MHMCT – Revenue Management Notes

GD Goenka University, Sohna

November 2022

By Geetika Bahri Jain

Introduction to Revenue Management

So how did Revenue Management start?
• RM was ‘invented’ by major US carriers after airline deregulation in the late 1970’s to
compete with new low cost carriers
• Matching of low prices was not an alternative because of higher cost structure
• American Airline’s ‘super saver fares’ (1975) have been first capacity controlled discounted
fares
• RM allowed the carriers to protect their high-yield sector while simultaneously competing
with new airlines in the low-yield sector
• From art to science: By now, there are sophisticated RM tools and no airline can survive
without some form of RM
• Other industries followed - hotel, car rental, etc.
So when is Revenue Management needed?
Can you practice RM when there is no business? NO coz that is the time when you are struggling
to just sell rooms. So when do your practice RM?
You practice RM only when there is sales. NO Sales = No RM
Can you really use RM tactics when the hotel is near to empty ……. NO…..it is when you have
business…..a variety of business…..that is when you practice RM…..to optimise the current sales
and business.
Is Revenue Management and Yield the Same?
Close, but not quite. The difference between revenue management and yield lies in
technicalities and definitions.
Revenue management is the overall strategy, including in-depth analytics and forecasting, Yield
management is the actual price optimization part.
It is a theoretical detail which is not relevant enough for us to spend more time on.
Revenue Management Approach
According to the definition we read earlier, Hotel revenue management is all about selling the
right room to the right customer at the right price at the right time.
What are we basically trying to do here is sell the fixed capacity as profitably as possible and
optimise it to its maximum. So let's take a look at it and try an understand this a little better.
Room here is our key product to sell. What is the right room? Well, a right room might have to do
with factors like what floor it's on, what kind of view it is, how large it is. Basically,
understanding the characteristics of the room that makes us earn maximum out of it.
The right customer maybe a customer from a particular market segment, maybe a customer
from a business that we're after, or maybe it's a customer from a particular group, or maybe it's
an individual customer on a leisure trip. What are the can be his needs and how much may be his
capacity shell off money.
The right price is going to depend on what the demand is like in the city at that time.
Sometimes we might have lower prices available, sometimes maybe not.
And at the right time: when do we want the right customers to come in? Again this may also
depend on the demand levels.
Now, when you look at what's necessary for revenue management, industries that use revenue
management all have a lot of characteristics in common.
First of all is they have relatively fixed capacity. While we shall simultaneously be talking about
other such industries as well, lets discuss hotel here. What is the capacity of a hotel? Capacity
of a hotel is the number of rooms in the hotel. Let's say that the hotel is sold-out on a particular
night and someone walks-in to the front desk. Can you accommodate this guest? No because you
can't really ask them to share a room or sleep somewhere else in hotel.
Fixed capacity can further be combined with cost structure, so we're basically looking at
companies that have a very high fixed cost and a very low variable cost.
Hotels have high fixed cost and low variable cost. Cost associated with building a new hotel or
building a new room is very high. But what does it cost to put someone into an empty room in
the hotel? Well, maybe amenities or utilities. It doesn't really cost all that much. And so even if
we offer it at a discount, every penny that we make over and above the variable cost is going to
go towards balancing the high fixed cost of the hotel room.
Another thing associated with fixed capacity and cost-structure is perishable inventory. If we
don't sell that hotel room tonight, it's gone! The same thing happens in the airline industry. If
they don't sell the seat on a flight, it's gone. Or in a restaurant, say that we have a table for four
and we only have two people sitting at that table. Those other two seats now are gone. We can
never get them back again.

Usually you'll see in revenue management that people make their reservations in advance. This is
very helpful because it allows you to be able to build a better forecast, to be able to make those
decisions on whether you should say yes or whether you should say no.
Another thing that is very important is time-variable demand. That is how does demand vary by
time of year or time of season, and this really varies depending on what type of hotel you are. At
a business hotel you are probably busier during the week than on the weekend, and there might
be certain months when you are busier than others. At a resort hotel you are probably busier
during the nicer weather. For instance in Goa they are much busier in the wintertime than they
are during the monsoons.
The other thing you have to look at though is the other component of time, which is, how long
are people staying? The length of Stay. So for example again, at a business hotel the average
length of stay might be one night or two nights, where at a resort hotel or a convention hotel,
people might be staying quite a bit longer. For example, at some resort hotels, people might be
staying for a couple of weeks. We have to understand this length of stay because that's a
component of how customers use the capacity of our hotel.
We've already talked a little bit about the cost structure. Associated with this too is, how
pricesensitive
are customers?
Some customers are very, very price-sensitive, and they'll do anything to get a cheaper room
rate. They would perhaps not mind coming in at a different time or off-season. And there may
be some customers who are completely not bothered about the price they are paying. All they
want is to get a room on a particular night in a particular location or in a particular hotel. They
don't really much care what they pay for it.
Then there is market segmentation. This is basically segmenting between customers who are
sensitive to price and those who are not.
If you can understand who those markets are and devise your pricing strategy accordingly, you're
going to be a whole lot better off.
All we want to do is maximise revenue, or profit, per room night. In our case it is RevPAR.
There are two strategic levers that have to be played around with. One of them is the durationhow
long customers are using the hotel or using the inventory-and the other one is price-what
are the different prices that we're charging for the use of this space?
Managing price and managing length of stay-those are the two things that you have to be able to
do to be able to develop a revenue management system.
We go more in detail on price and duration in courses ahead.
Essential Conditions For Revenue Management
To be of practical use, revenue management can only exist where certain sets of conditions and
constraints apply. These conditions and characteristics, whilst not individually unique to the
service sector, when taken together, provide a complex set of interrelationships that need to be
analysed and understood.
Revenue management is most effective if:-
the capacity is limited and can’t be increased easily
the product is perishable and can be sold in advance
the demand varies and is unknown at time of decisions
the market/customers can be segmented
the variable costs are low
the products and prices can be adjusted to the market
Constrained Capacity/Hard Supply : When sellers cannot readily increase the amount of
products or services available for sale when consumer demand for them increases. This is a
condition where capacity or supply is limited.This is referred to as “hard supply”. The hotel has
a fixed number of rooms, the airline has a fixed number of seats, and the cruise liner has a fixed
number of cabins.
Perishable Inventory : The inventory or supply, in this condition is not just constraint but also
available at that moment in time only. If not used, it may perish. Such inventory cannot be
stored and reused on another occasion. If not sold for the specific flight, cruise or day, the
opportunity for the sale is lost.
Variable But Forecastable Demand : This is a situation where demand may vary with changing
market conditions. Demand for such products or services is predictable and can be forecasted
for effective results.
Segment-Able Market Place : In a situation where market can be segmented and consumer
behaviour and needs can be categorised, application of revenue management is possible.
Low Variable cost & High Fixed Cost : This refers to the relatively low costs in servicing either
the airline seat or the hotel room.
Ability To Charge Variable Price : The customer must be prepared to pay variable prices
dependent upon the nature of the product and the demand. When consumer is prepared to pay a
variable price for the same product as with airline seats and hotel rooms, it creates the unique
environment in which revenue management can work.
What revenue manager is doing?
Few years back, the revenue manager job was consisted of collecting and compiling data into
Excel spreadsheets, analyzing the data to identify trends and making a decision about hotel
rates. Now it's an incredibly complex process that involves online travel agencies (OTAs), mobile
marketing, hyper-interactive consumers, and direct competitors who consistently undercut their
prices.
The job description and responsibilities for the revenue manager vary from chain to chain, but
regardless of the hotel company, nearly all revenue managers perform multifunctional roles that
extend far beyond optimizing room rates and forecasting group profitability. Revenue managers
are fast becoming corporate leaders who chair rate strategy committees, train property
managers in pricing strategies, and guide sales and marketing teams in the most effective
positioning for their selling strategies and campaigns. Every decision they make affects hotel
profitability and because of this the position demands a professional competent in their ability
to manage both people as well as revenue.

