Revenue Management 1 Complete Questions And Answers

Revenue Management 1 Complete Questions And Answers Revenue Management - the science and art of enhancing firm revenue while selling essentially the same amount of product Supply - The amount of a good or service that a seller is willing and able to sell for any given price at any time Demand - the amount of a good or service that a purchase is willing and bale to buy given price at any given time Elastic Demand - demand will rise or fall with the change in price of the good/service Inelastic Demand - demand will stay the same with the change in price of the good/service Who uses Revenue Management? - airlines, hotels, vacation companies, car rental companies, the washington opera, freight, tv ads Five pillars of RM - pricing, discount allocation, overbooking, trading up and replanning First major users of RM - American Airlines and Delta Airlines in 1985 Fathers of RM - Tom Cook (American Airlines) and Robert Cross (Delta Airlines) Yield - the amount of revenue received by the airline for each mile flown per passanger Load Factor - Percentage of seats sold Total passenger seat revenue per flight - (Yield x Miles Flown) x (# of Seats x Load Factor) Characteristics of each flight, each day - business, leisure Seat Value per flight, per day - anticipated load factor, booking pace (advanced reservations patterns) Established fares per seat per flight - nondiscounted, highly discounted Yield Management is the same thing as - Revenue Management Hotels use - Revenue Management not yield management Changes with Hotels and RM - -lack of technology - lack of guest information (who, why, how) - length of stay - managing price and inventory RM and car rental companies - RM basically saved car rental business, but they also killed the competition of serval other companies, People's Express example Pricing Mix - the combination of prices used by firms to represent the value of the offering and the value received, buyers use price estimate value received when competitive prices are the same Why is price important? - -establishes market position of product -matches supply to demand so financial objectives may be achieved Traditional cost-based pricing - Whenever the cost of supplies goes up, prices rise Hotel Industry Changes - started losing a lot of money so started using pricing strategy called yield to management, charging whatever the market will bear Types of Hotel prices - rack rate, 800 number rate, web rate, call-the-hotel rate, membership rate, corporate rate, travel agent rate and negotiated rate at the front desk Financial pricing objective - most dominant and wide-spread objective, biggest objective is profit Volume pricing objective - high volume sensitive business, focus is long-term and builds on customer base Customer Pricing Objective - influence of customer in some favorable way Problems with pricing for profit maximazation - ignores the customers wants and needs, built in profit is hard to determine in the hotel industry, it is difficult to assess the relationship among variable, fixed and indirect costs, high prices alone do not equal greater profit In a hotel when fixed costs are high and are met - and increase in volume equals large profits In a restaurant when variable costs are high - a small increase in price will result in a large increase in profits contribution margin - contribution to fixed costs made by incremental sale Business can increase volume by - increasing their customer base Types of pricing - - cost based pricing - competitive pricing - market demand pricing - customer pricing - international pricing Disadvantages of Cost Plus Pricing - ignores customer's perception of value, arbitrary, inflexible, difficult to accurately allocate L & OH costs Cost Percentage Pricing - common in the restaurant industry, uses dollar rather than percentage markup Breakeven Pricing - Must have a knowledge of customer perceptions and needs to effectively deduce what the demand (q) will be Restaurants: higher variable costs Hotels: higher fixed costs Contribution Margin Pricing - Variation of the break even pricing model. Price above variable cost, excess defrays fixed costs - unsold rooms are perishable $1 per 1000 pricing - Average room price should be $1 per $1,000 of construction costs per room Cost based pricing - cost of supplies, not just the cost of labor Disadvantage of cost based pricing - does not take the customer into consideration How can we use technology to stabilize price changes? - we can try to figure out what our competitors are doing How does volume pricing work? - if you're going to sell a lot then you can probably sell them for cheaper, you need to understand how much you're going to be selling of something 4 P's of marketing - price, promotion, product, place What is the most important key of marketing? - Price, it is the only one that deals with money and nothing really matters if you're not making money