Yield/Revenue Management 101

The goal of this presentation is to understand the terms and

processes involved in Revenue and Yield Management.

Lesson Objectives

After completion of this lesson the learner will be able to :

□ Define the terms associated with revenue management

□ Explain the process of maximizing revenue and how revenue management can help achieve this

□ Describe the role of the Global Distribution System in Revenue management

□ Define ways to measure Revenue management success

Revenue/Yield Management

Integrated control of CAPACITY and PRICE

So what does that definition actually mean?

□Selling the right product □ Correct brand, room type, and/or meeting space

□To the right customer □ Transient or Group/Business or Pleasure

□At the right time □ The booking window of how far out guests book

□For the right price □ Properly position rates for each segment

Maximize Revenue“Maximize Revenue” can be broken down into three main activities:

Maximize Revenue

Pricing Strategy

How do we price our product?

Inventory Management

How many rooms are made available at each price point?

Selling Strategy

How do we sell our product?

□ Price the product (rooms) appropriately based on seasonality (changes in customer mix, demand, etc.)

□ Focus on forecasted demand for the rooms and develop restriction and authorization strategies that will capture the highest possible revenue from that demand.

□ Implement selling strategies that make sense to the customer, support the brand’s selling philosophies, and maximize the property’s revenue.

So, how does Revenue Management help to

accomplish the goal of maximizing revenues?

Pricing Strategy

Pricing is the process of determining the rates that will ultimately define the product in the marketplace. It is a long-term strategic plan designed to target specific customers and offer them the best possible price/value for their money. The customers’ willingness to pay a certain rate is directly related to the “perceived value” of the room. When establishing a pricing structure, there are three factors to consider.

□The Customer□The Property□The Market

Inventory Management

Translating the customer selection process into restrictions

Stay controls are used to FILTER out EXCESS DEMAND. The timing of your revenue management decisions in conjunction with other factors such as arrival/departure patterns, average length of stay, etc. will dictate which control to use.

Minimum Stay Close to Arrival

Maximum Stay Close inventory/GTD

Allotments/Tally Block/Group Only

Demand

□ Demand: is defined as all of the people that want to stay at the property (demand is not constrained/impacted by physical capacity, restrictions, or availability of rooms.

□ Demand is calculated by: Rooms sold PLUS demand turndowns. Demand turndowns are rooms that were turned away due to restrictions or lack of available inventory.

The goal of Revenue Management is to capture the most room revenue from existing

demand, thus maximizing revenue.

You may ask yourself, what is demand?

Filter or Wall?

□ Rate Controls□ Closed to Arrival□ Minimum Stay□ Maximum Stay□ Close All-Block-Zero out inventory□ Allotments□ Block Only-Group Only□ Close 6pm/4pm

Stay controls act like filters, holding back some transient business while letting other business to pass through. Other controls are like a wall – stopping transient business all together. Identify if the following controls are filters or walls

How do we maintain rate integrity and restrictions when all those other booking engines (Internet) are discount options for our customers?

GLOBAL DISTRIBUTION SYSTEM

The GDS Marketplace

□ GDS represents 19% of Lodging Room Revenue

□ GDS is the preferred booking vehicle of travel agencies

• 80% of all reservations made by agents for Marriott brands are booked via GDS

□ Marriott owns the highest market share in the GDS channel at 20%

□ GDS is the 2nd largest source of reservations for Marriott Lodging

Are We Alone?

□Airline seats - once the aircraft departs with an empty seat, there is no longer a revenue opportunity associated with that seat.

□Travel Industry□Car Rental Agency□Media Advertising□Hobbies - Golf, Horse

Riding etc.□PRODUCE

MEASUREMENT OF SUCCESS

□Once the appropriate actions have been effectively implemented, they must be measured for their success. The cornerstone of measurement for any effective Revenue Management strategy is to focus on RevPAR

How do WE measure our Revenue Management success?

□ Occupancy?□ Avg. Daily Rate?□ Accurate

Forecasting?□ Revenue?□ Exceeding budget?□ Revenue per

Available Room?0

102030405060708090

100

My Hotel

Occup %ADRRevPAR

RevPAR!

□Occupancy is an incomplete measurement because it fails to account for lost revenue due to varying room rates.

□ADR is an incomplete measurement because it fails to account for lost revenue due to unsold rooms.

□RevPAR blends both occupancy and ADR

Which hotel is best utilizing Revenue Management

Techniques?

ADR OCC %

Hotel 1 $81.54 55%

Hotel 2 $74.75 65%

Hotel 3 $69.00 68%

All the same!

ADR OCC % RevPAR

Hotel #1 $81.54 55% $44.85

Hotel #2 $74.75 65% $44.85

Hotel #3 $69.00 65% $44.85