THE CONCEPT OF YIELD MANAGEMENT

Yield Management: Introduction

Yield Management, also known as Revenue Management, is

The process of understanding, anticipating and influencing
consumer behavior in order to Maximise Revenue or profits
from a fixed, perishable resource (such as airline seats or
Hotel Room reservations). The challenge is to sell The right
resources to The right customer at The right time for The
right price. This process can result in price discrimination,
where a firm charges customers consuming otherwise
identical Goods or services a different price for doing so.
Yield Management is a large Revenue generator for several
major industries; Robert Crandall, former Chairman and CEO
of American Airlines, has called Yield Management "The
Single Most Important Technical Development In
Transportation Management Since We Entered Deregulation.”

What Is Revenue Management?

Revenue Management: the art of selling the right room, at

the right time, to the right customer, at the right price.
Revenue Management is a discipline that has been growing in
popularity amongst all the service industries. It derives
directly from the so called “Price Discrimination” practice.

Price discrimination occurs when goods or services are

transacted at different prices from the same provider. This
concept can be studied in every Microeconomics course as a
feature of a monopoly market In order to allow this practice
in an oligopoly market, such as the airline or h otel industry;
it is needed a good collection of critical data together with
market segmentation, in order to boost revenue, keeping
production steady.

In simple words, having kept the capacity at the same level,

firms which have successfully implemented t he concept of
revenue management, have increased revenue per single unit
Revenue management can be used in a wide variety of
industries, as long as · the goods or services are highly
perishable (a room or a airplane seat can only be sold today,
if unsold, cannot be stored for another day when demand is
high) · it is possible to divide the market in different
segment (to go back to the concept of price discrimination, I
can offer a suite to a wealthy individual, quite a few deluxe
rooms to a company organising a conference for its own
managers, and the remaining standards rooms to s Tour
Operator for the tourists looking for a bargain) · the number
of goods on offer are fixed (I cannot build a hotel room
overnight)

We can summarize that Revenue Management is the process

of understanding, anticipating and reacting to consumer
behaviour in order to maximize revenue or profits

What exactly is the term Revenue Management? For this We

examine each word separately: Revenue according to
Webster’s Dictionary may be defined as, “an item or source of
Income.” And Management is defined as, “the act, art, or
manner of managing, or handling, controlling, directing; But
Webster’s also continues to define Management as, “skilful,
managing, careful, tactful treatment. Thus combining the two
we get, “Revenue Management is the act of skilfully,
carefully, and tactfully managing, controlling and directing
sources of Income. This is incomplete as Revenue is
dependent on three other elements which address price and
availability:

 Capacity
 Supply
 Demand

There are various definitions of capacity, but the one that

applies here is, “the amount of space that can be filled”. And
we may add-“During that particular time”. For airlines we
define space as seats, in a hotel, rooms.

Economists Define Supply as, “the amount of a good or

service that a supplier is willing and able to sell for any given
price, at any given time.’

Demand is said to be the amount of good or service that a

purchaser is willing to buy for any given price at any give n
time.
Revenue Management is closely related to many other
disciplines, and the first and most important is the field of
Economics- Things such as market, forecast, cost, scarcity
and elasticity. A second discipline that is closely related to
Revenue Management is that of Marketing, in terms of both
individual buying decisions and group purchasing dynamics.
The 4Ps of Marketing

 Product
 Price
 Place
 Promotion

These play an important element in Revenue Management

Techniques.

Thus The Apt Definition Would Be - Revenue Management Is

The Application Of Disciplined Analytics That Predict
Consumer Behaviour At The Micro -Market Level And Optimize
Product Availability And Price To Maximize Revenue Growth.
The Primary Aim Of Revenue Management Is Selling The Right
Product To The Right Customer At The Right Time For The
Right Price And With The Right Pack. The Essence Of This
Discipline Is In Understanding Customers' Perception Of
Product Value And Accurately Aligning Product Prices,
Placement And Availability With Each Customer Segment.

Yield Management System

Firms that engage in Yield Management usually use computer

Yield Management Systems to do so. The Internet has greatly
facilitated this process. Enterprises that use Yield
Management periodically review transacti ons for Goods or
services already supplied and for Goods or services to be
supplied in The future. They may also review information
(including statistics) about events (known future events such
as holidays, or unexpected past events such as terrorist
attacks), Competitive information (including prices), seasonal
patterns, and other pertinent factors that affect sales. The
models attempt to forecast total demand for all
products/services they provide, by Market segment and price
point. Since total demand nor mally exceeds what the
particular firm can produce in that period, the models
attempt to optimize the firm's outputs to Maximise Revenue.

The Optimisation attempts to answer the question: "Given

our Operating constraints, what is the best mix of
products and/or services for us to produce and sell in
the period, and at what prices, to generate the highest
expected Revenue?"

Optimisation can help the firm adjust prices and to allocate

capacity among Market Segments to Maximise expected
Revenues. This can be done at different levels of detail:

 By Goods (such as a seat on a Flight or a seat at an

Opera production)

 By Group of Goods (such as The entire Opera House or

all The seats on a Flight)

 By Market (such as sales from Seattle and Minneapolis

for a Flight going Seattle -Minneapolis-Boston)

 Overall (on all The routes an airline flies, or all The

seats during an Opera production season)

Yield Management is particularly suitable when selling

perishable products, i.e. Goods that become unsellable at a
point in time (for example air tickets just after a Flight takes
off). Industries that use Yield Management include airlines,
Hotels, stadiums and other venues with a fixed number of
seats, and advertising.
With an advance forecast of demand and pricing flexibility,
buyers will self-sort based on Their price sensitivity (using
more power in off-peak hours or going to The Theatre mid -
Week), Their demand sensitivity (must have The higher cost
early morning Flight or must go to The Saturday night Opera)
or Their time of purchase (usually paying a premium for The
luxury of booking late).

In this way, Yield Management's overall aim is to provide an

optimal mix of Goods at a variety of price points at different
points in time or for different baskets of features. The
System will try to maintain a distribution of purchases over
time that is balanced as Well as high.

