Term Rentals are price conscious and are comparison shopping, which adds pricing pressure to hotels. In a recession, hotels will be affected most in markets with an oversupply of Short-Term Rentals. 

Here, by ingesting and analyzing new data sets on market demand outside of just hotels, AI will provide revenue teams with additional insight into how they compete in the broader market and help them avoid common pitfalls like discounting rate at the last minute. AI will help hoteliers better understand their customers and identify the hotel’s unique values – brand, consistency, service, etc. – that nearby Airbnb properties cannot deliver. 

Challenging Distribution Landscape

What would a list of hotel industry challenges be without a complaint about the OTAs? It seems that most hotel businesses have gotten smarter about optimizing their distribution mix to reduce an overreliance on third-party business. But we still haven’t conquered that pesky rate parity issue where our discounted wholesale room rates are showing up on public metasearch sites.

The bottom line is that, most often, when you partner with Expedia and Booking.com, you are also agreeing that those parent companies can share your inventory across their portfolio of brands, which include wholesale sites. 

In addition to considering rate parity tools, commercial leaders should be hustling now to brainstorm other ways AI can be harnessed to continue reducing OTA inventory and driving more direct demand. We know the OTAs are. This means diving deep into conversion data and cost-per-booking calculations, and pulling levers and implementing strategies to drive more demand to your most profitable channels. 

Continue to scale back OTA demand where you can, such as in your busiest times of the year. If you’re battling parity issues, turn off OTA inventory one partner at a time and monitor when your parity issues go away. 

Personalization at Scale

Perhaps the biggest roadblock hotel marketers have faced, despite how much we love to talk about it, is the one most easily revolutionized by AI. Hotel brands and operators have long talked about what a game-changer guest personalization could be, and yet most hotels are still lacking the capability to even collect guest preferences and build guest profiles.

AI should enable hoteliers to finally centralize their guest data from each touchpoint across the guest journey, and among their entire portfolio of hotels, to begin building single guest profiles. With this framework in place, AI can automate personalized guest experiences, including tailored search results, custom email marketing campaigns, and personalized on-property experiences – all to improve guest loyalty.

One thing is clear:  The introduction of generative AI in an open and publicly accessible platform has already jumpstarted technology innovation, and it will likely never slow down from here. This holds promise for addressing long-standing Commercial Strategy issues by enhancing data sharing, fostering innovation, and ultimately driving the hospitality industry forward.

Read more about how Artificial Intelligence is driving Automation in hospitality.