Top habits and tips for highly successful Revenue Managers

1- Last night performance
Every hotel produces a 'daily business report', 'Manager Flash report' or 'Manager Report' that
recaps all the activity within the last 24 hours. This daily report includes hotel statistics, like the
total earnings from hotels revenue centers (eg: - Rooms, Food and Beverage outlets, Laundry,
SPA, Shop rentals etc.) the report can be generated from the hotel PMS .
Figures from each revenue centers are represented in FTD (Figures today). MTD (Month to date)
and YTD (Year to date), this figures are also compared with the Last year FTD, MTD and YTD
figures.
Generated revenue must be compared with the budgeted figures to calculate the variance ( + / -
). This will also help revenue managers to track if these revenue centers are doing well or not
and also in par with their forecasted figures.
While analysis the data, breakdown each revenue center to its performance indicator i.e. rooms
(ADR, Occ. % and Revpar ) F&B ( no of covers, average check , RPAS ) ….etc
2- Last Reservations activity made On /By :
Review all the reservations booked from yesterday. Look through them to answer some of these
questions to come up with the proper strategy and actions .
A- Which market segments the reservation came from i.e. packages, corporate, retails?
B- Which channel the reservation came from?
C- Which days see more demand and pick up?
D- What rates those reservation come in at?
E- Reservation leads time.
3- Pace report ( Pick up report) Analysis:
Check the room nights and revenue picked up from last night and compare your pick up and
business on the box to your Forecast & Budget of the month, to see if you still in line to meet
your goal or not ? If not, decide on the next step. If yes, are there patterns indicating a strong
month and can you capture more revenue based on pace you are seeing? Moreover compare your
pick up and actual of the day vs STLY to see if your forecast of budget was over estimated or
there is no repetitive business or even drop on demand ……etc.
4- Market Segment Review:
Within the pickup report analysis check the segments you are getting the bookings from.
Whether it was transient or groups, what strategy worked well and what didn't? Based on the
performance of the segments decide on what you need to do boost business or extract more out
of a segment.
For each segment, create a "value proposition" and product-price positioning strategy based on
that segment's unique customer needs and characteristics.
5- Advance hotel Inventory Control :
Check for advance days, weeks and months if necessary, if there are any advance days where an
inventory imbalance is creating an availability issue, if yes, resolve it. In accepting reservations,
revenue managers must consider the working inventory, which is the full inventory less
stayovers.
This is also a good time to resolve oversell issues in any room types. Check for sold out dates
too. Decide on the oversell limit based on expected wash and lead time.
6- Same Day Inventory Check :
Based on hotel history of no show, last minute cancellation and early departure, Decide whether
you want the hotel to sell more rooms (overbooked) or you think the hotel is right where you
want it. Communicate with the Front Office to let them know what you are planning to do if you
are in an oversell situation. Keep them involve in this.
7- Pricing Analysis/adjustment:
Pricing strategies are crafted to meet specific objectives. The first two are profit and revenue
maximization. Profit maximization involves setting prices as high as possible to increase shortterm
profits at the expense of long-term volume. Revenue and volume maximization involves
setting prices as low as possible to achieve higher sales volume at the expense of short-term
profits.
As much as it is complicated to set the correct pricing strategy but doing weekly pricing
adjustments is very common in hotels however based on business hotel is picking up revenue
manager to make sure priced appropriately are set for high activity days or days where you are
not seeing enough activity maybe the rooms are priced too high.
Accordingly hotel pricing strategy and adjustment could be on daily basis and could be 3-5 time
per day according to pick up, demand trend, and comp set pricing strategy, where Revenue
manager to check on what hotel competition is doing. Have they changed any prices or launched
new special offers you should be aware of? If there are substantial changes compare it to the
activity you are seeing on those days.
8- Distribution Channel Analysis
Nowadays a channel manager is a key component of hotel distribution and revenue management;
OTAs are a vital part of hotel distribution business. But it's important that you use them wisely
and remain in control of decisions about hotel rates and availability.

Revenue manager is to make sure that hotel inventory is available in all channels, Sometimes
hotels sell out of rooms on certain days on OTA's or vice versa, make sure you have matching
inventory available across all channels to avoid rate parity issues.
Channel management is a complex task, with lots of data to manage. The challenge is to make
sense of all the information in a simple, quick and convenient interface, but to also be able to
implement a distribution strategy. Putting 100% of your availability across all your distribution
channels is not a strategy! A fine-grained approach is what is needed if you are to remain in
control of your distribution and optimize your margin.
9- Competitive Market Share analysis :
Revenue manager make the necessary market share analysis reports to understand hotel
performance versus competitors, both in terms of occupancy and average rate, checking if hotel
getting it's fair market share? Use KPI like MPI, ARI, and RGI to Benchmark the results of your
hotel's revenue management performance. What is your market penetration index?
10- Budgeting and Forecasting
As revenue management has developed, it has become more disciplined and technical in using a
variety of analytics to predict consumer demand, and to optimize the inventory and price
availability to maximize revenue. The essence of this discipline is in understanding the
customers' perception of product value and accurately aligning product prices, placement and
availability with each customer segment.
The budget is indeed your first forecast; the forecast will reflect the expected situation in the
short term (1 to 3 months). Forecasts will be compared to the budget. New rate and selling
strategies will be applied depending on the new Revenue expectations to maximize Revenue.
11- Weekly / Monthly meeting
A viable revenue meeting should involve four structured components, should not last longer than
an hour and should include an ample dose of accountability. Once a month a fifth component
should be added. Imagine these components like concentric circles on a target—the meeting
starts with the outermost circle and involves relevant general information, then proceeds to
move progressively to more detailed and specific property information until the meeting reaches
the center of the target where strategies and tactics are finalized. The five key components
include:
1 Marketplace dynamics and general economic climate;
2 Competitive information;
3 Hotel performance trends vs. budget and vs. comp set;
4 Selling strategy
5 Forecasting
Responsibility for these components should be assigned to different members of the revenue
team, with marketplace information handled by the director of sales and marketing or, in a
smaller hotel, the G

