The following is a transcript from a candid conversation between Randy Smith, chairman and co-founder of STR (the parent company of HotelNewsNow.com), and Bob Gilbert, president and CEO of HSMAI, about the past, present and future state of revenue management and the critical importance it will play. The discussion previews an in-depth session of HSMAI's Revenue Optimization Conference on 20 June. Bob Gilbert: In the last decade, the role of revenue management has continued to evolve and change significantly. What industry challenges do you think revenue managers are facing when it comes to rate recovery? And are flash sales and (online travel agencies) eroding price integrity and profitability? Is that part of the challenge? Randy Smith: Yes, it is. I think revenue management is facing huge challenges over the next couple of years. Now, the OTAs and these flash sales are an issue, and I’ll get back to that. At this point, in our opinion, the single biggest problem the industry is facing right now is the way we’ve trained our customer base to constantly seek a deal, to constantly negotiate, to constantly look for the lowest price. We’ve gotten so far away from trying to sell our services, sell our industry on what we have to offer to the traveling public. Today we offer the lowest price. And it is not a situation that I think is really conducive to the long-term health of this industry. I think we have huge challenges. And let me mention this, I don’t really want to say it’s the OTAs specifically. It’s really just rate transparency. It’s the fact that you know what you’re going to charge, what you’re competitor is going to charge in two months, next week, tomorrow night. So much information is available to revenue managers today that I truly believe that the information has grown faster than the industry’s ability to manipulate it, really study it, analyze it and figure out what that stuff is telling us. I think there’s huge challenges out there from the customers, from the pricing transparency across the Internet. We’ve just got some issues that I don’t really see going away even as occupancies continue to improve. Now, that will clearly help more demand. So the question it really comes down to is: What is the relationship between price and demand? Does slashing our rates generate higher demand? Now, I think that’s a long question—I mean, it’s an industry question that’s been around for a long time, and I think there’s still real question about that. My opinion is that no, it does not. I think lower room rates gives us one thing and that is lower revenue. I do not think lower rates give us more demand. It shifts demand around as we’ve all talked about and noted after years. It shifts from one hotel to another, maybe from one market to another, but overall I don’t think it increases overall demand. The demand is going to be there for business, transit travelers, conference goers, whatever. And, you know, there’s some marginal business that we lose for higher prices and whatever, but we have got to figure out a better way of matching demand with price. And that’s going to be, I think, the biggest challenge facing revenue managers going forward. Get the full story at HotelNewsNow.com