Good Yield Management Maximises (o r at least significantly

increases) Revenue production for The same number of units,
by taking advantage of The forecast of high demand/low
demand periods, effectively shifting demand from high
demand periods to low demand periods and by charging a
premium for late bookings. While Yield Management Systems
tend to generate higher Revenues, The Revenue streams tend
to arrive later in the booking horizon as more capacity is held
for late sale at premium prices.

Firms faced with lack of pricing power sometimes turn to

Yield Management as a last resort. After a year or two using
Yield Management, many of them is surprised to discover
they have actually lowered prices for the majority of Their
Opera seats or Hotel Rooms or other products. That is, they
offer far higher discounts more frequently for off -peak times,
while raising prices only marginally for peak times, resulting
in higher Revenue overall.

By doing this, They have actually increased quantity

demanded by selectively introducing many more price points ,
as They learn about and react to The diversity of interests
and purchase drivers of Their customers.

The concept of Yield Management was initially started by The

airlines industry in The early 1960’, over a period They have
Well tuned to change in The demand and Maximise on seat
sharing (with other airlines) & maximum occupied seats & in
The late 1980’s Hotels started adopting The various
techniques to Maximise Yield. And today the application of
Revenue Management has percolated various sectors of the
hospitality industry viz., restaurants/pubs, shopping malls,
exhibition & fairs, Theatres.Today we have The Revenue
manager who work in tandem with The FOM and The Sales
Manager to optimize on The Hotel Revenue.

The Occupancy Crunch of The mid 80’s

To understand why our industry turned to Revenue or Yield

Management, We need to revert back to the good ‘ole days.
In The 60’s, the industry consisted primarily of large city -
centre Hotels and small independent Hotels in secondary
cities and highways. The 70’s and 80’s saw the growth in the
explosive growth of Hotel franchising.
In The years following The expansion of new Hotel
construction in The 70’s and 80’s, our industry began to feel
The effects of overbuilding; consumers had many more
choices and Hotel de mand rapidly declined. The result was
that Hotels needed to do more to grow business in this new
Competitive environment…a lot more.

With suppressed occupancy demand, it became obvious that

Hotels could no longer rely solely on increasing occupancy to
improve profits; it became necessary to manage and control
how Room Revenue was generated. We would have to create
more profit from flat or even declining occupancies by
managing our inventory and rates.
For example….

Poor Decisions Followed 9/11

In The months following 9/11, many Hotels committed the

ultimate sin of drastically reducing their rates, thinking that
this would boost falling occupancy. Well, it didn’t; all it
accomplished was that, at best, they sold a few more Rooms
at lower rates, in most cases, resulting in lower total Room
Revenue.

During this time, a few smart Hoteliers held -fast with their
rates, but created lower “sale” rates, to pirate business from
the competition and to help drive occupancy. This gave them
the opportunity to close “sale” rates as demand improved on
specific dates, Therefore Yielding higher Room Revenue
whenever possible.

Only in extremely rare cases have reduced rates generated

enough occupancy to offset a rate reduction; resulting in
lower total Room Revenue. To compound this problem, any
additional occupied Rooms gained by reducing rates,
increases Rooms expense and lowers profit. It just doesn’t
make sense to reduce rates, which are almost 100% profit.

The Goal Of Revenue Management Is To Strike A Balance

Between Maximizing Occupancy And Increasing Average
Rates As Much As Possible.
The Airlines’ Revenue Management Model

With suppressed occupan cy demand, overall rate increases

would be difficult to sell to a travelling public which now had
more choices; there had to be a better way. In The 80’s,
Hotel experts eagerly watched The airlines’ rate experiment
which openly offered lower fares, to buil d Their base-
business; Then close those lower fares and offer higher fares
for shorter-term bookings. This improved their sales, while
sustaining rate growth. Many people predicted that there
would be considerable consumer back -lash.

The result was that the airlines received little negative feed -
back; instead consumers viewed it simply as a means to book
lower fares. It’s still common for passengers to sit together
comparing different fares to the same destination; you’ve
probably done it many times yours elf.

The airlines were the first, in travel, to realize that The

Principle of “supply and demand” could be used to Maximise
Revenue. They realized that selling all their seats at high
prices was nearly impossible most of the time. They needed
some way to fill enough seats to cover expenses; yet have
the ability to raise prices after that base is obtained. Thus,
the magic 7 day fare was born. Anyone making a reservation
more than 7 days, in advance of a Flight, got a real deal;
after that your reservation is profit and it has worked for
them for many years.

The Principle is the same for Hotels as Well. As occupancy

demand increases and supply (Room availability) decreases,
lower rates are closed to sale and only higher rates are
available. Hotels today nee d a base of business in order to
cover Operational expenses. Selling all one’s Rooms at The
same rate rarely produces good occupancy or a good average
rate.
Let’s examine how Hotel rates are determined. Contrary to
what some Hotel Owners may believe, sett ing rates has little
to do with The Hotel’s furnishings or design. Hotel Room
rates are determined by what people will pay for those
Rooms. I’ve seen many Hotel Rooms that sell for Rs15000 per
night in Bangalore which would sell for Rs 10000 per night in
Pune, for the same Room.
  Occupancy demand is the major difference.
 Higher demand allows for higher rates, plain and simple.

Seasonal versus Daily Demand

Revenue Management Principles apply to all levels of demand.

Resort Hotels with seasonal rates have b een using a form of
Revenue Management for years by posting higher or lower
rates based upon seasonal demand; this is the essence of
Revenue or Yield Management. If These Hotels thought they
could get “in-season” rates all year long, they certainly
would. They are adjusting for supply and demand.

Yield Management provides the ability to build a “base” of

business by posting a wide range of rates, low to high, to
appeal to the broadest range of consumers. For Hotels which
are capable of handling Group business, this is The Theory
behind quoting lower rates for Groups; getting the business
on-The-books. Once this base business is booked, either by
Groups or transient individuals , lower rates can then be
closed for sale. This is daily demand.
It’s important to understand that Yield Management is the
process of closing-out lower rates when there are fewer
Rooms to sell; leaving only higher rates as occupancy
increases. Rates are no t increased; lower rates are closed for
sale.