Unit I: Forecasting & Budgeting

What is Forecasting?
Forecasting is a technique to estimate, based on
historical figures, expectations, trends, and/or
experience, a certain value of an uncontrollable
variable for a certain future period of time.
Moreover, forecasting cannot be as simple as
coming up with a figure, solely by considering
only historical data, without adjusting to other
variables like competition, image and risk of the
country, interest rates, inflation, exchange rates,
and other economical factors! Therefore, a person
who forecasts shall adjust the
forecasted figure to the realities and expectations for the upcoming period in question!
Accurate forecasts are essential to revenue management. Without a forecast, it's not
possible to set availability controls wisely or to use these controls effectively to grow
revenue. A good forecast is a first and necessary step in revenue management.
Good forecasts are based on data.
Forecasts are estimates. You shouldn't expect them to be one hundred percent accurate.
They tend to be more accurate when more data are available and when those data can
be appropriately aggregated, or grouped. For the best results, occupancy data should
always be grouped by day, but they can also be grouped by length of stay, by rate, and
even by distribution channel or market segment. In addition, forecasts created for dates
in the future can be made increasingly accurate as information is acquired closer to the
target date.
Accuracy of your Hotel Forecast
You should aim at 5% maximum (+/-) variance for
the next month, variance between your forecast
and the actual results. Take the time to analyze
the variances to understand, learn and improve
your hotel forecast and revenue management
decisions.
How much do the room nights or the ARR variance
impact to total variance? Study the
forecasts variance by day of the week and by
segments.

A variance can also be caused by an incorrect on the books; before extracting your on
the books, ensure that:
• The segmentation is correct
• Review all your definite groups. Evaluate the possible increase or decrease of the
block. Ensure room blocks are well updated
• Evaluate your group tentative and apply a materialization factor
• Verify you do not have duplicate bookings
• Ensure that you do not have pending reservations not entered yet in the PMS
• Take out oversold rooms on expected cancellations and base your forecast on the
number of rooms available to sell
• Every room block and reservations are attached to a correct rate or rate code.
The accuracy of your forecast is the key to profitability or GOPPAR of your hotel. Other
departments depend of it. Therefore, we set the bar even sharper, and only allow
ourselves a maximum of 3% variance.

Advantages of Hotel Room Forecasting

Marketing Strategy
A reliable room forecast is critical in the
effective execution of a hotel’s marketing
strategy. As hoteliers use forecasting
mechanisms
to plan their promotion offers (period, targeted
territories, etc.), the interrelation between
room
forecasting and marketing strategy is quite
obvious. This is a key trigger for hotel’s Sales and
Marketing team to activate sales & marketing
initiative to attempt and create demand, at the
same time promotions are introduced
for the same effect. On this strategy table itself hotels identify the market segment that
can be targeted to make up for the drop expected from the other segment.
For example for a forecast of low occupancy for an upcoming period, hotels can decide
to run promotion on all online channels to create an incremental demand as well hotel
sales team can run customised promotions for their offline customers to fill up the
hotel.
Yielding across various channels
An accurate forecast of occupancy and room revenue empowers a revenue manager to
yield across various channels.
For example if property is forecasted for a high occupancy owing to high unconstrained
demand then the revenue manager can choose to yield and sell on low cost/high rate
channels to maximize profits.
_
The Rooms forecast is a forerunner to Financial Forecast
Hotel Financial Controller needs information on forecasted room revenue for multiple
purposes; to understand cash/credit flow for hotel as that needs to be considered for
multiple expenses that will be generated in different departments including rooms.
For example for next month hotel revenue manager makes a forecast that Corporate
Groups & Corporate FITs will be dominant in occupancies and Transient segment will be
below expectations, a financial controller will have to adjust the outflow of cash since
most corporate bookings tend to be realised much later than actual check out when
payment from these corporate offices hits the hotel’s bank.
Also additional revenue that will be generated from other departments like F&B,
Laundry, etc., is proportional to Room occupancy.
As discussed, Hotel Financial Controller creates a cash flow forecast (a forecast of cash
coming into and going out of a business) on this forecast by revenue manager and this
forecast is periodically compared with the hotel budget to track deviation.
Forecast for other Revenue generating departments
Though hotel rooms might be the biggest contributors to revenue but there are other
revenue-generating departments too which have their forecast dependent on room
forecast, for example, room occupancy will help F&B to know how many resident guests
are expected at Breakfast and other meals, similar forecast for other departments like
Laundry, Mini Bar, etc.
Purchase Decisions
Purchase of perishable as well as non perishable improves by a good forecast. For
Example during low occupancy period a hotel may decide to cut down its buffet
offerings in coffee shop and thus need to purchase a lot of perishable food item will not
be there.
Action Plan for Near Future
This is base on which hotels plan their course of actions in all areas for near future, say
3 months, and move accordingly.
Expansion Plans
May be not relevant for every forecast but a demand forecast of unconstrained demand
might be referred to by hotel management to plan an expansion if needed.
For Example, on a regular basis the unconstrained demand forecast for a hotel is high
which may lead the management to a decision to expand the size of hotel, if possible,
and increase its inventory owing to observed regular high unconstrained demand.
Decision About Staffing
Room occupancy forecast will also be referred by all departments for their staffing
purposes as well as, if needed, for hiring too.
_
For Example; hotels generally encourage their staff to take their annual leaves in low
season of occupancy so that during their high occupancy period they have staff at full
strength to ensure smooth operations.
Hotel Maintenance
Hotels tend to utilize low occupancy forecasted time for periodical maintenance.
For example; annual renovation of rooms and other areas in a hotel is generally carried
out when the forecast is for a low occupancy for a long period.
A reliable forecast has a direct impact on bottom line.

Forecast Variations

Types of Forecasts
•Arrivals Forecast-An arrivals forecast includes
guests arriving on the forecast day, but does not
include guests arriving prior to the forecast day
for multi-night stays.
•Room-Nights Forecast-A room-night forecast
includes guests arriving on the forecast day and
guests arriving prior to the forecast day for multinight
stays.

Levels of Forecast Detail

Day of week-Most forecasting is done by the day
of the week, that is, a Monday forecast would be
built using data from previous Mondays, a
Tuesday forecast would be built using data from
previous Tuesdays, and so on. Demand varies
reliably by day of the week, with certain obvious
exceptions (holidays, emergencies). Length of
stay-For length-of-stay forecasting, individual
forecasts are created for each stay length (onenight,
two-night, three-night, etc.).
Rate class-For a hotel that offers more than one rate
class (for instance, rack rate,
discount, or super discount), forecasts can be created for each rate class individually.
Inventory type-In the case of hotel-room forecasting, a forecast by inventory type might
be characterized by king- or queen-sized beds, private bath, or view.
Aggregate-Arrivals or room-nights are forecasted as one group, without regard to
individual subgroups such as length of stay, rate class, or inventory type.
Forecasting Approach
Different methods/approaches are adopted by
hotels to forecast demand; these can be grouped
_
into two categories: historical booking models and
advanced booking models. Historical
booking models consider only the arrivals or the
occupancy time series, and apply time
series models on these. No use is made of the
reservations data. The advanced booking
approach, on the other hand, makes use of the
reservations data, and utilizes the
concept of "pick-up". For instance, most major hotel
chains use linear-programming based
models that require detailed forecasts by day of
arrival, length of stay, and rate
category.
Hence, forecasting is estimated as such: a hypothetical automated system scans
historical bookings, occupancy patterns, internal and external events, and reservation
and rates information and fits quantitative forecasting models to the data. Using the
fitted models, the revenue management system arrives at predictions, which are then
used as an input in making rate and allocation decisions.
Nowadays, forecasting has taken a different turn by adding new variables/data to the
above mentioned ones such as: prices of the hotel's competitive set, city demand, event
automated entry, and airline/airport passenger's future booking pace. That is, the
optimization algorithms recommend rates and allocation based on the predicted values
of the forecasted variables. Moreover, room occupancy is not anymore the only key
metric forecasted by hotels, competition, ADR and RevPAR by market segment, source of
business, and even channels of distributions are also considered.

