Revenue management is extremely important within the hotel industry, because it allows owners to optimise the way they do business, in order to improve financial results. However, it also requires specific skills and knowledge, which means that it can be more effective to outsource revenue management to a third party that specialises in this area. In this article, you will find out more about revenue management and the benefits of outsourcing.
*ADR (Average Daily Rate) =Total Room Revenue / Total Room Sold
* ROI (Return on Investment) =Owners Investment Return / Owners Original Investment
* RevPAR (Revenue per Available Room) =ADR X Occupancy %
OR =Total Revenue / Total Rooms Available for Sale
*RevPASH (Revenue per Available Seat Hour) =Total Period Revenue / (Number of Available seats X hours Seat Available)
*GOPPAR (Gross Operating Profit per Available Room) = (Total Revenue - Management Controllable Expenses) / Total Rooms Available for Sale
* % Change in Sales = (Total Sales this Period - Total Sales Last Period) / Total Sales Last Period
*Comp-set (competitive set) is a group of similar and directly competing lodging properties to which an individual hotels operating performance is compared
* Value Proposition is a statement describing the good or service to be received and the price to be paid for it
*Consumer Rationality is the tendency to make buying decisions based on the belief that the act is of personal benefit
*Overbooking to accept reservations for more rooms than a hotel has available or in inventory
Revenue Management is pricing and allocation of units and policy designation to optimize profits of service firms with a perishable product
* Break Even Point is the point at which a firms revenues exactly equal its expenses
=Revenues – Expenses
*Rack Rate is the price of the rooms when no discount of any type is offered to guest purchasing the room
*Target Market is the potential customers to whom a business’s marketing activities and messages are directed
*Market Segment is a subset of a consumer group that can be readily identified by one or more common but individual characteristics
* Hotel Distribution Channels is a vehicle used to communicate with a source of customers
*Constrained Supply is the condition that exists when sellers cannot readily increase the amount of products or services available for sale when consumers demand form them increases
* Cost Accounting is the specialized branch that focuses on recording and analysing the expenses incurred by an organization
*Variable Cost is an expense that generally increases as sales volume increases
*Fixed Cost is an expenses that remains constant despite increase or decrease in sales volume
*Pace Report is a summary report describing the amount of future demand for a lodging properties room and other services and the rate at which that business is being captured
*Total Revenue is the industry term used to describe the sum of prices paid by a business’s customers
Revenue Management Essential Certification Part One
We could distribute this in 08 Different sub part for better understanding.
1. Pricing Fundamental
2. The Competition
5. Channel Management
6. Group Selling Guideline
7. Inventory Management
8. Completing a Revenue Forecast
Pricing Fundamental- There are three Pillars of Pricing Mythology
3. Price Sensitivity
Now we will be studying for Pricing Concepts :
1. Restrictions : Fence- Restrictions that are communicated to the guest. They are part of the rate and are valid at all times. For example advance booking, advance purchase, length of stay, and deposits are fenced rate products.
2. Yield Statics - Restrictions that are not communicated to the guest, for example: Closed to Arrival, Minimum Length of Stay, Maximum Length of Stay
3. Pricing Dangers – Cannibalization and Dilutions are two major pricing Dangers.
· Cannibalization A new rate products shifts existing customers who are willing to pay higher rates to a new, lower priced products.
· Dilutions can occur if you consistently fenced discount rates. Customer will reject your best flexible rate and will consider the discounted rate to server as your defector rate. This can decrease the value of your room, and can be considered as and unfenced discount that is always available.
How does Pricing influence your Book Direct Strategy?
An essential pillar of a successful Book Direct is your hotel’s Pricing Strategy. To develop a comprehensive strategy, your pricing should take into consideration how your hotel can position itself competitively in the market based on perceived value and attract guests from segments that you are targeting.
A few things to remember to set your strategy right:
1 - Follow the 5 Pricing Principles.
• Best Flexible Rate (BFR) is your market appropriate rate! Not any other rate.
• Discounts off BFR are ok but they should carry restrictions and fencing.
• Consider the impact on ALL market segments when making a pricing decisions.
• Flex your discounts and room type pricing to encourage buy up.
• Clearly communicate rate descriptions
2 - Your Hotel in its market. Getting to know what your competition is selling is crucial. But when you start the rate comparison, you should be vigilant in comparing all the rate details and not only the rate itself. A few questions you should ask yourself when analysing these data:
Are there any fencing or restrictions?