There is an important distinction between the two.

As demand increases, There are more methods of Yielding
higher Revenue; The use of restrictions. Many Hotels use
restrictions very effectively. E.g. Hotels with high Weekend
demand often restrict Weekend reservations to a minimum of
two nights by placing a minimum of two nights stay on
Saturday, The more popular night. This limits stays to
Friday/Saturday or Saturday/Sunday, The two weaker nights.
The same can be applied to holiday periods.

For many years, Hoteliers have realized that various Market

Segments tolerate different rate levels. Most Well -Operated
Hotels set rates by Market segment all The way up and down
the scale. All rates flow from your highest rack rates down to
lower deeply discounted rates.
The key to successful Revenue or Yield Management is to
review advance reservations and make rate close -out
decisions as often as might be necessary; generally, thr ee
times per Week. Hotels practicing Revenue Management gain
an insight into the ebb and flow of business, knowledge of
reservations booking pace, and a true understanding of
factors which impact occupancy and average rate.

Yield Management is a techniqu e of maximizing Room

Revenues. It is also known as “Revenue Management”. Some
Hotels stress on higher occupancy percentage and some
stress on ARR’s & they are willing to sacrifice one for the
other. Yield Management is a combination of both.

The concept of Yield Management is based on the concept of

supply & demand. The basic idea is to have proper pricing
strategy that not only consider the existing demand, but also
even influence it for increased profitability.

Adding Restrictions

For high demand periods, many Hotels add restrictions to

increase Revenue Yield. Some common restrictions, such as
minimum stays, closed to arrival, etc. are excellent tools for
experienced Yield managers. Restrictions should be applied
with some caution because they do limit demand.

Daily Practice Creates Perfection

A good practice is to create a Yield meeting to include all key

individuals in The Hotel. Larger properties and properties
with full time Revenue managers obviously review occupied
and reserved Rooms every da y. The purpose of this meeting
is to review reservations for the future to determine which
days need attention.

Booking Pace

Booking pace, the rate in which reservations are made for the
future, varies throughout the year. If Yield meetings are held
faithfully, people managing Revenue will gain a sense for the
pace of bookings. Some careful records -keeping can aid in
this process.
Revenue Management utilizes intuitive as Well as analytical
skills; both of these skill sets improve with practice. The
mind-set of a good Revenue manager or team is focused on
producing a good blend of occupancy and average rate. The
Hotel’s mission should be to build base occupancy, through a
good mix of rates, and then take advantage of having a base
by then closing-out lower rates to build average rates.

The mission should not simply be to get 100% occupancy; it

should be to get occupancy as high as possible, with an
average rate as high as possible. For a 100 Room property,
occupancy of 85% with an average rate of Rs150000 is more
profitable than 100% occ upancy at Rs10000. Although both
scenarios produce roughly the same Revenue, What does it
cost you to clean 15 Rooms?

This is a simplified format for those Hotels which are

currently “simply selling Rooms” at the present time. The
purpose of Revenue Mana gement is to help Hotels to “shape”
Their business. Obviously, There can be much more detail and
intricate techniques involved in Revenue Management; but
sometimes progress has to come in baby steps in the
beginning.
It is true that many larger Hotels, f ranchised and
Independent, and some Hotel companies have full -time
talented Revenue managers. However, most independent and
smaller Hotels are not using any form of Revenue
Management in Their Operations. Revenue Management, even
in its simplest form, can benefit most Hotels no matter how
large or small.

There are other factors which will affect close -out and/or
restriction decisions such as occupancy history, overflow
pressure from Hotels with convention facilities, and special
events being held in the area. For properties which may be
just beginning to use Revenue Management in Their
Operation, practice makes perfection. For many Hotels, start
with the basics. You will find, in short order, many
opportunities to become more sophisticated with additional
ways to improve your Revenue Yield.

Revenue Management is a vehicle to help Hotels to become

aware of The Rooms They sell, the rates at which they sell,
and the pace at which they sell. It is a way Hotels can
become pro-active in the selling process, rather than simply
posting rates and waiting for them to be sold.
The process of managing the flow of one’s business Revenues
can and, possibly, should be tailored to the individual Hotel
Operation and What one is looking to accomplish. The primary
goal is to Maximise Hotel Revenue by taking advantage of
available pockets of occupancy demand.

Traditional Revenue Management

Traditional Revenue Management involves the adjusting of

rates and Hotel inventory based upon Room demand. These
adjustments are usually dependent upon current reservations,
historical data, forecasting, and a good measure of gut -
instinct;

“The Art in Revenue Management”

In traditional Revenue Management, discounted rate tiers are

closed as occupancy increases. Hi storical data may also
indicate that a certain period has high demand even though
reservations may be Weak at The current time.
Basically, as occupancy increases, rates available for sale
should also increase. In this way, The Hotel is building a
“base” of business, which enables The Hotel to sell Rooms at
higher rates.

Many Hotels build this base with discounted Group business;

dedicating a portion of Their Rooms to Groups, actually
enables The Hotel to end up with stronger average rates
overall. This would be a very simple process except that
Revenue Management should be applied to Group bookings as
Well.
One of The factors affecting good Revenue Management is
the fact that many Hotels accept too many Group Rooms at
deeply discounted rates

Why Revenue Management?

Segmented Market:
 Hotels typically segment Their Market (customer base) into a
set of categories based on the price each category is willing
to pay. Typical categories include the business traveller and
the vacation traveller. Because demand patterns for each of
these categories may vary significantly, Hotels find it difficult
to satisfy all of the demand simultaneously. A good example
is the comparison between the time -conscious business
executive and the price sensitive vacation customer. The
former is willing to pay a higher price in exchange for
flexibility of being able to book a Room at The last minute
while the latter is willing to give up some flexibility for The
sake of a more inexpensive Room. RM tr ies to Maximise
Revenues by managing the tradeoffs between a low occupancy
and higher Room rate scenario (business customers) versus a
high occupancy and lower Room rate (vacation customers).
Such a strategy allows Hotels to fill Rooms that would
otherwise have been empty.
Fixed Capacity: A Hotel’s capacity is relatively fixed - it is
nearly impossible to add or remove Rooms based on
fluctuations in demand. If at all Hotel capacity Were flexible,
there would be no need to manage capacity.

