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Retail Price Optimization at InterContinental Hotels Group

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Emily Qu

on 28 January 2015

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Transcript of Retail Price Optimization at InterContinental Hotels Group

The Problem
In the early 1990s,

The Limitations of the Model
Rate Expansion and Fill-In Logic
Too expensive to acquire the necessary shop data;
Do only 20–30 shops each day.
Fill in the missing dates
Integer variables and logical constraints greatly complicating the optimization model.

The Problem
A Key Web Portal

The Problem
A new
Price Optimization Module

Support pricing analysis;
Recommend prices;
Adjust forecasts based on IHG’s own and Competitive prices;
Automate price execution.

Centralized Reservation System

In the third quarter of 2006, IHG engaged Revenue Analytics.

Core OR Model

Market response model
Competitive rate shopping
Benefits estimation
Rate expansion and fill-in logic
Optimization model

Retail Price Optimization at InterContinental Hotels Group
Thank you!
Revenue Management System
Fundamental assumption:
Demand is
of the price offered.

RM System
PERFORM optimized availability and LOS inventory controls based on the assumption of
independent demand

Profits Fell
Decline in hotel demand
Growth of Internet booking channels & price transparency
Deepening travel recession
The tragic events of Sep.11,2001

Key part of the solution:
Transient and group forecast errors significantly reduced the benefits of price optimization.

Elasticity and price-sensitive demand forecast,
LOS price optimization model formulation
Competitive rate shopping algorithm
The competitive rate fill-in logic

Benefits Estimation

Comparing the change in

REVPAR= Rooms Revenue/ Total Available Rooms

Plain Formulation

Results of the model
IHG’s price optimization system is already having a major impact on the hotel industry.
Carlson Hotels is also implementing a price optimization solution (Rozell 2009).

The methods for estimating price response developed at IHG are applicable to many industries.
Rental cars (length of rental)
Airlines (origin and destination)

InterContinental Hotels Group (IHG) is the world’s largest hotel group based on number of rooms.

It owns a portfolio of well-recognized and respected hotel brands, including
InterContinental Hotels, Crowne Plaza Hotels and Resorts, and Candlewood Suites

It also manages the world’s largest hotel loyalty program, Priority Club Rewards, which has 52 million members worldwide.

InterContinental Hotels Group
Full transcript