Hotel Forecast Model and Tool

According to your yield opportunities, you may

decide of a more or a less developed forecasting
tool. You may also consider Computerised -
Revenue Management System. Here some
examples of hotel forecasting tools in excel.
Forecasts are not perfect. It is a strategic
management tool. A basic Forecast is better than
none. It is the path to market and customer
knowledge. It reinforces your pro-activeness in
terms of inventory and rate management.

Your forecast module can help to forecast the

double occupancy, the number of arrivals and
departures: useful for the front-desk and
housekeeping. On the basis of your forecasted
number of nights by segment, you can anticipate
the number of guests: it helps housekeeping to
forecast their costs, and the restaurant the
number of breakfasts. The forecast can help you
to prevent and identify challenges in reaching
your objectives: it gives time to adapt strategies
or work out additional actions.
The forecast can help to identify low demand period: you can develop it as a
communication tool taken over by sales department to focus their efforts on sales.
 Unit II: Inventory & Revenue Management
Revenue Management has contributed millions to the bottom line, and it has
educated our people to manage their business more effectively. When you focus on
the bottom line, your company grows.
— Bill Marriott Jr., Chairman and CEO, Marriott International —
A general and widely accepted definition of Hotel Revenue Management goes as follows:
Selling the Right Room to the Right Client at the Right Moment at the Right Price on
the Right Distribution Channel with the best commission efficiency (Landman, 2011).
Hotel Revenue Management is about becoming the architect of your own fortune. A hotel
room is a perishable product, since the number of hotel rooms is limited. As a result,
customer satisfaction and pricing remain the most important dynamic variables, which
are subject to Hotel Revenue Management. It is all about balancing demand and capacity
by forecasting prices for the purpose of maximising the effectiveness of hotels’
resources.
However, the rise of the internet during the 21st century (and with it the rise of Online
Travel Agencies and Review Portals) has added another dimension to this field. This
development has made traditional Hotel Revenue Management much more complex,
while providing new ways to clearly and objectively measure both customer satisfaction
and pricing.
Origins: Arising from airlines’ yield management
Originating from a mathematical sales model within the airline industry, the concept
made its way into the hospitality industry as Hotel Revenue Management in the 1990s.
Marriott International was one of the first major players to draw large earnings by
introducing the concept into its business strategies. Hotel Revenue Management has
grown in importance ever since.
As there are many aspects that must be taken into consideration, it is impossible to
effectively apply the concept of Hotel Revenue Management overnight. You need to
carefully analyze and evaluate big data sets about your property and its business
environment.
This includes information about basic factors like:
• Past occupancy rates
• General sales
• Company target groups
• Customer segmentation
• Market(share) information
• Customer satisfaction
but also about external influences, such as
• Past weather conditions
• Holiday and event information
• Closing of nearby hotels
• Competitor price information and
• Similar circumstances that are likely to affect your business climate.
In earlier days, all these data were evaluated manually by the Hotel Revenue
Management. Over the years, more and more elaborated Revenue Management Systems
(RMS) were designed with the purpose of facilitating this process. However, the
functioning of Hotel Revenue Management has fundamentally changed within the past
decade. Demand patterns have become much more unpredictable, while increasingly
dependent on user generated content, especially reviews.
Yield Management
Yield management, or revenue management, is the process by which sales of a limited
quantity of goods, such as hotel rooms, airline seats, rental cars, or etc. are managed in
order to maximise profits. Successful yield management focuses on selling the product in
such a manner that is timely, price competitive, and directed towards the right subset of
customers
An economic concept first posited by Dr. Matt H. Keller, and first used by the airline
industries beginning in the 1970s, yield management has evolved in more recent years as
an important tool especially for the airline and hotel industries for staying economically
competitive in otherwise saturated business playing fields.
The basic concept of yield management is based in the economic principle of supply and
demand: when supplies are short, prices go up; when supply is high, prices go down.
Yield management is a studied, systematic method by which managers can logically
place customers within the supply demand spectrum, and thus gain the highest yield for
their products. For example, a customer who has very little flexibility in his or her travel
plans is the customer who is most likely to pay a higher price for airline tickets and hotel
rooms. The customer with a great deal of flexibility is not as inclined to pay a higher
price.
Yield management is a set of techniques and procedures used to manipulate occupancy
and/or ADR in order to maximise the hotel’s revenue. It takes into account as many
factors influencing business trends as possible. It is also an evaluative tool that allows
the FOM to use potential revenue as the standard against which actual revenue can be
compared. Yield management or YM can be viewed as the application of tactics that
predict or forecast consumer behaviour and effectively price highly perishable products
like room nights to maximise RevPar. The goal of YM is to consistently generate the
highest possible revenue from the given number of rooms in a certain period of time. It
therefore is a set of demand forecasting techniques used to determine whether room
rates should be raised or lowered and when a reservation request should be accepted or
rejected in order to maximise revenue.
Hotel Chains and Yield Management
Many hotels rate their success by their occupancy levels, but this isn't necessarily the
best measure of success. Another way to rate a hotel's performance is by determining its
REVPAR, or Revenue per Available Room. REVPAR is calculated by dividing the total room
revenue by the total number of rooms. For example, a hotel that makes $6,000 one
night with a total number of 100 rooms has a REVPAR of $60.
The yield manager's job is to maximize the revenue per available room by selling rooms
to the right customers, at the right price, at the right time. How does the yield manager
accomplish this somewhat nebulous task?
Successful yield management arises from several factors: an understanding of what the
hotel hopes to achieve (whether that is room occupancy, REVPAR, or some other
measurement); a clear understanding of what kind of hotel the manager is working with,
which will lead to an understanding of what a customer visiting the hotel wants in his or
her hotel experience, and why customers choose their hotel over another hotel; an
ability to measure group sales against the overall goals of the hotel (for example, a
hotel whose main goal is occupancy will be happy to host a large group at a lowered
rate, but a hotel whose main goal is revenue may turn down a larger group in favour of a
smaller group who can pay a higher rate); and a knowledge of what will cause the
market to fluctuate (such as holidays, regular regional and local events, etc.). The yield
manager will ideally consider all these factors when creating different rates for hotel
guests.
Revenue Management Steps
Success depends on effective adaptation of its techniques your particular market,
product, competition, culture, corporate mission and constraints. Though there is no
single RM way, there is a process that can be followed to establish a successful RM
program in any environment.
This process consists of nine steps:-
Step #1 Evaluate market needs: The first essential step is evaluating your market needs
and defining the necessary elements of an appropriate RM project in considerable detail.
To be able to do that most important is to THINK THROUGH THE PROJECT.
This process involves defining and documenting specific issues that a company must
address to maximise revenues.
Step #2 Evaluate your organisation and processes: This process involves intensive
review of the organisation, practices, policies and procedures that are used in revenue
production. Information is gathered in a 3-stage effort of interviews, documentation and
data gathering.
Interview Process: During this phase, many queries are version of a single, basic question
- What drives our revenue? During this phase it is important to analyse what a customer
is buying as against what is being offered by the organisation.
Documentation Process: Documentation of companies’ operations procedures uncovers
issues that have been inhibiting revenue maximisation. This process involves careful
scrutiny of organisation charts, job descriptions, internal directives and even policies
and procedures manuals.
Data Gathering: Gathering accurate and complete data is the most difficult as well as
most important part of need evaluation. Data is the driving force behind quantitative
analysis which helps determine the value of revenue opportunities being missed and can
be captured by RM.
Step #3 Quantify the benefits: Quantifying the benefits of revenue management before
starting the project is a critically important step when embarking on the RM project.
Setting revenue targets is essential. This step may need not be time consuming and
complex.
Step #4 Enlist technology: Most businesses could use technology better to understand
their markets and improve the pricing and availability of their products in relation to
market demand. The complexity of technology may depend on the size of business. For
smaller business, there may not be a need for sophisticated analytical tools, tracking
systems, however if for larger firms complex computational systems may be required to
perform high level RM techniques.
Step #5 Implement Forecasting: Forecasting and optimisation are functions of a
revenue management system that set it apart from any other corporate computer
application. Real value of data is in using it to predict consumer behaviour and deciding
actions to be taken to maximise revenue.
3 Rules Of Good Forecasting:-
• The forecast must be at the right level of detail
• An appropriate amount of data must be analysed
• Frequent re-forecasting must occur
Step #6 Apply optimisation: Forecasting suggest what customers are likely to do.
Optimisation suggests what you should do about it. This involves maximising revenues
through pricing and inventory control, optimisation algorithms are created arduous this.
Step #7 Create Teams: As with any human endeavour, people will ultimately be the key
to the success of revenue management in the company. Involvement of senior
management in the organisation is essential for effective RM.
Step #8 Execute, execute, execute: The key to success of any effort lies in its
execution. Ideas are nothing. Implementation is everything. Any great strategy can be
rendered useless by the way it is implemented. A good plan executed now is a great plan
executed next year.
Step #9 Evaluate success: For successful RM programs it is important to have defined
objectives that must be achieved. Every individual should have defined objectives and
these objectives should be measured frequently and regularly after completion of each
one of them.