Perishable Inventory:

In The Hotel industry, Hotel Rooms are the inventory. A Hotel

Room that remains unoccupied for a night loses all its value
for that night. This inventory cannot be stored and is lost
forever. Because RM tries to manage demand instead of
supply, it proves to be good business sense for The Hotel.

Low Marginal Cost:

The fixed cost of adding a Room in a Hotel is heavily capital

intensive. However, once The Hotel manages to cover its
initial fixed costs, the cost of serving an additional customer
is low enough that The Hotel can sell The Room at a lower
margin if it wishes. Such a strategy will obviously need to be
balanced by one that also seeks to sell The Room(s) at higher
margins. Thus, the high fixed cost/low marginal cost nature
of The business makes price differentiation a necessity
something that is made possible by application of RM.

Advanced Sales:
 More often than not, requests for bookings start early.
Therefore, Hotels have enough leeway to adjust Room prices
based on the variation between realized bookings and
expected demand. If all Hotel Rooms are sold at the same
time, The Hotel does not have the flexibility to adjust prices
upward if demand picks up later. The tradeoffs occurs when a
manager is faced with The option of accepting an early
reservation from a customer who wants a low price, or
waiting to see if a higher paying customer will eventual ly
show up. ..

Demand Fluctuations:

Demand for Hotel Rooms is characterized by crests and

troughs, which The Hotel factors in during The Room pricing
process. In peak season, The Hotel can increase its Revenues
by raising Room prices, while during lean seasons it can
increase its utilization rate by lowering prices. Past data will
offer the manager a way to forecast when these periods of
high and low demand may occur. Unfortunately, it is very
difficult to predict the actual demand with a high degree of
certainty.

Therefore, the most critical challenge facing The Hotel

industry is predicting potential capacity, and developing a
pricing strategy that will encourage maximum capacity and
Revenue. Revenue Management is the most effective
technique to solve this challenge, similar to aggregate and
hierarchical production planning techniques often employed in
The manufacturing industry.

Revenue Management is based on complex Optimisation

methodologies developed from advanced statistical and
analytical models. In order to arrive at a solution, managers
need to evaluate several millions of decisions, which require
a significant investment of skills, hardware and time. Many
RM practitioners prefer to breakdown the actual business
scenario into four sub-problems, and Then identify an
individual solution to some or all of These sub -problems. This
would significantly reduce the number of potential non -
optimal decisions Thereby providing fewer choices, leading to
quicker results.
.How does it all work?

Data Collection

The Revenue Management process begins with data collection.

Relevant data is paramount to a Revenue Management
System’s capability to provide accurate, actionable
information. A system must collect and store historical data
for inventory, prices, demand, and other causal factors. Any
data that reflects the details of products offered, their prices,
competition, and customer behaviour must be collected,
stored, and analyzed. In some markets, specialized data
collection methods have rapidly emerged to service their
relevant sector, and sometimes have even become a norm.

This data is also utilized for financial reporting, forecasting

trends and development purposes. Inf ormation about
customer behaviour is a valuable asset that can reveal
consumer behavioural patterns, the impact of competitors’
actions, and other important market information. This
information is crucial to starting the Revenue Management
process.

Market Segment Identification:

The first and foremost step in a Hotel RM System is the

identification of the various Market Segments for The Hotel
Room, followed by implementation of a differential pricing
scheme.

“A Market segment is a subgroup of people or organizations sharing

one or more characteristics that cause them to have similar product
needs”

The objective in Front of The Hotel is the expansion of its

Market and in motivating the customer to pay more than
he/she will usually spend. It is fu furthe r observed that
customers in the business class segment are less sensitive to
higher prices as opposed to those in the vacation segment.
An RM System helps Hotels create additional price -points by
building physical and logical fences around the different
Market Segments.
Thus:

“Market segmentation is the process in marketing of

dividing a market into distinct subsets (segments) that
behave in the same way or have similar needs. Because
each segment is fairly homogeneous in their needs and
attitudes, they are likely to respond similarly to a given
marketing strategy. That is, they are likely to have
similar feelings and ideas about a marketing mix
comprised of a given product or service, sold at a given
price, distributed in a certain way and pro moted in a
certain way” This process leads to targeting and positioning.

The intent is to identify groups of similar customers and

potential customers, to prioritise the groups to address; to
understand their behaviour; and to respond with appropriate
marketing strategies that satisfy the different preferences of
each chosen segment, in order to improve Revenue.

Once the different segments for that given good / service

have been identified, it can be designed a method to cater for
the different segments at different prices. In this way it is
possible to target a higher number of market segments è
customers, charging higher prices to those segments which
are not price sensitive and lower prices to those segments
that are. Managing in an intelligent way the am ount of goods
/ services sold to each group, it is possible to increase
revenue exponentially.

Demand Forecasting:

The next step in an RM process is forecasting demand and

pricing of the different Market Segments. Pricing and demand
are inter-related and need to be coordinated. In The Hotel
industry, demand for a Room is cyclic in nature (day of a
Week, months of a year) and follows a trend (demand growth
due to economic growth). These forecasts are seldom precise
but provide the decision-maker with an approximate set of
inputs that are used in the planning process. RM models help
pinpoint demand by minimizing uncertainty and producing The
Best Possible Forecast.

Why do we need to forecast?

  In order to relate accurate occupancy prevision to
Revenue Manageme nt strategies (over forecasting can
result in expecting more guests than actually will show
up, with the risk of a decreased occupancy, under
forecasting expecting less guests, hence a bad
overbooking situation)
 Define Unconstrained demand (the level of d emand that
occurs for a given perishable asset without reference to
the price levels that the seller will ultimately select to
constrain it)
 Labour Scheduling (thanks to good forecasting it is
possible to determine the exact amount of employees are
needed on any given business day)

How Do We Crete A Good Forecast?

