Is Nicolas Cage a Public Safety Hazard? A Cautionary Tale for Hotel Revenue Strategists
Jeff ran the numbers again to make sure everything was accurate prior to drafting a memo to his executive leadership team. As the top researcher at the National Center for Pool Death Mitigation (NCPDM), he had spent months trying to determine the reason for the 25% increase in the number of people who drowned by falling into a pool from 2006 to 2007.
After evaluating each case in depth and failing to find a consistent cause amongst the usual culprits- alcohol ingestion, clumsy footing, and several others– Jeff had discovered a database containing tens of thousands of publicly available metrics that he could draw correlations against.
Upon inputting his pool drowning dataset from 1999-2009, it became clear that one factor in particular seemed to be the leading contributor. During this same period twenty-five movies starring Nicolas Cage had been released, with each rise and fall in movies per year closely tracking the variance in people who drowned after falling into a pool.
He wasn’t quite sure how the Death by Cage Pool Effect was contributing to drowning deaths. However, the correlation rate of 66.6% was simply too great to ignore. The “answer is clear,” he wrote to his team, adding “Nicolas Cage must be prevented from starring in movies in order to ensure the health and safety of the general public.” If they could save just one life, surely the sacrifice would be worth it…
Years later as pool drownings continued to skyrocket despite the demise of Cage’s career, Jeff realized that he’d falsely assumed causality where none existed. In short, he’d fallen victim to the Spurious Correlation fallacy. Investopedia defines spurious correlation as “a false presumption that two variables are correlated when in reality they are not,” adding that “spurious correlation is often a result of a third factor that is not apparent at the time of examination.”
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Obviously, it would seem absurd to think that a spike in the movies showcasing Nicolas Cage would lead to an increase in pool drowning deaths. However, what happens when the lack of causation is less clear? Often times we jump to conclusions when comparing the performance of factors we feel must be related.
Guests who stay at our hotel on a package rate plan must spend more in our ancillary outlets than those who stay on a retail rate plan. But what if the variance can be attributed to the fact that folio credits lead to a higher propensity to charge expenses back to the room?
We must be forecasting pros as our variance consistently falls within 3%. But what if a detailed segmentation view shows that we consistently over-forecast the group segment by 15% and under-forecast the transient segment by 13%?
Airbnb must not be having an effect on hotels in our market as annualized occupancy and ADR levels have continued to show strong growth even after the vacation rental website gained critical mass. But what if a detailed analysis of traditional compression dates reveal that pricing power during these periods has declined significantly over the past five years?
How much money is wasted each year on anti-revenue management–marketing the wrong product to the wrong customer, in the wrong place, at the wrong time? How many times per year do we neglect to take action to save our key accounts until our competitors have stolen them? How many times have we reduced profitability or been unable to provide acceptable service due to a lack of accuracy in our staffing models?
In order to improve results we must separate the signal from the noise. We should seek to disprove our theories with data, rather than seeking to reinforce them. As a result, any conclusions that remain will be bulletproof. When we distill cause and effect rather than assuming correlation, we can truly optimize our revenue management efforts.
To combat the Spurious Correlation effect we’ve developed our innovative Impact Report, allowing you to quickly assess the causal effect of key initiatives and actions taken by your hotel. While we can’t guarantee this will be the only report you’ll need to measure the efficacy of your actions (or inaction), we can guarantee you won’t be basing your competitive strategies on Nicolas Cage any time soon.
Contact Us today to learn a bit more about how Focal’s analytics platform can help you to transition from analyzing the “what” to understanding the “why” and impacting the “how, when, and where.”