High Demand Tactics

• Close or restrict discounts – Analyze discounts and restrict them as necessary to
maximize the average rate. You may offer discounts to those who book longer stays, or
restrict bookings to shorter stays.
• Apply minimum length of stay restrictions carefully – A minimum length of stay
restriction can help a property increase room nights. For groups, study the groups’
patterns and decide how many days they are likely to add to their stay.
• Reduce group room allocations is another great tactics– Communicate with group
leaders on a regular basis. Make sure the group actually needs the number of rooms
identified in its contract. If not, make adjustments.
• Reduce or eliminate 6 P.M holds – Reduce or eliminate the number of unpaid rooms
that are being held until 6 p.m. When demand is high, you need rooms available to fill.
• Tighten guarantee and cancellation policies tactics– Tightening guarantee and
cancellation policies helps to ensure payment for room nights. Charge credit cards for
the first night’s stay on the day the reservation is made.
• Tactics on raise rates to be consistent with the competitors – Charge rates consistent
with the competition, but limit rate increases to those rates published in the central
reservations systems and listed in brochures for the period.
• Consider a rate raise for packages – If you are already offering a package discount,
consider raising the rate for that package.
• Apply full prices to suites and executive rooms – In a high-demand situation charge full
price for suites and executive rooms.
• Reserve close to arrival dates – By allowing the reservations to be taken for a certain
date as long as the guest arrives before that date, a property is able to control the
volume of check-ins.
• Evaluate the benefits of sell-throughs – With a sell through, the required stay can
begin before the date the strategy is applied. This is often used when one day has a
peak in occupancy and management does not want the peak to adversely affect
reservations on either side of the peak day.
• Apply deposits and guarantees to the last night of stay – For longer lengths of stay,
make sure the deposits and guarantees apply to the last night of the stay, minimizing
early departures.
Low-Demand Tactics
• Sell value and benefits tactics– Rather than just quoting rates, make sure guests know
you have the right product for them at the best value. Sell the various values and
benefits of staying at your property versus others that the guests may be considering.
• Tactics on Offer packages – To increase room nights, one tactic is to combine
accommodations with a number of desirable products and services into a single
package with one price. Mention any additions, renovations, or new amenities. Nonroom
revenue can be included, for example – free movies, discounted attraction
tickets and shopping coupons.
• Keep discount categories open – Discounts are directed toward particular markets or
are instituted during a particular time or season. During low-demand time, it is
important to accept discounts to encourage room nights.
• Encourage upgrades is another great tactics– Move guests to a better accommodation
or class of service to enhance their experience and encourage them to come back to
the property again and again.
• Offer stay-sensitive price incentives – A stay sensitive price incentive provides a
discount for guests who stay longer. For example, a guest staying 3 nights might get an
additional Rs.2000/- per night discount, while a guest staying one night might not
• Remove stay restrictions – Remove any stay restrictions so guests are not limited as to
when they can arrive or depart. Guests who can stay only one night will be encouraged
to stay as well as those who are staying for a week. This will help to maximize
occupancy.
• Involve your staff – Create an incentive contest to increase occupancy and room
nights. Make sure to involve all members of revenue department as well as central
reservations staff.
• Establish relationships with competitors – Having a cordial relationship with
competitors can help with referrals and can help to carry out cross-marketing efforts.
• Lower rates tactics– There is great value in keeping guests at the property as long as
you are at least covering the cost of occupancy. You may want to lower your rates as
low as possible. Identify the hurdle rate, which is the lowest rate acceptable at that
given date.
•

THE HOTEL REVENUE MANAGER – HOTEL FRONT OFFICE

Hotel revenue manager help maximise their property’s room revenue. The Hotel
Revenue manager for a property is the person responsible for maximising the room
revenue on a daily, monthly and annual basis. Their actions directly affect how many
rooms the hotel sells and at what rate. The person in this position has to understand
their hotel, the market they are in, technology, and have a unique knowledge of
economics.
Skill of Revenue Managers:-
▪ Operational Skills – He/She must understand sources of revenue and associated
cost structures for each operating department, and must be aware of the
interdependencies among departments to meet hotel goals.
▪ Analytical Skills – He/She must understand historical, current and future revenue
data. A Hotel Revenue manager must be able to evaluate hotel booking trends and
to project occupancy demands when determining pricing strategies that ensure a
balance between room rates and levels of occupancy.
▪ Strategic Skills – The Hotel Revenue manager must understand what is going on in
the market and how market forces are likely to affect the hotel and then apply
those assessments to take advantage of favorable market conditions.
▪ Organizing Skills – He/she must maintain detailed records of current operations in
order to develop a database of information for future application.
▪ Communication Skills – A Hotel Revenue manager must be able to explain revenue
processes and decisions with respect to short-term and long-term business
projections.
▪ Good Listening Skills – The Hotel Revenue manager must be able to listen to
revenue management team members, hotel department heads, and other staff.
He/she needs to appreciate issues that others raise and suggestions they make.
▪ Team-Building Skills – Effective revenue management strategies and tactics
depend on the Hotel Revenue manager’s ability to build and maintain trust and
confidence in working relationships.
▪ Training Skills – Successful revenue management requires ongoing training of all
those involved in the process. The Hotel Revenue manager must be able to train
staff at all levels of the organization, including the general manager, the front
office manager, sales managers, the food and beverage manager, the reservations
manager, the banquet manager and others actively involved in the program.