 Define the difference between constrained and

unconstrained demand
 Describe the different types of forecast
 Estimate the pick up
 Devise a strategy for Groups
 Calculate the repercussions of errors in the forecast
 Being able to estimate errors

Allocation:

The next important step in a RM process is the allocation of

inventory (Hotel Rooms) among different Market Segments.
The ratio of discounted versus full priced Rooms is not fixed
during the reservation period; rather, it is “ tweaked”
appropriately as the date of stay approaches. The opportunity
cost of selling a discounted Room instead of a full priced one
has to be measured in order to make the best decision. Thus,
when a customer approaches The Hotel for a discounted
price, the manager needs to evaluate this scenario with the
expected Revenue from another customer who might come at
a later date, willing to pay a higher price for the same Room.
The manager would accept the request only if the discounted
price now is more than the expected price at which The Room
might be booked by the second customer. The key word here
is expected

Overbooking:
Overbooking is the practice of intentionally selling more
Rooms than are available in order to offset the effect of
cancellations and no -shows. Studies estimate that although a
Hotel is fully booked, about 5 -8% of The Rooms are vacant on
any given date. Poor overbooking decisions can prove to be
very expensive for The Hotel.
In The short run, it is only a loss of Room Revenue, but over
the long-term, casualties may include decreased customer
loyalty, loss of Hotel reputation, etc. American Airlines
developed an Optimisation model that Maximises net
Revenues associated with overbooking decisions for the
airline industry.

Optimisation:

While forecasting suggests what customers are likely to do,

optimization suggests how a firm should respond. Often
considered the pinnacle of the Revenue Management process,
optimization is about evaluating multiple options on how to
sell your product and to whom to sell your product.

Optimisation involves solving two important problems in

order to achieve the highest possible revenue. The first is
determining which objective function to optimize. A business
must decide between optimizing prices, total sales,
contribution margins, or even customer lifetime values.
Secondly, the business must decide which optimization
technique to utilize. For example, many firms utilize linear
programming, a complex technique for determining the best
outcome from a set of linear relationships, to set prices in
order to maximize revenue.

Regression analysis, another statistical tool, involves finding

the ideal relationship between several variables through
complex models and analysis. Discrete choice models can
serve to predict customer behaviour in order to target them
with the right products for the right price. Tools such as
these allow a firm to optimize its product offerings, inventory
levels, and pricing points in order to achieve the hig hest
revenue possible.
Dynamic Re-Evaluation:

Revenue Management requires that a firm must continually

re-evaluate their prices, products, and processes in order to
maximize revenue. In a dynamic market, an effective
Revenue Management System constantly re -evaluates the
variables involved in order to move dynamically with the
market. As micro -markets evolve, so must the strategy and
tactics of Revenue Management adjust.

.Challenges

It is quite clear that while a Revenue Management System

can guarantee increased Revenues, it can be quite
complicated to design and requires high levels of expertise
for implementation. Some of The challenges facing Hotels in
The implementation of a robus t and accurate RM System
include:
 Measuring performance of an RM System is a major
issue. Occupancy rates and Yield are measures that are
affected by external competition. An ideal measurement
can be done using an opportunity model that indicates
where The Hotel stands in comparison to its maximum.

 Differential pricing is here to stay customers seem

resigned to the fact that Hotels charge different prices
for the same Room. However, some customers do not
like this practice and penalize The Hotel by not be coming
a patron. Therefore, in a fiercely competitive
environment where quality of service is the key to
success, RM may not work. In evaluating the efficiency
of a RM System, The tradeoffs between generating short -
term profits and creating long -term customer loyalty and
mindshare needs to be studied carefully.

 From an Operational point of view, RM can impact the

motivational level of the employees. In many cases, RM
takes much of the guess work out of employees, Thereby
reducing their decision-making responsibilities.
Sometimes, employees taking reservations are paid a
percentage of the sales they make, motivating Them to
make Group bookings, which in turn may be
contradictory with The objectives of an RM System.
  As part of ongoing changes in the industry, companies
throughout the entire hospitality spectrum are placing a
strong emphasis on implementing major Operational
changes. Beyond recognizing tha t meaningful cost
reductions must be achieved without compromising
safety, capacity and service levels, they are also looking
at reducing costs by increasing flexibility and improving
asset utilization through a Revenue Management
strategy. In doing so, They continue to reassess Their
true core competencies, and are looking to outsource
many of These processes, as They look to optimize
business efficiencies and increase profitability
History

Before the emergence of Revenue Management, BOAC (now

British Airways) experimented with differentiated fare
products by offering capacity controlled “Early bird”
discounts to stimulate demand for seats that would otherwise
fly empty. Taking it a step further, Robert Crandall, former
Chairman and CEO of American Airlines , pioneered a practice
he called Yield Management, which focused primarily
maximizing revenue through analytics -based inventory
control. Under Crandall’s leadership, American continued to
invest in Yield Management’s forecasting, inventory control
and overbooking capabilities.

By the early 1980s, the combination of a mild recession and

new competition spawned by airline deregulation posed an
additional threat. Low -cost, low-fare airlines like
PeoplExpress were growing rapidly because of their ability to
charge even less than American’s Super Saver fares. After
investing millions in the next generation capability which
they would call DINAMO (Dynamic Inventory Optimization and
Maintenance Optimizer), American announced Ultimate Super
Saver Fares in 1985 that were priced lower than the
PeoplExpress. These fares were non -refundable in addition to
being advance-purchase restricted and capacity controlled.
This Yield Management system targeted those discounts to
only those situations where they had a surplus of em pty
seats. The system and analysts engaged in continual re -
evaluation of the placement of the discounts to maximize
their use. Over the next year, American’s revenue increased
14.5% and its profits were up 47.8%.
Other industries took note of American’s su ccess and
implemented similar systems. Robert Crandall discussed his
success with Yield Management with J. W. "Bill" Marriott, Jr.,
CEO of Marriott International. Marriott International had
many of the same issues that airlines did: perishable
inventory, customers booking in advance, lower cost
competition and wide swings with regard to balancing supply
and demand. Since “yield” was an airline term and did not
necessarily pertain to hotels, Marriott International and
others began calling the practice Revenu e Management. The
company created a Revenue Management organization and
invested in automated Revenue Management systems that
would provide daily forecasts of demand and make inventory
recommendations for each of its 160,000 rooms at its
Marriott, Courtyar d Marriott and Residence Inn brands. They
also created “fenced rate” logic similar to airlines, which
would allow them to offer targeted discounts to price
sensitive market segments based on demand. To address the
additional complexity created by variable lengths-of-stay,
Marriott’s Demand Forecast System (DFS) was built to
forecast guest booking patterns and optimize room
availability by price and length of stay. By the mid -1990s,
Marriott’s successful execution of Revenue Management was
adding between $15 0 million and $200 million in annual
revenue.

