2022B Revenue Management Yaci Xu
Revenue Management Study Note
Table of Contents
LU1: Revenue management ................................................................................................. 3
LU2: Market segmentation ................................................................................................... 4
Transient ................................................................................................................................................ 6
Groups .................................................................................................................................................... 6
Contract .................................................................................................................................................. 7
Segment worth ....................................................................................................................................... 7
LU3: Analyzing Hospitality Business Data ............................................................................ 8
Revenue and profitability ratios: ............................................................................................................ 8
Use average to show pattern changes: ................................................................................................... 8
Performance measurements: ............................................................................................................... 10
Benchmarking – MPI, ARI, RGI or RPI .................................................................................................... 11
LU4: Forecasting ................................................................................................................. 13
Difference between budget & forecast: ................................................................................................ 13
Types of forecasting.................................................................................................................... 13
Hotel central reservation system & yield management .............................................................. 14
Hotel forecasting terminology .................................................................................................... 15
Steps of forecasting .................................................................................................................... 15
Booking pace report // on-the-books report – handout ............................................................. 16
Calculating forecasting errors ............................................................................................................... 16
LU5: Pricing, Game Theory ................................................................................................. 18
Economic principles & price sensitivity ....................................................................................... 18
Single room rate vs. multiple room rate ..................................................................................... 21
One price vs. multi-pricing .......................................................................................................... 21
Rate structure ............................................................................................................................. 21
Formulating rate strategies................................................................................................................... 22
Competition-based pricing.................................................................................................................... 23
Game theory ............................................................................................................................... 24
Pricing method using pickup scenarios ................................................................................................. 24
Profit maximization .............................................................................................................................. 25
LU6: Displacement, select highest value option from mutually exclusive options .............. 27
Calculating segment worth: ........................................................................................................ 27
Opportunity cost: ....................................................................................................................... 27
Displacement analysis ................................................................................................................ 27
Break Even displacement analysis ........................................................................................................ 27
Conversion (meeting rooms/hotel rooms) ............................................................................................ 28
Corporate accounts / discount.............................................................................................................. 28
LU7: Tactical revenue management tools (Inventory management) ................................. 30
Room as inventory...................................................................................................................... 30
Made by: Yaci Xu
,2022B Revenue Management Yaci Xu
4 methods of maximization ........................................................................................................ 30
1. Capacity allocation ...................................................................................................................... 30
2. Rate thresholds ........................................................................................................................... 30
3. Stay/duration control .................................................................................................................. 30
4. Rate hurdles ................................................................................................................................ 31
Price quoting & selling strategy .................................................................................................. 32
No show and overbooking .......................................................................................................... 32
Formula room occupied ........................................................................................................................ 34
Overbooking based on probability........................................................................................................ 34
LU8: Use and evaluate distribution tools ............................................................................ 35
Channels of distribution models ........................................................................................................... 37
Rate Parity ............................................................................................................................................ 37
Channel contribution ............................................................................................................................ 38
Marketing opportunities to drive online business ................................................................................ 40
LU9: Revenue strategy ........................................................................................................ 43
Setting the right mix for your hotel....................................................................................................... 43
Made by: Yaci Xu
,2022B Revenue Management Yaci Xu
LU1: Revenue management
- Definition: a systematic business decision process, designed to maximize by selling
the right product to the right customer at the right place at the right time and
duration through the right channels.
- Characteristics:
o Fixed capacity
o Time variable demand
o Perishable inventory
o High fixed cost, low variable cost
- 4 main functions of RM (inter-related)
o Revenue strategy
Formulating and setting revenue strategies
Business/revenue plan
Mix management
Pricing (separate learning unit)
Distribution strategy
o Revenue analysis
Business analysis
Market share
Key indicators (KPI’s)
Forecasting
o Inventory management
Channel management
Room allocation
Room and rate types
Tactical RM tools
o Business evaluation
Measuring customer worth
Measuring segment worth
Displacement analysis
Made by: Yaci Xu
, 2022B Revenue Management Yaci Xu
LU2: Market segmentation
Hotel operators: (e.g. Hilton, IHG, Marriot, Accor, etc)
1. They operate hotel in two ways:
a. Hotel management agreement
b. Hotel franchise agreement
2. They rarely own the hotels they operate
3. Why do hotels owners use hotel operators for HMA (hotel management
agreement)?
a. They operate the hotel on behalf of the owners
b. They provide a brand image
c. They provide expertise, standards of process
d. They guarantee the hotel owner a certain performance
4. Why do hotel owners use hotel operators for HFA (hotel franchise agreement
a. The hotel owner is operating the hotel on its own
b. They provide distribution systems
c. It is much cheaper for hotel owners versus HMA
d. Franchise fees are usually fixed fees + fees indexed on the revenue
Marketing hotel companies (e.g. The Leading Hotels of the World, etc)
1. They don’t operate hotels
2. Cost indication
3. They call themselves networks of hotels: hotels are considered members of the
networks. Either for profit or cooperative.
4. Very similar to franchise agreement – the standards required are usually lower
versus a franchise agreement
5. The brand image or marketing powers of these companies is usually weaker vs. hotel
operators
6. Why do hotel owners use marketing companies:
a. They provide a brand
b. They provide distribution systems
c. The hotel owner is able to manage the hotel on its own (drive result)
Market: a set of actual and potential buyers who share a need or want that can be satisfied
through exchange relationships.
