Revenue Management Definitions The objective of Revenue Management is to sell the right product to the right customer at the right time for the right price thereby maximizing revenue from a company s products and services 7 Core Concepts Seven Core Concepts of Revenue Management 1 Focus on price rather than costs when balancing supply and demand 2 Replace cost based pricing with market based pricing 3 Sell to segmented micromarkets not mass markets 4 Save your products for your most valuable customers 5 Make decisions based on knowledge not supposition 6 Exploit each product s value cycle 7 Continually reevaluate your revenue opportunities Antecedents for RM 1 Relatively fixed Capacity 2 Perishable Inventory 3 Appropriate Costing Structure 4 Demand that is variable or uncertain Room Revenue formula Room nights sold x Room rate charged Occupancy Formula Rooms Sold Rooms Available ADR Average Daily Rate Room Revenue Rooms Sold RevPAR Formula Definition Room revenue for a period total rooms available for the period ADR x occupancy percentage It combines room occupancy and room rate information to measure a hotel s ability to maximize total room revenue Contribution Margin Room rate Variable cost Elasticity problems Formula Percent change in demand unit occupancy percent change in room rate Sustainability Environmental Definition The quality of not being harmful to the environment or depleting natural resources and thereby supporting long term ecological balance The committee is developingsustainability standards for produc ts that use energy Differentiation strategies Unique features Level of service Location Brand affiliation Price Value Relationship Total customer Value Perceived Service Value Total Acquisition Cost Rev Management Charts determine missing numbers Examples 1 Total held Reserved Blocked 270 Occ Rate Total held Rooms Available 54 2 Blocked 245 Occ Rate 84 3 Blocked 50 Total held 250 Duration Management Golf course operators typically face an unpredictable duration of customer use which inhibits their ability to manage revenue To allow for better revenue management opportunities golf course managers must increase control over the length of time customers take to play a round To do this they can reduce the uncertainty of arrive refine the definition of duration reduce the uncertainty of duration or reduce the tee time interval Walking Guests Don t walk Loyalty members Group meetings or group attendees Contracted rooms such as airlines Couples celebrating special events Families arriving late at night Walk After you walk them An individual traveling alone paying for his own room Secure a guest room at a comparable hotel Pay for guest first night stay at the alternative hotel After the first night pay the per night difference Provide or pay for transportation to alternative hotel Formula In a 200 room hotel Hotel is full with 200 arrivals 05 no show 10 rooms still available to sell Example Using the Chart below do you recommend that a hotel manager fill the 200 room hotel on a Wednesday evening with a group of 100 each paying 98 per room Assume 100 rooms are currently sold at ADR rate and no other information is pertinent Steps Calculate forecasted RevPAR Calculate forecasted RevPAR Compare the two Not including new business proposal Including new business proposal Similarities and differences between from articles powerpoints Golf It costs a lot less money to retain current customers than it does to develop new customers Varying rates based on time of day day of week seasonality were all perceived as acceptable however unlike the airline industry varying rates based on time of booking was only moderately acceptable Late reservations are often discounted and incorporated around other times at lower rates Premium rates are offered to golfers pre booking during prime times Discounts are accessible to those golfers willing to wait until the premium times are filled settling for mid morning or afternoon spots Advanced tee times are often restricted to those looking for discounts contrary to the standard in other industries Examples Time of day pricing Varying price levels two for one coupon program time of booking pricing reservation fee no show fee tee time interval pricing Hotel Restaurant times Selling rooms and services at the right price at the right time to the right people Keep in mind length of stay non refundable rates and arrival time Includes rooms food and beverage meetings and more Place individuals at seats according to party size Seating VIP s at preferred tables before others waiting longer Advanced times for large parties they could not walk in after or before their People are not guaranteed a seat but will most likely have a shorter wait than individuals you do not call ahead Social Justice For example customers may think it is fair for a restaurant to require a deposit to reserve a table for Mother s Day brunch but if they are actually charged for not showing up for their reservation they may think they are being treated unfairly Cruise rather per guest Unlike hotels cruise ships do not charge on the basis of cabins rooms but Cruise ships have two types of capacity constraints in terms of number of cabins and lifeboats seats versus a single type of constraint in airlines and hotels number of seats or rooms Most cruise ship passengers are leisure customers who book early and are not allowed to cancel their reservation close to departure An important component of a cruise ship revenue is derived from on board spending e g in restaurants bars and casinos The majority of the reservations for cruise ships are made in a 3 month time period between Jan March This creates unique challenges in demand forecasting Spa Spa capacity can be measured by the number of treatment rooms and the time that those rooms are available with the added factor of ensuring appropriate staffing Spa capacity is generally fixed over the short term although spas have some flexibility to offer remote treatments hire more therapists increase the number of operating hours change the length of the appointment or reduce the amount of time between treatments Two distinct market segments Customers living near the spa and visitors to the Revenue management works best in industries that have a relatively high fixed cost and a relatively low variable cost This describes spas with their sometimes elaborate facilities and essentially fixed labor costs Unlike many hospitality industry segments spa