A natural extension of hotel Revenue Management was to

rental car firms, which experienced similar issues of discount
availability and duration control. In 1994, Revenue
Management saved National Car Rental fr om bankruptcy.
Their revival from near collapse to making profits served as
an indicator of Revenue Management’s potential.

Up to this point, Revenue Management had focused on driving

revenue from Business to Consumer (B2C) relationships. In
the early 1990s UPS developed Revenue Management further
by revitalizing their Business to Business (B2B) pricing
strategy. Faced with the need for volume growth in a
competitive market, UPS began building a pricing
organization that focused on discounting. Prices bega n to
erode rapidly, however, as they began offering greater
discounts to win business. The executive team at UPS
prioritized specific targeting of their discounts but could not
strictly follow the example set by airlines and hotels. Rather
than optimizing the revenue for a discrete event such as the
purchase of an airline seat or a hotel room, UPS was
negotiating annual rates for large -volume customers using a
multitude of services over the course of a year. To alleviate
the discounting issue, they formulat ed the problem as a
customized bid-response model, which used historical data to
predict the probability of winning at different price points.
They called the system Target Pricing. With this system, they
were able to forecast the outcomes of any contractu al bid at
various net prices and identify where they could command a
price premium over competitors and where deeper discounts
were required to land deals. In the first year of this Revenue
Management system, UPS reported increased profits of over
$100 million.

The concept of maximizing revenue on negotiated deals found

its way back to the hospitality industry. Marriott’s original
application of Revenue Management was limited to individual
bookings, not groups or other negotiated deals. In 2007,
Marriott introduced a “Group Price Optimizer” that used a
competitive bid-response model to predict the probability of
winning at any price point, thus providing accurate price
guidance to the sales force. The initial system generated an
incremental $46 million in profit. This led to an Honourable
Mention for the Franz Edelman Award for Achievement in
Operations Research and the Management Sciences in 2009.

By the early 1990s Revenue Management also began to

influence television ad sales. Companies like Canadian
Broadcast Corporation, ABC, and NBC developed systems that
automated the placement of ads in proposals based on total
forecasted demand and forecasted ratings by program. Today,
many television networks around the globe have Revenue
Management Systems.

Revenue Management to this point had been utilized in the

pricing of perishable products. In the 1990s, however, the
Ford Motor Company began adopting Revenue Management to
maximize profitability of its vehicles by segmenting
customers into micro -markets and creating a differentiated
and targeted price structure. Pricing for vehicles and options
packages had been set based upon annual volume estimates
and profitability projections. The company found that certain
products were overpriced and some were under priced.
Understanding the range of customer preferences across a
product line and geographical market, Ford leadership
created a Revenue Management organization to measure the
price-responsiveness of different customer segments for each
incentive type and to develop an approach that would target
the optimal incentive by product and region. By the end of
the decade, Ford estimated that roughly $3 billion in
additional profits came from Revenue Management initiatives.

The public success of Pricing and Revenu e Management at

Ford solidified the ability of the discipline to address the
revenue generation issues of virtually any company. Many
auto manufacturers have adopted the practice for both
vehicle sales and the sale of parts. Retailers have leveraged
the concepts pioneered at Ford to create more dynamic,
targeted pricing in the form of discounts and promotions to
more accurately match supply with demand. Promotions
planning and optimization assisted retailers with the timing
and prediction of the incremental lift of a promotion for
targeted products and customer sets. Companies have rapidly
adopted price markdown optimization to maximize revenue
from end-of-season or end-of-life items. Furthermore,
strategies driving promotion roll -offs and discount expiratio ns
have allowed companies to increase revenue from newly
acquired customers.

By 2000, virtually all major airlines, hotel firms, cruise lines

and rental car firms had implemented Revenue Management
Systems to predict customer demand and optimize available
price. These Revenue Management Systems had limited
“optimize” to imply managing the availability of pre -defined
prices in pre-established price categories. The objective
function was to select the best blends of predicted demand
given existing prices. The sophisticated technology and
optimization algorithms had been focused on selling the right
amount of inventory at a given price, not on the price itself.
Realizing that controlling inventory was no longer sufficient,
InterContinental Hotels Group (IHG) l aunched an initiative to
better understand the price sensitivity of customer demand.
IHG determined that calculating price elasticity at very
granular levels to a high degree of accuracy still was not
enough. Rate transparency had elevated the importance o f
incorporating market positioning against substitutable
alternatives. IHG recognized that when a competitor changes
its rate, the consumer’s perception of IHG’s rate also
changes. Working with third party competitive data, the IHG
team was able to analyze historical price, volume and share
data to accurately measure price elasticity in every local
market for multiple lengths of stay. These elements were
incorporated into a system that also measured differences in
customer elasticity based upon how far in a dvance the
booking is being made relative to the arrival date. The
incremental revenue from the system was significant as this
new Price Optimization capability increased Revenue per
Available Room (RevPAR) by 2.7%.IHG and Revenue
Analytics, a Pricing and Revenue Management consulting firm,
were selected as finalists for the Franz Edelman Award for
Achievement in Operations Research and the Management
Sciences for their joint effort in implementing Price
Optimization at IHG.

HOTEL INDUSTRY APPLICATION

In Hotel industry, Revenue Management is used to determine

selling rates for Rooms’ occupancy levels etc., through
demand forecasting techniques.
Benefits of Yield Management: -
 Improved forecasting.
 Improved seasonal pricing & inventory decisions.
 Identification of new Market segment
 Identification of Market segment demands.
 Enhanced coordination between Front Office and sales
department.
 Improved development of business plans.

