Revenue management
Last year notes:
Revenue management is trying to control your income
Selling the right room to the right guest at the right time, for the right price, for the right
length of stay, from the right distribution source.
RM applications
Fixed capacity
Perishable product > hotel rooms needs to be sold, can’t be stored
High fixed costs and low variable costs
Product can be priced different
Demand involves
Product can be sold in advance
Market can be segmented
What influences the rate?
Where you book
When you book
Different rate types
Rack rate (BAR): rack on the wall with different types of prices (past)
Complimentary rate: give room for free (marketing) – guest complaints
Corporate rate: discount agreements with different company’s
Day rate: when you sell the room only in the day and can sell again in the night
Government rate: for people who work in the military or government
Group rate: if you sell rooms to a lot of people. E.g. family
What determines daily BAR level?
What is the competition doing?
Occupancy / forecasted demand
Time (for next week, for next month)
Target groups
Business guests
(B)Leisure (nowadays also for business guest is Bleisure)
Government / military
Contract
Tour & travel
Group
IDS & GDS
IDS = internet distribution system (business to consumer system)
e.g. hotel own website, Expedia
GDS = global distribution system (business to business system, not for guests)
,e.g. Amadeus, Galileo
RM words
Denials & regrets
Denials (you have to say no due to availability)
Regrets (was a potential guest but does not choose you)
Supply & demands
Supply total rooms that you have
Demands is amount of rooms you sold
Cancellation
No-show
Guest is not showing up
Do get money
Walk ins
Overbooking
If you have on average cancellations & now shows you can decide to overbook.
Walks = when you have to book them out costs money as hotel
In case of low demand
Rate management
Attract customers that are price sensitive
Open discount rate categories
Flexible conditions (can cancel, pay on moment of arrival)
In case of high demand
Rate management
Calculations
Occupancy:
Number of room sold / number of rooms available * 100
ADR:
Room revenue / sold rooms
Room revenue:
Number of rooms sold * ADR
RevPar:
Room revenue / nr of rooms available
OR
ADR * occupancy %
,Yield %:
Total room revenue / max room revenue * 100
Begrippen
Yield: how much the hotel achieved out of what it could have maximum achieved.
Gets a meaning when you start comparing with competition or past yields.
Rack rate: is the maximum rate you ask
, Lecture 1
Book: revenue management for the hospitality industry – also e book
Chapter: 3, 4, 5, 6, 7, 8, 9
Optimize profit and maximize revenue
Conditions for effective revenue management
Perishable good (which expire)
High fixed costs
Low variable costs
Limited and fixed inventory
Time critical – large fluctuation in demand
Highly segmented
Revenue management is: about selling the
Right product
To the right customer
At the right price
At the right time
In the right place
Right price
Average profit margin: 0 % – 10 %
Optimal price: what you think something is worth
Multiple prices will lead to an increase of revenue – dynamic pricing
Dynamic pricing: flexible prices for products based on current demand
Static pricing: when a hotel keeps exactly the same selling rate at all times
Price elasticity of demand:
% change in the quantity of a demanded good / % change in the price of that good.
Price elasticity of demand shows how much the demand is influenced by the change in
price
Lead time: the time between booking moment and time of control
Cost based pricing: price based on the costs
Value based pricing: perspective of the guest
Right customer:
Customers can be segmented by:
Willingness to pay
Customer centric approach: Any marketing or operational effort focused on the needs,
wants and desires of an organization customers.
Last year notes:
Revenue management is trying to control your income
Selling the right room to the right guest at the right time, for the right price, for the right
length of stay, from the right distribution source.
RM applications
Fixed capacity
Perishable product > hotel rooms needs to be sold, can’t be stored
High fixed costs and low variable costs
Product can be priced different
Demand involves
Product can be sold in advance
Market can be segmented
What influences the rate?
Where you book
When you book
Different rate types
Rack rate (BAR): rack on the wall with different types of prices (past)
Complimentary rate: give room for free (marketing) – guest complaints
Corporate rate: discount agreements with different company’s
Day rate: when you sell the room only in the day and can sell again in the night
Government rate: for people who work in the military or government
Group rate: if you sell rooms to a lot of people. E.g. family
What determines daily BAR level?
What is the competition doing?
Occupancy / forecasted demand
Time (for next week, for next month)
Target groups
Business guests
(B)Leisure (nowadays also for business guest is Bleisure)
Government / military
Contract
Tour & travel
Group
IDS & GDS
IDS = internet distribution system (business to consumer system)
e.g. hotel own website, Expedia
GDS = global distribution system (business to business system, not for guests)
,e.g. Amadeus, Galileo
RM words
Denials & regrets
Denials (you have to say no due to availability)
Regrets (was a potential guest but does not choose you)
Supply & demands
Supply total rooms that you have
Demands is amount of rooms you sold
Cancellation
No-show
Guest is not showing up
Do get money
Walk ins
Overbooking
If you have on average cancellations & now shows you can decide to overbook.
Walks = when you have to book them out costs money as hotel
In case of low demand
Rate management
Attract customers that are price sensitive
Open discount rate categories
Flexible conditions (can cancel, pay on moment of arrival)
In case of high demand
Rate management
Calculations
Occupancy:
Number of room sold / number of rooms available * 100
ADR:
Room revenue / sold rooms
Room revenue:
Number of rooms sold * ADR
RevPar:
Room revenue / nr of rooms available
OR
ADR * occupancy %
,Yield %:
Total room revenue / max room revenue * 100
Begrippen
Yield: how much the hotel achieved out of what it could have maximum achieved.
Gets a meaning when you start comparing with competition or past yields.
Rack rate: is the maximum rate you ask
, Lecture 1
Book: revenue management for the hospitality industry – also e book
Chapter: 3, 4, 5, 6, 7, 8, 9
Optimize profit and maximize revenue
Conditions for effective revenue management
Perishable good (which expire)
High fixed costs
Low variable costs
Limited and fixed inventory
Time critical – large fluctuation in demand
Highly segmented
Revenue management is: about selling the
Right product
To the right customer
At the right price
At the right time
In the right place
Right price
Average profit margin: 0 % – 10 %
Optimal price: what you think something is worth
Multiple prices will lead to an increase of revenue – dynamic pricing
Dynamic pricing: flexible prices for products based on current demand
Static pricing: when a hotel keeps exactly the same selling rate at all times
Price elasticity of demand:
% change in the quantity of a demanded good / % change in the price of that good.
Price elasticity of demand shows how much the demand is influenced by the change in
price
Lead time: the time between booking moment and time of control
Cost based pricing: price based on the costs
Value based pricing: perspective of the guest
Right customer:
Customers can be segmented by:
Willingness to pay
Customer centric approach: Any marketing or operational effort focused on the needs,
wants and desires of an organization customers.
