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Case Study on Data Mining


Presented By: Sweta Agrawal

Introduction To Taj Group Taj Hotels Resorts and Palaces, a part of the Tata Group, one of India's largest business conglomerates, is a worldwide chain of hotels and resorts. Taj Hotels Resort and Palaces own and operate 76 hotels, 7 palaces, serviced apartments, 6 private islands and 12 resorts and spas, spanning 52 destinations in 12 countries across 5 continents and employs over 13000 people

The Scenario In 2004, the Indian Hotels Company, which runs the Taj group of hotels and palaces, was satisfied that it was pushing the IT envelope enough. Central to their IT activities was the TajNet, a WAN that connected almost all their operations. Major hotels in Mumbai, Kolkata, Chennai, Bangalore and Hyderabad were all linked. They used ERP efficiently to centralize the two crucial arms of a hotelpurchasing and finance.

The Scenario Project Orion, an initiative to implement an integrated financial and purchasing system, had been successfully rolled out. They also employed a Centralized Reservation System (CRS) to manage their guests. A Property Management System (PMS) handled all their propertieswhich translates largely to rooms to let. They had a CRM solution that identified what customers wanted. They even had a data warehousing system that provided them with advanced analytical information. Their call centre hummed along efficiently, and received close to 2,300 calls a day, on an average.

The Conventional Belief Conventional wisdom has it that a hotel should optimize its revenue by increasing room occupancy. In the process, its became standard for many hotels to ply guests with beverages, food, comforts, and above all, ambience. The Taj group of hotels was on top of this game. Their rich heritage went all the way back to 1903 when the Taj Mahal Palace in Bombay became synonymous with luxury.

But conventional wisdom isn't always right. They didnt have revenue optimization.

Revenue Optimization Revenue Optimization is the application of disciplined analytics that predict consumer behaviour at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of Revenue optimization is selling the right product to the right customer at the right time for the right price. The essence of this discipline is in understanding customers' perception of product value and accurately aligning product prices, placement and availability with each customer segment.

Bursting the Bubble: Focusing on the Bottom Line Revenue optimization has been used by the airline industry for some time, and it seems to suit the needs of industries that have high demand, change prices often and want to derive maximum revenue.

Exploring Revenue Optimization To get the best out of revenue optimization, CIOs and other senior executives need to re-look at the way they view their customers. A new understanding of keeping customers happy that doesnt compromise the bottom line has turned the conventional approach of CRM on its head. It is also the basis of revenue optimization. In the world of revenue optimization, the customer is not always king.

Exploring Revenue Optimization A hotel that has only four empty rooms could sell it to a group of four and smile smugly because traditionally hotels make maximum revenue by ensuring that as close to a 100 percent of their rooms are occupied. At a hypothetical rate of Rs 10,000 a room for a group of four, the hotel could make an immediate Rs 40,000.

Revenue Optimization A revenue optimization system coupled with data warehousing, data mining and business intelligence will hold such a hotel back from making an immediate profit. RO is useful when a gamble to wait for a better opportunity arises, given parameters such as a long weekend, the reduced cost of travel, etc. Eventually the hotel could sell three rooms to three separate individuals at Rs 15,000, making Rs 5,000 more in the process with a room to spare.

The Implementation Initially, a pilot project was rolled out at the Taj Mahal Palace in Mumbai. This hotel was chosen for two reasonsit is closer home, being the flagship of the group, and therefore easier to monitor. More importantly, it has high occupancy, which is critical for measuring the success of RO.

The Implementation Revenue optimization works best in situations where demand exceeds supply, because then you can choose the type of demand you want to address in order to maximize revenue. But there is an inherent risk of losing both deals and making nothing at all. A risk that demand fore-casting alleviates.

Taking the Guesswork out of RO Forecasting, however, is always a tricky business, and you can never be sure about how accurate your predictions will be. The risk element has to be balancedshould hotels take a high risk gambit and face the consequences of their rooms going unoccupied? Or, do they play it safe and negate much of the advantage that revenue optimization can provide? The answer is not easy. Ultimately, companies settle with various systems that manage risks with probable profits with different levels of risk. But all models need to be fine-tuned to take into account off-seasonal demands, special events such as conventions, and other variables.

Taking the Guesswork out of RO One way around this is to use computers to assist management in making crucial decisions by providing them with accurate data. Calculations can be made to determine the minimum price for a roombased on special local considerations like the local cost of groceries and alcoholic beverages, cost of the premises, cost of manpower, size of the hotel and its environs, and other factors. This can be done manually and this is exactly what the Taj was doing in the pre-RO erain those days, managers used Excel spreadsheets in order to do the calculations.

Taking the Guesswork out of RO The Taj felt the need for a dedicated revenue optimization system, which was more closely aligned with the property management system. This makes eminent sense because the integration with the property management system eliminated the user-error angle with seamless automation. More importantly, it enhanced the Tajs ability to make better forecasts. To minimize risks further, its a good idea for companies installing revenue optimization to take into account no show forecasting.

Convincing the board These figures, which are post-RO, look interestingbut how did Shukla and his people convince the board that RO was important? Shukla points out that, since the board had hired him to enhance the impact of computerization, buy-in was not critical. The board understands the importance of technology, and once I showed them the cost benefits, they readily agreed. Needless to say, this support might not have been continued if results did not materialize.

Resuts The gross revenue

2003 - 2004: Rs 699.16 crore 2004 - 2005: Rs 873.24 crore (Around 25% increase)

The net worth

2003 - 2004: Rs 887.73 crore 2004 - 2005: Rs 1,130.39 crore (Over 27% increase)

Profit after tax Rs. 105.86 was significantly higher by 74 percent for the same period.

Analysis This is not to say that revenue optimization neutralizes the importance of customer relationship managementit merely sets it in the right perspective. A customer is no doubt the most important visitor upon our premises, to quote Mahatma Gandhi, but only if he pays. In any hotel, the big rollers putting up in the Rs 50,000 per night suite are worth a lot moreand therefore get more attention than ones staying in the Rs 7,000 suites. Revenue optimization merely moves the lens on the bottom line, where it should have always been anyway.

When you Cant Go Up or Sideways, Increase the Rack Rate Once you get revenue optimization, in some ways, it can boost customer satisfaction. This is because, thanks to revenue optimization, you know exactly what value a customer means to the organization, and can take extra care to ensure that his needs are fulfilled. The system knows everything about the preferences of a customer, and can build a profile that can be used for subsequent visits.

Analysis Revenue optimization also helps service customers better in an indirect manner because the money that it helps to earn can be ploughed back into the business to provide better services to customers. The Taj has introduced a variety of services for its guests, like personalized butler service, enhanced concierge services, and door associate program. Such initiatives are strengthened by revenue optimization because the company will be able to use it to know exactly who will appreciate or require such customized service.

Analysis The arrival of low-cost airlines has made quick and convenient air travel more affordable, and this in turn has had a positive impact on the hotel industry. In this context, revenue optimization becomes even more important because you have to cater to an even greater demand with almost no significant increase in the supply of rooms This is perhaps why the Taj group is revamping its revenue management system, and getting in a more robust one in place to meet the needs of its customers and add significantly to its own bottom line.