I joined Carlson Hotels Worldwide in 2006 with the mission of building an industry-leading revenue optimization capability. Many years of previous experience in the airline and tour operator industries had given me a solid foundation in revenue optimization, but few preconceptions about hospitality. We began our project with a thorough review of the current Revenue management systems that could support Carlson Hotels—both those provided by software vendors and used by competitor hotel chains.

Research revealed strong similarities between hotel RM systems and those used by many major airlines. This came as no surprise since the current breed of hotel RM systems were first developed during the 1990s when hotels were heavily dependent on airline sales channels to distribute their product, and customers booked air and hotel products through a travel agent. The two business models were very similar.

Markets, systems and travelers have changed since then. In 2009 the Internet places real-time rates and availability on everybody's computer screen. Merchants, opaque brands and hotel chain websites compete for hotel customers with the once-dominant airline selling systems. Because travelers are buying our products differently today, we decided to explore different approaches from those designed more than a decade ago.

Imagine booking a trip from Milwaukee to San Antonio. There are numerous possible routings between the two cities, but constraints on your time will make most of them unfeasible, and fares reflect this. Direct routings cost more because there are few viable alternatives. When demand outstrips supply, airline revenue management focuses on restricting discounts: This is yield management.

For the hotel portion of the trip to San Antonio, there will be many comparable and similarly priced hotels competing for your business, and that makes overly aggressive pricing a risky strategy. Since price transparency has radically changed revenue optimization, hotels must now predict how the market will respond to their price changes. Unfortunately that’s not what standard hotel RM systems do.

Hotel revenue management systems, like most airline systems, are primarily focused on yield-managing busy nights. This leaves a significant untapped opportunity, because most hotels don’t sell out on a majority of nights. The current breed of systems is asking the wrong question for today's hospitality industry. Rather than asking, "Which customers should I yield out?;" the salient question is, "At what price will my hotel make the most money?"

Carlson Hotels embarked on a project to answer this question. We call the initiative SNAP, for Stay Night Automated Pricing, and we engaged JDA Software to deliver a completely new pricing technology to support it. The new SNAP process and technology is designed to compare each hotel's rates with those of its competitors—just like customers do—and uses advanced mathematical modeling to predict what rates will make the hotel will make the most money. It automatically produces recommended optimal stay night prices our hoteliers can review and implement.

Our mission at Carlson Hotels is to deliver technology-enabled capabilities to make its hotels more successful. To achieve this objective, we selected a course of action for our revenue optimization program that goes beyond traditional hotel RM thinking. SNAP is conceived and designed as a game-changing capability in an industry that has for some time been ripe for a fundamental change.

Jim Rozell is senior director of revenue optimization at Carlson Hotels Worldwide. He can be reached at jrozell@carlson.com.