REVENUE MANAGEMENT RESPONSIBILITY

1. Setting rates: The primary function of a Hotel Revenue manager is to set the
hotel rates for every night. This requires knowledge of market forces and
economics. If the rates are set too high, then you will lose out on occupancy, if
they are set too low, then you may sell out too quickly and lose out on potential
higher revenue. The goal is to sell the last room at 11:59 pm on each particular
day and to make sure the hotel gets the highest rate for each room.
2. Forecasting: The Hotel Revenue manager must provide reports to the general
manager and ownership that forecasts what the room revenue will be for some
period. These reports are put together with historical information coupled with
rooms that are ready reserved and the rate at which they were booked. It is
vitally important that these reports are as accurate as possible as they will help
other managers and owners make decisions about the rest of the business.
3. Positioning: The Hotel Revenue manager should assist the sales and marketing
departments with ideas on how to position a property. Since he is the most
knowledgeable about slow periods that the hotel might be facing, the can provide
the sales teams with ideas on how to get groups and individual travelers coming
to the hotel. This insight can be the difference between a full hotel and an empty
one.
4. Market area: To know how the hotel should be priced, the Hotel Revenue
manager needs to understand how the other hotels in the area are pricing
themselves. She can do this in several ways. She can either blind call the hotels
to try to get rates, or she can look online. Either way, once she has the knowledge
of what the other hotels are doing, she can use it to better drive revenue to her
own hotel. One tactic a Hotel Revenue manager might use is to sell an upgraded
room at slightly higher than a competitor’s standard room rate to drive business
to her hotel.
5. Managing Reservations: Finally, some hotels require the Hotel Revenue manager
to be the reservations department manager as well. This involves the hiring,
training, disciplining and firing of a reservations sales staff. One one hand, this
management can take away from the other revenue duties the Hotel Revenue
manager has. On the other, it gives the Hotel Revenue manager access to a team
of employees who can better enact his decisions regarding rates.
Job Description
Scope of the Role
• Implement revenue management operations, procedures and best practices.
• Identify new revenue opportunities.
• Provide daily, weekly and monthly reporting.
• Optimize and expand distribution partnerships.
• Act as overall business development consultant for the hotel manager/owner.
• Challenge and influence hotel to improve service level and operational standards.
• Build and maintain strong working relationships with levels of staff at the client
hotel.
• Travel regularly to each hotel.
• Embed a revenue management culture.
Reports To
• Cluster Revenue Manager
• Director of Revenue Management

Core Job Responsibilities & Duties

• Oversee revenue management and distribution strategy of the hotel and manage
day to day yield operations.
• Daily pick-up analysis, strategy adjustments and reporting.
• Perform competitive benchmark studies and follow market trends.
• Create and maintain a 13 month rolling demand calendar.
• Create and develop pricing strategies in conjunction with the individuality of each
hotel.
• Provide weekly dynamic forecast of expected results, variances and budget
comparisons.
• Manage and oversee strategy for all 3rd party distribution
• Responsible for assessing, analysing and pricing group business strategies
• Analyze overall monthly hotel performance and provide summary report with
recommendations to improve long term strategies.
• Ensure all related systems are configured correctly, validated and working to full
capacity
• Oversee and audit the standards and operations of the reservations department.
• Ensure web site booking process is maintained up-to-date and functional.
• Ensure hotel personnel is fully competent in the use of all systems
• Work in liaison with hotel sales and reservations departments as a team.
• Regularly check the input and the quality of data (segmentation, denials tracking,
etc…)points.
• Conduct quarterly property performance review and develop strategic and
tactical action
• Responsible for best practice standards to include: competitor analysis;
environmental scanning; market modeling; distribution yield management;
business mix yield management; length of stay yield management; inventory
availability by channel; pricing control and new pricing concepts
• Evaluate performance of distribution partners and contracted rates (OTA, FIT, tour
operator, corporate, consortia, crew, groups, etc…).
• Reduce the cost of distribution by finding new less expensive means of delivering
business
• Prepare outline for and support the annual revenue budget process.
• Inspire Hotel’s HODs to further embed a revenue management culture.
• Advice and coach the client in other operational areas.
• Visit the hotels to get first-hand knowledge of all revenue management issues and
other key areas.
• Any other reasonable requests made by management.
Personality
• Business Development DNA and commercial minded.
• Strong sense of need for achievement of goals and success.
• Sound ability and knowledge to develop standards of operations and strategic
processes
• Good analytical and numeric skills for fast data crunching.
• Ability to work under own initiative in a highly pressured environment.
• Good listening skills and the ability to anticipate business needs.
• Able to develop relationships with 3rd parties and the hotel teams.
• Capacity to read situation, understand environments and respond accordingly
• Capable of prioritizing between revenue generating actions and time consuming
tasks with low yield impact.
• Ability to work across all levels and functions of Xotels client portfolio under own
initiative in a highly pressured environment.
• Well developed interpersonal, adaptive influencing and supervisory management
skills
• Willingness to travel and ability to interact professionally with other cultures
• Mentality of client service and taking responsibility beyond direct duties.
• High level of motivation, determination and commitment.

Experience & Qualifications

• 2 - 4 years of hands-on Hotel Revenue Management experience.
• A strong command of both written and spoken English is required; additional
languages an asset.
• Bachelors or Masters Degree in Hotel Management, Tourism or Economic Studies.
• Must be EU Citizen or in possession Spanish work visa.
• Highly computer literate with a high level command of Excel.
• Knowledgeable of hotel technology: PMS, Channel Manager, GDS, CRS, Extranets

