R evenue management
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Transcript of R evenue management
AGENDA The Concept of Revenue Management
Hotel Industry Applications Benefits of the techniques Areas where this concept is applied How the concept is applied
Measuring Yield Yield statistic Potential Revenue Potential Average Single Rate Potential Average Double Rate Multiple Occupancy Percentage Rate Spread Potential Average Rate Room Rate Achievement Factor Identical Yields Equivalent Occupancy
Benefits of Revenue Management
CONCEPT OF REVENUE MANAGEMENT
“Selling the right product to the right customer at the right time for the right price.”
-Robert G. Cross Aeronomics
Revenue Management is the art and science of enhancing firm’s revenues while selling essentially the same amount of products
or Revenue Management is a technique to optimize the revenue earned from a fixed, perishable resource.
HISTORY
Before its emergence BOAC (now British Airways) experimented with differentiated fare products.
The concept was pioneered by Robert Crandall CEO of American Airlines in the year 1985.
First major users were American Airlines and Delta Airlines.
In 1990 it spread to other travel and transport companies, specially at national Car Rental.
By the early 1990s the concept also began to influence television ad sales.
The concept was first started in hotel by Bill Marriott, Jr, CEO of Marriott International in the 90s.
CONTINUED…
Fixed amount of resources available for sale.
The resources sold are perishable.
Different customers are willing to pay a different price for using the same amount of resources.
3 ESSENTIAL CONDITIONS FOR REVENUE MANAGEMENT TO BE APPLICABLE
Regional Sales & Marketing Manager
Business Development Manager
Asst. Business Development Manager
Sales Coordinator
Reservation & Revenue Executive
Reservation & Revenue Associate
Yield Management is based on Demand and Supply.
The Hotel Industry’s Focus is shifting from High Volume Booking to High Profit Booking.
THE CONCEPT OF YIELD MANAGEMENT
The Commodity that the Hotel sells is Time in a Given Space, and if it is Unsold, Revenue is lost forever.
Yield Management is composed of a set of Demand Forecasting Techniques used to determine whether Room Rates should be raised or lowered, and whether a Reservation should be accepted or rejected in order to maximize Revenue.
In order to maximize Revenue, the Front Office Manager needs to forecast Information concerning Capacity Management, Discount Allocation, and Duration Control.
HOTEL INDUSTRY APPLICATIONS
It tries to solve the following Problems:
Controlling and limiting Room Supply
Balancing the Risk of Overselling Guest Rooms with the Potential Loss of Rooms arising from Room Spoilage
Determining how many Walk-ins to accept during the Day of Arrival, given projected cancellations, no-show and early departures.
CAPACITY MANAGEMENT
Involves restricting the Time Period and Product Mix Available at reduced or discounted Rates, and limiting Discounts by Room Type through encouraging Upselling
DISCOUNT ALLOCATION
DURATION CONTROL
Places time constraints on accepting reservations in order to protect sufficient space for multi-day requests.
Yield Statistic is the Ratio of the Actual Revenue (Generated by the Number of Rooms Sold) to Potential Revenue (The Amount of Money that would be received from the Sales of Rooms in the Hotel at a Rack Rate)
YIELD STATISTIC
YIELD STATISTIC FORMULASFormula 1
Actual Rooms RevenuePotential Rooms Revenue
OR
Room Nights Sold × Actual Average Room RateRoom Nights Available Potential Average Rate
OROccupancy Percentage Room Rate Achievement
Factor
POTENTIAL AVERAGE SINGLE RATE
Formula 2:
Single Room Revenues at Rack RateNumber of Rooms Sold as Singles
Formula 3:
POTENTIAL AVERAGE DOUBLE RATE
Double Room Revenues at Rack RateNumber of Rooms Sold as Doubles
Formula 4:
Number of Rooms Occupied by more than 1
Person
Total Number of Rooms Sold
MULTIPLE OCCUPANCY PERCENTAGE
Formula 6:
POTENTIAL AVERAGE RATE
(Multiple Occupancy % Rate Spread) Potential Average Single Rate
24
IDENTICAL YIELDS
Formula 8:
Identical Yield Occupancy Percentage =
Current Occupancy Percentage
Current Average RateProposed Average
Rate
Formula 9:
Equivalent Occupancy = Current Occupancy
Percentage ×
−Marginal cost
Equivalent Occupancy = Current Occupancy Percentage × Contribution Margin New Contribution Margin
Rack Rate – Marginal CostRack Rate × (1- Discount Percentage)
EQUIVALENT OCCUPANCY
BENEFITS OF REVENUE
MANAGEMENT Improved forecasting Improved seasonal
pricing and inventory decisions
Identification of new market segments
Identification of market segment demands
Enhanced coordination between the front office and sales divisions
Determination of discounting activity Improved development of short-term and
long-term business plans Establishment of a value-based rate
structure Increased business and profits Savings in labor costs and other operating
expenses Initiation of consistent guest-contact
scripting
CONTINUED…