How does Yield Management Maximise Revenue by controlling

forecast information re lated to: -
 Capacity Management
 Discount allocation
 Duration of control.

CAPACITY MANAGEMENT

It involves methods of controlling and limiting Room supply,

also called selective overbooking. It balances The use of
over-booking Rooms against potential loss of Revenue from
spoilage. It also involves determination of how many walk -
ins’ to accept on a particular day. What category of Rooms to
overbook (usually standard Rooms) taking into consideration
The Room position of neighbouring Hotels.

DISCOUNT ALLOCATION

Discounting involves restricting the time period and product

mix (Rooms) available at reduced prices. For each Room type,
reservations are requested at various available rates, each
set below rack rate. The Theory is that The sale of a
perishable item (The guestroom) at a reduced price is often
better than no sale at all.

The Primary objective: -

To protect enough remaining Rooms at a higher rate to

satisfy The projected demand for Rooms at that rate, while at
The same time filling Rooms that would oth erwise have
remained unsold. The process is repeated for each rate level
from rack rate on down.
A second objective of limiting discounts by Room type is to
encourage up-selling. This technique requires a sound
estimate of price elasticity and The probabil ity of upgrading.

DURATION CONTROL

Duration control places time constraints on accepting

reservation in order to protect sufficient space for multi -day
request. This means that, under Yield Management, a
reservation for a one -night stay may be rejecte d, even
though space is available.

Example: If Wednesday is close to selling out but other

nights are not, a Hotel may want to optimize The Revenue
potential for The last few Rooms on Wednesday by requiring
multi-day stay, even at a discounted rate, rath er that
accepting reservations for Wednesday only.
 COMMON ATTRIBUTES OF REVENUE MANAGER

QUALITIES & MANAGERIAL SKILLS:

Ability to manage from 3 to 8 varying property types

Strong understanding of managing online distribution
channels
Pace and Rate Strategy analysis
Competitive Set analysis
SEO and content generation and Optimisation
Strong communication and persuasion skills via phone/e -mail
Professionalism and desire to achieve greatness
Grow, develop and strengthen relationships from clients to
vendors
Ability to clearly and concisely present technical subjects

EXPERIENCE - EDUCATION:

 At least five years guest service/ Hotel experience

 Bachelor's Degree in Hotel Administration, Business,
Statistics,
Marketing, Finance or a relevant field of work .

BUSINESS SKILL:
 Strong leadership and analytical skills
 Strong technical skills
 Excellent time Management skills
 Work with limited support
 Strong organizational skills
 Excellent knowledge of computers
 Exceptional detail in follow -up
 Ability to produce consistent profits
 Resolve problems
 Assume responsibility/ accountability
 Ability to quickly evaluate alternatives and decide on a
plan of action
 Think creatively, self -motivated
 Juggle and balance needs of our clients

EVENTS CALENDER

An indispensable tool for Revenue Management is a Calendar

of Events because it can help to evaluate demand of a local
Market. Business Meetings on The occasion of trade fairs and
congresses are main reasons to travel

REVENUE MANAGEMENT SOFTWARE

There are many companies that offer a variety of Revenue

Management software programs designed for lodging
companies. Although the individual tasks of Revenue
Management can be performed manually, the most efficient
means of handling data and generating Yield statistics is
through Revenue Management software. Revenue Management
software can integrate Room demand and Room price
statistics to simulate high Revenue -producing product
scenarios.

Revenue Management software does not make decisions for

managers. It merely provides information and support for
managerial decisions. Since Revenue Management is often
quite complex, Front Office staff will not have the time to
process The voluminous data manually. Fortunately, a
computer can store, retrieve, and manipulate large amounts
of data on a broad range of factors influencing Room
Revenue. Over time, Revenue Management software can help
Management create models that produce probable results of
decisions. Decision models are based on historical data,
forecasts, and booked business.

RESULTS
In those industries where computer -based Revenue
Management has been applied, the following results have
been observed:
 Continuous monitoring: A computerized Revenue
Management System can track and analyze business
conditions 24 hours a day, seven days a Week.

 Consistency: Software can be programmed to respond

to specific changes in The Marketplace with specific
corporate or local Management rules resident in the
software.
  Information availability: Revenue Management
software can provide improved Management information
which, in turn, may help managers make better decisions
more quickly.

 Performance tracking: A computer-based System is

capable of analyzing sales and Revenue transactions
occurring within a business period to determine how Well
Revenue Management goals are being achieved.

Revenue Management software is also able to generate an

assortment of special reports. The following are
representative of Revenue Management software output:

 Market segment report: Provides information regarding

customer mix. This information is important for effective
forecasting by Market segment.

 Calendar/booking graph: presents Room-nights

demands and volume of reservations on a daily basis.

 Future arrival dates status reports: Furnishes demand

data for each day of The Week. This report contains a
variety of forecasting information that enables the
discovery of occupancy trends by comparative analysis
of Weekdays. It can be designed to cover several future
periods.

 Single arrival date history report: Indicates The

Hotel's booking patterns (trends in reservations). This
report relates to the booking graph by documenting how
a specific day was constructed on the graph.

 Room statistics tracking sheet: This tracks no-shows,

guaranteed no-shows, walk-ins, and turn-always. This
information can be instrumental in accurate forecasting.

Since Management is interested in Revenue enhancement,

computer-based Revenue Management has become a popular
hospitality industry software application.

