INFORMS Revenue Management and Pricing Group meets at Cornell and awards prize to alumna

Travelers regularly experience the field of Revenue Management and Pricing when they discover that airline or hotel prices vary over time, even for the same class of service at the same time on the same day.  This phenomenon is the result of efforts by service providers to maximize revenue from a highly perishable resource - yesterday's empty hotel room has no residual value at all.  Working out the best price at which to offer such perishable resources is an important application of Operations Research. 

The Institute for Operations Research and the Management Sciences (INFORMS) has more than thirty 'sections and societies' devoted to particular areas of application, ranging from sports and health to energy and military.  The 10th annual conference of the Revenue Management and Pricing Section was held at Cornell in June. ORIE Professor Huseyin Topaloglu joined Cornell School of Hotel Administration (SHMA) Professors Chris Anderson and Sherri Kimes and Johnson Graduate School of Management (JGSM) Professor Amr Farahat in organizing the conference.  The conference brought together top researchers and practitioners in the field.  Speakers came from North America, Europe and Asia, and included several Cornell faculty and alumni.

Topaloglu noted that "working in this field is very enjoyable since academia and industry interact tightly and practitioners closely follow recent theoretical breakthroughs."  He added that "as shopping interests of consumers slide towards online channels, companies can use sophisticated pricing policies and have access to tons of data from which to derive them.  So we can expect the importance of revenue management and pricing to continue rising."

Marriott Wins Practice Award

For the first time, the conference featured a competition for the most outstanding application of revenue management and pricing techniques, as presented to judges and other attendees.  The 2010 Prize was presented to Marriott International for a decision support system, Group Pricing Optimizer, that provides guidance to Marriott personnel on pricing blocks of hotel rooms that are sold to groups, such as those attending a conference or a social event.  In the five years, it has been in operation, the system has improved revenue for Marriott hotels by at least $46 million per year on more than $1 billion of group business. The winning team included Michele (Crum) Meyers, ORIE '01, who was one of the presenters at the conference. 

The winning presentation illustrates some key issues in the field covered by the conference.  For more than 20 years, Marriott has applied automation to performing revenue management for individual hotel room bookings, with 97 percent of their hotels now using a system that provides demand forecasts, optimizes the allocation of room inventory, and connects seamlessly to a worldwide reservation system that handles more than 75 million transactions per year.

However group business, which contributes significant revenue, has characteristics that make modeling difficult: there is greater statistical uncertainty, groups require blocks of rooms, and data on which to base decisions are sparse.  Meyers and her teammates undertook to deal with these challenges in developing their Group Price Optimizer.

The team used techniques to segment group customers by their characteristics, to predict the sensitivity of their demand to price, and to rapidly compute the optimal price, taking into account competing demand from customers for single rooms so as to avoid displacing more revenue than would be gained by the group sale.   An important aspect of the project was the design and implementation of online decision support software - linked to the individual booking system -  that provides an array of information to sales personnel while they negotiate prices on the telephone.  Gaining acceptance required a detailed understanding of the sales process, deployment of a prototype and system pilot, technical enhancements, changes in the business process, and extensive in-person and web-based training.  

Meyers said that "we are very proud of the work we have done for Marriott and honored that INFORMS has recognized the Group Pricing Optimizer as an outstanding application of revenue management and pricing techniques.  The opportunity to present our work to our peers in industry and academia was especially rewarding to me personally, because of the setting of the conference at Cornell, my alma mater."

In addition to the Revenue Management and Pricing prize, Meyers and her team were finalists in the annual Edelman Prize competition of INFORMS, and their paper on the project was published in the journal Interfaces.