Are there any inclusion?
What is the cancellation policy?
How do the different room types compare?
Always keep in mind your hotel’s SWOT vs. your competition, not only for the hotel product but also with the customer segments you are targeting in mind.
3 - Rational pricing must be applied throughout your pricing structure. Pricing is a key support to any Book Direct initiatives when it follows a rational pricing philosophy. In other words, when hotels have a competitive offer that is attractive to a particular customer segment based on how the guest perceives that hotel's value.
4 – Discounting may not attract customer One common mistake done with pricing when focusing on book direct is to think that discounting will attract customer. A discounting strategy should be targeted to attract guests during your hotel’s need period, AND should carry fencing and restrictions. When a hotel moves away from this it is very easy to slip into difficult situation with trade down and high displacement of higher rates.
5 – Think like a customer. Place yourself in the customer shoes! Ask yourself the right questions, are your offers attractive for the customer segment you are targeting? Are they clear enough and easy to book? Do I make my hotel easy to understand and buy? Do I have too many offers out there? etc.
These elements set the ground to a clear and efficient pricing strategy to inspire confidence for our customer to book with us directly. Combined with all the other distribution initiatives you can be confident to reach your 2015 Book Direct target.
5 Tips for a successful pricing strategy
With the end of 2014 approaching it is time to reflect on next year pricing strategy to make sure it supports fully your budget goals for 2015.
The following tips are reminders of the elements to take in consideration and where to focus when implementing your pricing structure.
1 - Know your market, competitors and product Rate comparison with your competitors is one thing, but don't forget to explore further. Look at the different elements that constitute your competition set and market, their strengths and their weaknesses. Evaluate the different influences that would affect your demand and its forecast for the year to come. In other words, make sure you know your SWOT to know where you stand.
2 - Learn from historical data What went well in 2014 pricing? What was a success and why? What did go wrong badly and why? Once you have assessed your past strategies and results, make sure you are learning and growing on the key leanings you found.
3 - Be wise in your pricing fencing and restrictions Having a competitive rate is not always the only comparison you should have with your competitors. The selling conditions or selling restrictions will also affect greatly your strategy and therefore performance. Make sure your rate fencing is adequate to your offer, product and market and that the lack or the excess of these restrictions, are not affecting the rationale of your pricing structure. Avoid complex program that are difficult for a customer to buy.
4 - Maintain your distribution parity With the evolution of the web distribution and the numerous way of booking a hotel room, it has become easier for a customer to find any fault in our rate parity. All our channels must offer parity to our guests. This how we establish trust with them and how we can in the future increase our book direct share. Rate disparity will have a negative impact on your performance on the long run.
5 - Put yourself in the customer shoes Or always consider the price/value balance of your strategy. Try to understand what your customers are willing to pay and how they will perceive your offer. Ask yourself if you are showing value and where do you sit within the competition having in mind your product. Your price and value should match!
Your competitive set is made of three to seven hotels that are the most similar to yours in product, Price, Location and Business.
1) Product- Their room’s quality, services and amenities are similar to yours.
2) Price – They offer rate and products similar to yours.
3) Location- They are located and close enough in approximately to your hotels that you are competing for customers.
4) Mix- They draw a similar mix of customer’s type for example, Leisure Travelers, Business Travelers Group your competitive set.
Steps to be follow to be informative
1) Research your potential competitor’s.
2) Conduct a competitive analysis.
3) Conduct a SWOT- Strength, Weakness, Opportunity and Threats
4) Analyse competitive performance using key matrices.
5) Present your Analysis and recommendations.
When you accurately forecast unconstrained Transient Demand you can effectively Price, Market and sell your Hotel resulting in Maximum Revenue.
Steps to be follow to be informative
1) Analyse the historical unconstrained demand.
2) Identify Transient demand drivers that were influencing historical demand
3) Review your unconstrained demand forecast.
4) Modify the Demand
Demand Factor could be
2) Local Events
3) Seasonal Irregularities
4) Hotels Booking
9) External Info
As computer technology has advanced, artificial intelligence has become more reliable, enhancing its standing within the business world. Indeed, hospitality companies are increasingly using AI to carry out customer service tasks, which are especially important within hotels and resorts. In this article, you get a closer look in which way artificial intelligence is revolutionising the hospitality industry.