Revenue Management

1. Revenue Management Chapter 6

2. Role of the Revenue Manager • Importance of revenue management • Different than “room rate management” • Factors to consider when answering the question: “How much are your rooms?”

3. Revenue Management • Negotiated Rate: A special room rate offered for a fixed period of time to a specific hotel client. • Black-out Date: Any day(s) in which the hotel will not honor a negotiated rate. • Negotiated Rate Agreement: A document that details the specific contractual obligations of a hotel and client when the hotel has offered, and the client has agreed to, a negotiated rate.

4. Revenue Management • Length of Stay (LOS): The number of nights a hotel’s individual guests use their rooms. Room Nights Sold = LOS Rooms Sold

5. Room Rate Management • Central Reservation System (CRS): An entity, operated by a franchisor, that offers potential guests the opportunity to make reservations at its affiliated (branded) hotels by telephone, fax, and/or the Internet.

6. Room Rate Management • Responsibilities are shared by: • Revenue manager • FOM • DOSM

7. Room Rate Management • Rate Resistance: Refusal to make a reservation because the rate quoted is perceived to be too high. • Displace (Revenue): To substitute one source of revenue for another.

8. Room Rate Economics • Supply: The total amount of a good or service available for sale. • Demand: The total amount of a good or service consumers want to buy at a specific price. • Room Rate Economics: The process by which revenue managers price rooms while considering how consumers may react to the pricing strategies that are used.

9. Room Rate Economics • Law of Demand: The concept of economics that recognizes, when supply is held constant, an increase in demand results in an increase in selling price. Conversely, with supply held constant, a decrease in demand leads to a decreased selling price.

10. Room Rate Economics • Law of Supply: The concept of economics that recognizes, when demand is held constant, an increase in supply leads to a decreased selling price. Conversely, with demand held constant, a decrease in supply leads to an increased selling price.

11. Room Rate Economics • Rate Type: A single (unique) rate for a specific type of room that is programmed into a hotel’s PMS. • Rack rates can vary by: • Bed type • Amenities • Location • Size

12. Room Rate Economics • Seasonal rates • Special event rates • Corporate rates • Government rates • Group rates • Package rates

13. Room Rate Economics • American plan • Modified-American plan • All-Inclusive plan • European plan

14. Room Rate Economics • Day rates • Half-day rates • Fade (flex) rates

15. Room Rate Economics • Traditional pricing strategies: • Hubbart room rate strategy ROI: Short for “return on investment”; the percentage rate of return achieved on the money invested in a hotel property. FF&E: Short for the “furniture, fixtures, and equipment” used by a hotel to service its guests.

16. Room Rate Economics • Traditional pricing strategies: • $1 per $1,000 rule Cost Per Key: The average purchase price of a hotel’s guest room expressed in thousands of dollars. • Bottom-up Selling: A tactic to first sell the hotel’s least expensive rooms. • Top-down Selling: A tactic to first sell the hotel’s most expensive rooms.

17. Room Rate Economics • Web-influenced pricing strategies • Competitive pricing • Follow-the-leader pricing • Prestige pricing • Discount pricing

18. Room Rate Economics • Call-around: A telephone “shopping” technique in which a hotel staff member calls competitive hotels to inquire about room rates and availability. The information is used by the calling hotel to help determine room rates. • www.RoomSearch.com

19. Room Rate Economics • Rate Integrity (Parity): The degree to which a hotel’s room rates are comparable regardless of the distribution channel on which they are found. • Distribution Channel: A source of potential room reservations.

20. Revenue Management Tools • Room types • Market Code: Guest types differentiated by sales source. Typical market codes include transient and group. • Track Code: Guest types differentiated by traveler demographics.

21. Revenue Management Essentials • Managing occupancy: • CTA: “Closed to Arrival;” in this situation, the hotel declines reservations for guests wanting to arrive on this specific date. • Over-booking: A situation in which the hotel has more guest reservations for rooms than it has rooms available to lodge those guests. Sometimes referred to as “oversold.” • Walk(ed): A situation in which a guest with a reservation is relocated from the reserved hotel to another hotel because no room was available at the reserved hotel.

22. Revenue Management Essentials • Managing ADR: • Lowering rates does not always increase demand. • In some situations, room discounting may be an effective managerial strategy.

23. Revenue Management Essentials • Measures of Effectiveness • Occupancy Index = Occupancy Rate of a Selected Hotel Occupancy Rate of That Hotel’s Comp Set

24. Revenue Management Essentials • Measures of Effectiveness • ADR Index = ADR of Selected Hotel ADR of That Hotel’s Comp Set

25. Revenue Management Essentials • Measures of Effectiveness • RevPar Index = RevPar of a Selected Hotel RevPar of That Hotel’s Comp Set

26. Revenue Management Essentials • Measures of Effectiveness • GoPar = Revenue – Management-Controllable Expenses Available Rooms for That Period

27. Yield Management • Philosophy • Implementation • Techniques

28. Yield Management • Most revenue managers would agree that: • Occupancy and ADR indices should be close • Rate integrity is essential • Revenue management is a daily activity • It is necessary to gamble at times