- S.T.P: market segmentation, targeting and positioning
1. Market segmentation
Identify bases for segmenting the market
Develop segment profiles
2. Market targeting
Develop measuring of segment attractiveness
Select target segments
3. Market positioning
Develop positioning for target segments
Develop a marketing mix for each segment
- Segmentation variables:
Made by: Yaci Xu
Revenue Management Study Note
Table of Contents
LU1: Revenue management ................................................................................................. 3
LU2: Market segmentation ................................................................................................... 4
Transient ................................................................................................................................................ 6
Groups .................................................................................................................................................... 6
Contract .................................................................................................................................................. 7
Segment worth ....................................................................................................................................... 7
LU3: Analyzing Hospitality Business Data ............................................................................ 8
Revenue and profitability ratios: ............................................................................................................ 8
Use average to show pattern changes: ................................................................................................... 8
Performance measurements: ............................................................................................................... 10
Benchmarking – MPI, ARI, RGI or RPI .................................................................................................... 11
LU4: Forecasting ................................................................................................................. 13
Difference between budget & forecast: ................................................................................................ 13
Types of forecasting.................................................................................................................... 13
Hotel central reservation system & yield management .............................................................. 14
Hotel forecasting terminology .................................................................................................... 15
Steps of forecasting .................................................................................................................... 15
Booking pace report // on-the-books report – handout ............................................................. 16
Calculating forecasting errors ............................................................................................................... 16
LU5: Pricing, Game Theory ................................................................................................. 18
Economic principles & price sensitivity ....................................................................................... 18
Single room rate vs. multiple room rate ..................................................................................... 21
One price vs. multi-pricing .......................................................................................................... 21
Rate structure ............................................................................................................................. 21
Formulating rate strategies................................................................................................................... 22
Competition-based pricing.................................................................................................................... 23
Game theory ............................................................................................................................... 24
Pricing method using pickup scenarios ................................................................................................. 24
Profit maximization .............................................................................................................................. 25
LU6: Displacement, select highest value option from mutually exclusive options .............. 27
Calculating segment worth: ........................................................................................................ 27
Opportunity cost: ....................................................................................................................... 27
Displacement analysis ................................................................................................................ 27
Break Even displacement analysis ........................................................................................................ 27
Conversion (meeting rooms/hotel rooms) ............................................................................................ 28
Corporate accounts / discount.............................................................................................................. 28
LU7: Tactical revenue management tools (Inventory management) ................................. 30
Room as inventory...................................................................................................................... 30
Made by: Yaci Xu
,2022B Revenue Management Yaci Xu
4 methods of maximization ........................................................................................................ 30
1. Capacity allocation ...................................................................................................................... 30
2. Rate thresholds ........................................................................................................................... 30
3. Stay/duration control .................................................................................................................. 30
4. Rate hurdles ................................................................................................................................ 31
Price quoting & selling strategy .................................................................................................. 32
No show and overbooking .......................................................................................................... 32
Formula room occupied ........................................................................................................................ 34
Overbooking based on probability........................................................................................................ 34
LU8: Use and evaluate distribution tools ............................................................................ 35
Channels of distribution models ........................................................................................................... 37
Rate Parity ............................................................................................................................................ 37
Channel contribution ............................................................................................................................ 38
Marketing opportunities to drive online business ................................................................................ 40
LU9: Revenue strategy ........................................................................................................ 43
Setting the right mix for your hotel....................................................................................................... 43
Made by: Yaci Xu
,2022B Revenue Management Yaci Xu
LU1: Revenue management
- Definition: a systematic business decision process, designed to maximize by selling
the right product to the right customer at the right place at the right time and
duration through the right channels.
- Characteristics:
o Fixed capacity
o Time variable demand
o Perishable inventory
o High fixed cost, low variable cost
- 4 main functions of RM (inter-related)
o Revenue strategy
Formulating and setting revenue strategies
Business/revenue plan
Mix management
Pricing (separate learning unit)
Distribution strategy
o Revenue analysis
Business analysis
Market share
Key indicators (KPI’s)
Forecasting
o Inventory management
Channel management
Room allocation
Room and rate types
Tactical RM tools
o Business evaluation
Measuring customer worth
Measuring segment worth
Displacement analysis
Made by: Yaci Xu
, 2022B Revenue Management Yaci Xu
LU2: Market segmentation
Hotel operators: (e.g. Hilton, IHG, Marriot, Accor, etc)
1. They operate hotel in two ways:
a. Hotel management agreement
b. Hotel franchise agreement
2. They rarely own the hotels they operate
3. Why do hotels owners use hotel operators for HMA (hotel management
agreement)?
a. They operate the hotel on behalf of the owners
b. They provide a brand image
c. They provide expertise, standards of process
d. They guarantee the hotel owner a certain performance
4. Why do hotel owners use hotel operators for HFA (hotel franchise agreement
a. The hotel owner is operating the hotel on its own
b. They provide distribution systems
c. It is much cheaper for hotel owners versus HMA
d. Franchise fees are usually fixed fees + fees indexed on the revenue
Marketing hotel companies (e.g. The Leading Hotels of the World, etc)
1. They don’t operate hotels
2. Cost indication
3. They call themselves networks of hotels: hotels are considered members of the
networks. Either for profit or cooperative.
4. Very similar to franchise agreement – the standards required are usually lower
versus a franchise agreement
5. The brand image or marketing powers of these companies is usually weaker vs. hotel
operators
6. Why do hotel owners use marketing companies:
a. They provide a brand
b. They provide distribution systems
c. The hotel owner is able to manage the hotel on its own (drive result)
Market: a set of actual and potential buyers who share a need or want that can be satisfied
through exchange relationships.
- S.T.P: market segmentation, targeting and positioning
1. Market segmentation
Identify bases for segmenting the market
Develop segment profiles
2. Market targeting
Develop measuring of segment attractiveness
Select target segments
3. Market positioning
Develop positioning for target segments
Develop a marketing mix for each segment
- Segmentation variables:
Made by: Yaci Xu