Price Discrimination & Product Differentiation in Hospitality Fare Structure

Price discrimination:
– The practice of charging different prices for same product with same
costs of production
– Based solely on different consumers’ “willingness to pay”
Product differentiation:
– Charging different prices for products with different characteristics and costs of production
Current hospitality fare structures reflect both strategies:
– Differential Pricing based on differentiated fare products
– But higher prices for fare products targeted at business travellers are clearly based on their
willingness to pay
Pricing Objectives
An organization must identify its pricing objective before determining the price itself. So let’s quickly
go through
these pricing objective one by one:-
Profitability Goals
Profitability goals can focus either on achieving a targeted return on investment (ROI), or on
maximizing profits.
ROI
Focusing profitability goals on ROI involves pricing products to achieve a certain percentage return
on sales
or investment. Leading companies in the hospitality industry can use this system because they can
set
pricing more independent of competition than smaller firms can.
Maximizing Profits
Most organizations create a pricing strategy designed to maximize profits. The price that will produce
the
maximum profit for a product or service is determined through a process known as "marginal analysis."
Marginal analysis means that as long as the additional revenue gained from the last unit produced
(i.e.,
marginal revenue) is greater than the cost of producing that last unit (i.e., marginal cost), the firm
should
produce an additional unit of the product. Profits are maximized when marginal revenue equals
marginal
cost.
Pricing strategies designed to maximize profits should focus on total output rather than individual
products.
For example, a hotel can set lower room rates to achieve greater occupancy. The lower price might
result
in a lower profit margin for each individual room, but the higher rate of occupancy could result in
greater
profits for the hotel as a whole.
Sales-Oriented Goals
Sales-oriented goals focus either on increasing sales volume or on maintaining or increasing market
share.
Increasing Sales Volume
Increasing sales volume means increasing the number of units sold. This is usually measured as a
percentage increase in sales volume over a specified period of time. For example, an organization
could set
a goal of increasing sales volume by 25 percent over the previous year. To achieve sales goals
(especially
aggressive ones), organizations may resort to discounting, rebates, or other aggressive pricing
strategies.
Maintaining or Increasing Market Share
Market share is usually expressed as a percentage of the total units in the marketplace. Sales-oriented
goals that focus on maintaining or increasing market share can lead to price wars if one firm cuts its
prices
in an effort to increase its market share at the expense of others.
Status Quo Goals
The two status quo goals are closely related. They are:
• Stabilizing prices
• Meeting competition
These are the least aggressive of all the pricing goals. The primary intention is to avoid any kind of
price
competition such as price wars. Status quo goals are common in industries where the product is highly
standardized
and one firm has historically acted as a leader in setting prices.
Non-Price Competition
Companies that do not compete on price can still be highly competitive, but the focus is on other
areas of the
marketing mix, such as product, distribution, and promotion. This is called "non-price competition."
Two major methods of non-price competition are
• Promotion and
• Product differentiation.
In addition, some firms emphasize the variety and quality of their services. Non-price competition
is an increasingly
popular approach. Advantages include:
• It allows the seller to keep some advantage if a competitor chooses to undersell.
• Marketing on price alone does not promote customer loyalty-buyers will stay only as long as that
seller
offers the lowest price.
Customer Value Hierarchy - 5 product levels
•Core benefit:
•Fundamental service or benefit the customer is really buying
•Hotel guest is buying «rest & sleep»
•Basic product:
•Core benefit turned into a basic/generic product
•Hotel room includes a bed, bathroom, dresser, etc.
•Expected product:
•Set of attributes & conditions buyers normally expect from the
product
• Hotel guests expect a clean bed, fresh towels, working lamps, a relative degree of quietness, etc.
• Augmented product:
• Additional services & benefits, exceeding customer expectations, distinguishing the offer from
competition
• A hotel can offer cable services, rapid check-in/ check-out, fresh flowers, fine dining, etc.
• Potential product:
• The augmentations & transformations the product might undergo in the future
• Hotel search for new ways to satisfy customers & distinguish from competition
Factors Affecting Price
• Internal factors include:
• Organizational goals
• Historical pricing
• The organization's strategic position in the
market
• External factors include:
• Supply and demand (both locally and within
the industry at large)
• Competitor behaviour
• Customer sensitivity and responsiveness

Unit III: Yield Management

Yield management is designed to measure revenue achievement. One of the principal
computations involved in yield management is yield, which is the ratio of actual revenue
to potential revenue. Actual revenue is the revenue generated by the number of rooms
sold. Potential revenue is the amount of money that would be received if all rooms were
sold at full rack rates.
The mathematics of yield management is relatively simple, although several formulas
are usually involved. This section is intended to introduce the basic formulations of yield
management computations.

