Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 1 Revenue Management.

1Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Revenue Management

2Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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?”

3Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

4Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Revenue Management

• Length of Stay (LOS): The number of nights a hotel’s individual guests use their rooms.

Room Nights Sold = LOS Rooms Sold

5Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

6Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Room Rate Management

• Responsibilities are shared by:– Revenue manager– FOM– DOSM

7Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

8Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

9Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

10Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

11Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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

12Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Room Rate Economics

• Seasonal rates• Special event rates• Corporate rates• Government rates• Group rates• Package rates

13Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Room Rate Economics

• American plan• Modified-American plan• All-Inclusive plan• European plan

14Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Room Rate Economics

• Day rates• Half-day rates• Fade (flex) rates

15Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Room Rate Economics

• Traditional pricing strategies:– Hubbart room rate strategyROI: 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.

16Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Room Rate Economics

• Traditional pricing strategies:– $1 per $1,000 ruleCost 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.

17Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Room Rate Economics

• Web-influenced pricing strategies–Competitive pricing–Follow-the-leader pricing –Prestige pricing –Discount pricing

18Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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

19Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

20Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

21Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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.

22Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Revenue Management Essentials

• Managing ADR:– Lowering rates does not always increase demand.

– In some situations, room discounting may be an effective managerial strategy.

23Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Revenue Management Essentials

• Measures of Effectiveness– Occupancy Index =

Occupancy Rate of a Selected Hotel

Occupancy Rate of That Hotel’s Comp Set

24Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Revenue Management Essentials

• Measures of Effectiveness– ADR Index =

ADR of Selected Hotel ADR of That Hotel’s Comp Set

25Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Revenue Management Essentials

• Measures of Effectiveness– RevPar Index =

RevPar of a Selected Hotel RevPar of That Hotel’s Comp Set

26Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Revenue Management Essentials

• Measures of Effectiveness– GoPar =

Revenue – Management-Controllable Expenses

Available Rooms for That Period

27Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

Yield Management

• Philosophy• Implementation• Techniques

28Woods et al., Professional Front Office Management

© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

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