Revenue Management

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Revenue Management

• Ben Figaroa

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What is Revenue Management?
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• Revenue management can be referred to as
• The wide range of techniques, decisions,
  methods, processes, and technologies involved in
  demand management

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• Or simply said
• Selling the right product to the right customer
  at the right time at the right price (thru the
  right channel).

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• A child selling lemonade might choose which day
  to sell it based on the weather (hot and sunny?)
  and/or based on the amount of traffic passing in
  front of her house
• A home owner deciding when would be the best time
  to put his house on the market

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• Airlines have pioneered the concept of Revenue
  Management while the lodging industry started
  with this in the early 80s.
• Airlines have experimented with different price
  points for the same seats based on demand
  patterns and booking windows

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• As hotels noticed this tactic, they also invested
  in RD so they could develop similar strategies
  to maximize their revenues for the hotel
  inventory.
• Quiz
• Terms used in Revenue Management (RM)

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• What is the definition of
• Revpar
• Revpas
• Revpac
• Revpatr

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• What is the definition of
• Revpar revenue per available room
• Revpas revenue per available square foot (or
  meter)
• Revpac revenue per available customer
• Revpatr revenue per available treatment room
  (used for Spa revenue management)

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• Revenue management integrates people, processes
  and systems in pricing and inventory strategies.
• People (having the right person on the job)
• Processes (rate parity, rational discounting and
  demand analysis)
• Systems (PMS, CRS, RMS)

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Processes for Maximizing Revenue

• Pricing How we price our products
• Inventory How much we make available at each
  price
• Sales strategy What we sell and when

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• Most revenue managers manage two inventories
• Guest Rooms
• Function Space

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• So when selling these inventories we are faced
  with the question
• Does that represent value to the customer?
• Would a customer be willing to pay more? Am I
  selling my product too cheap? Which means leaving
  money on the table?
• Are we priced competitively in the market?

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• To answer these questions you would need to ask
  yourself and try to answer the following
• How does my product compare to my competitor?
• How much demand is there for my product?
• Does this demand fluctuate?

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• Right now we have information at our finger
  tips. Go online and see what your customers are
  saying about your hotel in Blogs, Comments,
  Tripadvisor, etc..
• Gather your business intelligence, know what is
  going on in your market.
• In real estate they say location, location,
  location. In RM we say position, position,
  position.

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• Have your product available thru different
  distribution channels. GDS, Internet, Echannels,
  travel agents, wholesalers.
• In a low demand period its all about managing
  your distribution channels.

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• Once you have established where your product is
  better positioned in your market, make sure you
  are priced correctly so that you are giving value
  to your customers.

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• Revenue management is a discipline that enables
  you to manage your business (in this case hotel)
  by being
• Tactical
• Strategic
• Can anyone tell me what is the difference between
  these two?

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• Make sure you are forecasting accurately your
  future demand. Not only look for short term, but
  make sure you are looking at least 6 months out.

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• The impact of poor forecasting affects all levels
  of business.
• Revenue not optimized
• Labor management is compromised
• Credibility to owners
• Company forecast will suffer on Wall Street which
  will mean a lower stock price (for multinationals)

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• Forecasting is one of the single most important
  functions of Revenue Management
• If you dont know where you are going, you will
  never be able to drive with confident!

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• Smith Travel Research (STR) Caribbean Lodging
  Performance Report for the 12 months ending May
  31st 2009.
• Sample 173 hotels (51,908 rooms) from 22
  countries.
• Occupancy -7.8
• ADR (Average Daily Rate) -17.4
• RevPAR (Revenue per Available Room)
  -23.8
• Room Revenue -23.3
• Rooms Available 0.7
• Rooms Sold -7.2

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• Quiz
• What is RMS?
• Marriott uses One Yield (our own self developed
  software)
• What does your hotel use?
• Consider the many options available such as
  Ideas, RM software from Micros, EZ Yield etc.

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• Get your hotel to participate with Star
  Reporting. This will help you understand your
  market and serve as a tool to evaluate your past
  strategies.

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• With this presentation we have introduced the
  concept of RM as it relates to pricing, inventory
  management, forecasting and reviewing of past
  strategies.

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• Leading the revenue management processes is
  critical to the success of the hotel.
• It is not about analyzing the data within the
  spreadsheet but is ultimately about creating
  value for guests in every market segment without
  jeopardizing the hotel's revenue goals

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Now lets make some money!
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• Shift Happens