Elements of YM
Flexible rates lead to more guests and associated transactions makes YM a complex
managerial tool. It becomes even more complex when discounting is granted on a
selective rather than general basis and when it involves selling rooms for which there
may be competing buyers. While developing a successful Yield Strategy, the following
Elements are very important:
Group Room Sales
Transient (FIT) Room Sales
Food and Beverage Activity
Local and Area-wide Conventions
Special Events
1. Group Room Sales:
Group Booking Data Determines whether the Group blocks already recorded in the
Reservation File should be modified or not and adjusts expectations by reviewing the
Group’s Booking History. Determine if group blocks should be reduced owing to
anticipated cancellations or over estimations of group size. Groups generally block 5% to
10% more rooms than they require so that they have sufficient space for their members.
DELETION OF UNNECESSARY
GROUP ROOMS FROM GROUP BLOCK IS CALLED WASH FACTOR.
Group Booking Pace Watches out for the Rate at which Group Business is being booked
(Consider Historical Trends). Booking here is the initial agreement between the group
and the hotel and not the individual rooms in group block by group members. It is in
form of percentage compared to the number of previous years’ bookings during that
same period. Management should try to keep the method for tracking group bookings
pace forecasts as simple as possible.
Anticipated Group Business Watches out for repetitive Group Patterns and act
accordingly in order to forecast the Pressure on the Market, and hence adjust Selling
Strategies. It is unbooked business likely to return. A group for example may rotate in 3
cities having its congression once in 3 years in the same city. Although a contract may
not yet be signed, but the management may be confident that the group will return
according to the cycle. TENTATIVE BOOKINGS that await final contract negotiations are
also normally included in YM.
Group Booking Lead-Time Measures how far in advance of a stay Bookings are made.
This is very important in determining whether to accept an Additional Group and at what
Room Rate to book the New Group. Average lead times may be up to 2 months or more.
Management must determine its hotels lead time for group bookings so that a booking
trend can be charted. This trend can be combined with the booking pace information on
a graph to illustrate the rate at which the hotel is booking business compared with
historical trends. This information is essential in determining whether to accept an
additional group and at which room rate. If current rate of group bookings is lower than
historical rates the book rooms at discounted prices.
Displacement or Transient Business Occurs when a Hotel accepts Group Business at the
Expense of Transient Guest willing to pay rack rate. This might engender Profitability
Problems and Bad Reputation. A hotel should first look into the revenue factors and
accept a group if the expected revenue gain offsets the transient guest revenue loss.
Also consider guests who cannot be accommodated if they are regular or first time
guests along with secondary and tertiary displacements
2. Transient Room Sales:
The Front Office Management shall monitor the Booking Pace and Lead-Time of Transient
Guests in order to understand how Current Reservations compare with Historical and
Anticipated Rates
3. Food and Beverage Activities:
All local Food and Beverage Functions should be viewed in light of the Potential for
Booking Groups that need Meeting Space, Food and Beverage Service, and Guest Rooms
4. Local and Area-wide Activities:
Even when a Hotel is not in the immediate Vicinity of a Convention, Transient Guests and
Smaller Groups displaced by the Convention may be referred to the Hotel (as an
Overflow Facility) and this may have a tremendous Impact on Hotel’s Revenue
5. Special Events:
In Special Events (Concerts, Festivals, and Sporting Events), Hotels might decide to
benefit from High Demand by restricting Room Rate Discounts or requiring a Minimum
Length of Stay
Functions performed by YM techniques:
1. Improves forecast demand.
2. Determines of discounting activity whereby discounts are eliminated during high
demand periods.
3. Uses MLOS minimum length of stay and CTA closed to arrival to maximise revenues in
peak demand periods.
4. Implements special event rates in peak demand periods.
5. Improved seasonal pricing and inventory decisions.
6. Identification of target market segment demands.
7. Improved development of business plans.
8. Establishment of value based rate structure.
Points to kept in mind while managing yield:
1. Occupancy and ADR index should be close: within a few percentage points of each
other.
2. Rate integrity should be maintained over various distribution channels.
3. Revenue management should be a daily activity with constant monitoring of
competition rates via internet, call around etc.
4. It may be necessary to gamble on rates sometimes, but do so based on known data
and with minimal costly walks.
Techniques of YM
Capacity management:
1. Also called as selective over booking.
2. It involves controlling and limiting room supply.
3. It balances risk of overselling against loss in potential revenue arising from SPOILAGErooms
going unoccupied after reservations were closed off.
4. Also involves number of walk-ins to accept in place of expected cancellations and no
shows.
5. It varies with room type; it being more prudent to overbook lower priced rooms.
Discount allocation:
1. Involves restricting the time period and the product mix available at reduced prices.
2. Primary objective is to protect enough remaining rooms at a higher rate to satisfy the
projected demand at that rate while at the same time filling up rooms that would
otherwise have remained unsold.
3. Works on the principle that sale of a perishable item at a reduced price is often
better than no sale at all.
4. Limiting discounts also encourages up selling.
5. PRICE ELASTICITY refers to relationship between price and demand that needs to be
carefully considered
Duration control:
1. This places time constraints on accepting reservations in order to protect sufficient
space for multi day requests.
2. A reservation for one night stay may be rejected even though space is available.
3. Hotels in peak occupancy should prefer reservations to be for more than one evening.
MLOS/CTA.
Putting Yield Management to Work
In principle, yield management tactics are fairly straightforward. In practice, they
require you to be diligent, shrewd, and always on top of your game as a hotelier. Gone
are the days of simply offering a rate discount to convention attendees in order to
lengthen their stay beyond convention days. Today's hotelier must know the tendencies
of each demand segment and how to satisfy those tendencies in a way that maximizes
profit. Offering solutions instead of discounts to parsimonious patrons has proven a far
more effective way of encouraging them to stay, and stay longer, at your hotel. This is
where an investment in yield management pays off.
A profitable yield management strategy also involves exploiting the best (and
diminishing the least-efficient) aspects of a hotel's daily operation. Wholesale costcutting
rarely proves effective because there aren't many viable areas, depending on a
hotel's brand and service level, in which to make cuts: you can't close down one day a
week to save on energy and maintenance, you can't shut down the pool just because
only a handful of guests are there to swim, and you can't leave the front desk unmanned
to save the cost of a shift.
Instead, leveraging some routine costs can be useful in bolstering hotel revenue. For
example, costs associated with a hotel's breakfast buffet, including food preparation and
waste disposal, will exist whether the hotel is fully or sparsely occupied on any given
day-that is, the table could be all laid out but with too few guests to partake of what's
offered. A 'free breakfast' offering during slow periods can encourage more guests to stay
at your hotel, improving overall revenue with only a marginal effect on food and
beverage costs. Likewise, complimentary phone and Internet use are swiftly becoming
the norm for negotiated corporate rates. As hoteliers cast their lines into the uncertain
waters of 2009, such value-added amenities can prove an essential lure in capturing
demand.
What is Revenue Management?
To use the American Hotel and Lodging Educational Institute’s definition, revenue
management is “a set of revenue maximization strategies and tactics meant to improve
the profitability of certain businesses.” This definition purposely leaves the complex
multidisciplinary aspects of the process vague, to emphasize its ultimate goal: improving
profitability. It is complex because it involves several aspects of management control,
including rate management, revenue streams management, and distribution channel
management, just to name a few. Revenue management is multidisciplinary because it
blends elements of marketing, operations, and financial management into a highly
successful new approach.
Perhaps the best definition is Wikipedia’s: revenue management is the process of
understanding, anticipating and influencing consumer behaviour in order to maximize
revenue or profits from a fixed, perishable resource (such as airline seats or hotel room
reservations). This encapsulates both the overarching goal of the process, and its crucial
relationship to consumer behaviour. What is revenue management except a means to
mould consumer behaviour in a way that benefits the hotel?
Understanding
The first step in this long and ongoing process of encouraging consumer behaviour that is
beneficial to the hotel is understanding consumer behaviour in the first place. What
motivates a potential guest to book a room at one hotel as opposed to another, or at one
price and not another is an essential concept to grasp. Though this can be conjecture,
the relationship between pricing and booking pace (and that of a hotel’s competitors) is
easily measured, and elucidates the same set of behaviours. Selling a room to a guest at
the right price to both maximize occupancy and the revenue it generates is impossible
without first considering what will prompt a consumer to make the purchase. It is very
easy to understand the consumers buying habits if you are able to collect a property’s
purchasing data analyze it and then read and interrupt the data in real time. This is
easier said than done, but very possible if you have the right system in place.
Anticipating
Once an understanding of consumer behaviour is gleaned- both in a general sense and
specific to the property and the property’s competitors- then management can begin to
anticipate that consumer behaviour. This is where the real challenge or revenue
management emerges: being as accurate with this anticipation as possible, through
forecasting, modelling, and exhaustive research. Only when consumer behaviour is at
least partially anticipated can a hotel hope to sell and distribute their room inventory
effectively, which is how revenue management leads to higher revenues and
profitability. Once all data is collected and analyzed a pattern will begin to form. This
pattern will constantly change and evolve just like any market. The key is to have a
system in place with Artificial Intelligence (AI) that can understand and adapt to these
changes in real time.
Influencing
The last, and most critical aspect of revenue management, is actually influencing
consumer behaviour. If a hotel can understand and anticipate a consumer’s decision,
then the next logical step is to guide that decision in a direction that is beneficial to the
property. In terms of selling rooms, exerting influence is largely a function of
presentation and sales channel distribution, in an effort to display a room to a customer
at the price most likely to incite them to buy (while simultaneously being the price that
earns the most revenue for the hotel in that situation). The process of influencing
consumer behaviour is the capstone of revenue management; it is supported by
understanding and anticipating consumer behaviour, but in the end it is all the only
visible result of a revenue management strategy. Once you have collected and analyzed
all of the data, it will be simple to implement the findings into your revenue
management processes. By doing so, it will provide you with a huge competitive
advantage in the market, thus helping you capture a bigger share of the market.
Of course, being capable of executing the technical aspects of revenue management is
crucial to the success of any revenue management strategy. The ability to modify prices
in a real time environment, effectively manage inventory, balance and optimize sales
channel distribution and facilitate cross-departmental cohesion are important nuts and
bolts of the revenue management machine; it won’t function without them. But neither
will it work without an understanding of the fundamental principles of revenue
management.
So remember: Understand, anticipate and influence. These are the fundamentals of
revenue management and the keys to a hotel’s financial success