Just one example of Revenue Management software is

 Easy Revenue Management Solutions.
 Measuring Yield

Various formulae

 Occupancy Percentage = Number of Rooms sold * 100

Number of let able Rooms

 Double Occupancy Percentage = Number of guests - No.

of Rooms sold* 100
Number of Rooms sold

 Average Room Rate (ARR) = Total Room Revenue

Number of Rooms sold

 Revenue Per Available Room (RevPAR) = Actual Room

Revenue
Number of
available Rooms

 RevPAR = Occupancy percentage * ADR

 Room Rate Achievement Factor = Actual Average Rate

Potential Average Rate

 Yield = Revenue realized

Revenue potential

Or

 Yield = Occupancy percentage * Achievement factor

Elements of Yield Management

Group Room sales

The following parameters have to be analyzed for a
Group sale.
  Group booking data

Analyze The Group’s previous business profile if any as to

whether overestimate or underesti mate Room requirements.
Then adjust expected reservations. Groups usually tend to
overbook or block 5% to 10% more Rooms than they are
likely to need, “wash factor” – The Hotel’s deletion of un -
necessary Group Rooms from a Group block. One must be
careful of wash factor to avoid too much of over -booking.

 Group booking pace

The rate at which Group business is being booked. Once a

Hotel has accumulated several years of Group booking data it
can identify a historical trend that reveals a normal booking
pace for each month of the year.

 Anticipated Group business

Meeting held by national, regional state and other major

corporation, etc fall on a set of pattern of locations &
meeting trends. Even if they do not enter into contract with
The Hotel but tentatively bookings awaiting final negotiations
and confirmation should also be included in The analysis.

 Group booking lead-time

A measure of how far in advance of a stay, bookings are

made. One should know his Hotel’s lead time for Group
bookings so that book ing trends can be charted. Booking
trends can be combined with booking pace to illustrate the
rate at which Hotel is booking Group business compared to
the past. This information can be utilized for determining
whether to accept or reject an additional Gro up and at What
Room rate to book it.

The primary challenge in Revenue Management for Group

business involves The forecasting related decision whether to
accept reservations that are made anywhere from six months
to two years in advance of The arrival date. When deciding
whether to accept The Group’s offer Hotels must first forecast
the relative value of business as compared to the other,
potentially higher paying Groups to transient guests who
books nearer to the time of arrival. Second, once a Group
reservation is accepted, Hotels have to for ecast Room block
utilization to ensure that Rooms will be filled or released for
sale to transient guests.

Setting Group rates

Both Revenue Management and sales respondents indicated

the following three primary inputs into The Group rate
decisions

 The rates requested by The Group

Considerations here included forecasted Revenue or
contribution from the transient segment, The arrivals
and The occupancy forecast. (Transient guests and
booked Groups), and reservations on hand.

 Potential Revenue or contribu tion from The Group .

Most Hotels consider The Group’s potential Revenue or

contribution including the banquets and meeting space
rents.

 Competitor information

 Other inputs
Other considerations included historical Group demand,
both overall and from a g iven Group, The Group profile
(The stay pattern) and the potential or future business
from The Group. Some Revenue managers also look at
Group specific historical demand, Market wide demand,
the potential of The Group to increase Market share, and
The Market share of The Hotel as rate setting factors.

Group Forecasting

History and current Group status emerged as the key inputs

to Group forecasting for both respondent Groups along
with specific Group characteristics, external information
and the time period.

 History
This refers to The Groups’ past booking pace, pick up,
utilization, and no show rate (or wash rate).in the
 absence of direct historical data, the respondents look to
similar type of Group to predict Group utilization.

 Current Group Status

The respondents refine Group forecasts using current
reservations on The books and The Group’s pick up and
booking pace as Well as communications with The client
whether direct or indirect. There are many things to look
at: on the gooks compared to contra ct, booking pace,
Group history, recent Groups that matched a similar
style and inputs from the sales team.

Specific Group Characteristics

Some managers take into account such characteristics as

 The meeting’s purpose, and schedule and whether The

Group block is a citywide block or an in -House Rooming
list (since citywide block is more likely to wash than an
in-House Rooming list).
 External Information

Like general demand trends, and rate and inventory

availability across Hotels in The Market in addition to
rates and availability in related sectors like airlines.

 Time Period

A number of Revenue managers forecast take into

account the day of The Week and The time of the year
e.g. season or holidays

.Transient Room Sales

Transient Rooms are those Rooms sold to free

independent travellers. Transient business is usually
booked closer to the date of arrival than Group business.
A commercial Hotel may book a majority of its Group
business three to six months before arrival, bu t book
transient business only one to three Weeks before
arrival. At a resort Hotel, for example, Group bookings
maybe established one to two years in advance, while
transient business may be booked three months in
advance. As with Group business, Manageme nt must
 monitor the booking pace & lead time of transient
business in order to understand how current reservations
compare with historical & anticipated trends, this leads
to the more complex subject of transient Room pricing.

Another issue to consider i n transient Room sales is the

discounting offered to certain sources of business.
Discounts can be offered to corporate & government
travellers, as Well as senior citizens, military & airlines
personnel, & others.

Business ethics should be included in any discussion of

Yield Management. If a guest Room is classified as
superior Room, There should be good reason for it.

 Food & Beverage Activity

Banqueting and catering functions are a major part of

F&B Revenue and have an effect on Room Revenue. For
example, if a banquet with no guestroom requirement is
occupying The Hotel’s conference Room, a Group needing
50 guestrooms and a meeting hall may have to be turned
away. In most cases, The Group needing both catering
and guest Room space will be more profitabl e. Therefore,
local food & beverage functions should be viewed in light
of The potential for booking Groups that need meeting
space, food & beverage service, and guest Rooms.
Cooperation and communication between departments is
necessary to Maximise Revenu e from all Revenue centres
in The Hotel.

 Local And Area-Wide Activity

Local and area-wide activity conventions can have

dramatic effects on The Yield Management strategies of
a Hotel. Even when a Hotel is not in the immediate
vicinity of the convention, transient guest and smaller
Groups displaced by the convention may book at The
Hotel due to Room availability. When this is the case,
The FOM should be aware of the convention and the
demand for guestrooms it is creating in the area. If the
demand is substantial, transient and Group rates should
reflect this fact to take full advantage of the
opportunity.
  Special Events

Special events such as concerts, festivals, and sporting

events are held in or near a Hotel. The Hotel may be
able to take advanta ge of this by controlling discounts or
requiring a minimum length of stay. This is a common
practice, for example, during Christmas at many resorts.
Guest wishing to stay over Christmas may be required to
guarantee a four -or five-night minimum stay. Similarly,
in case of international sporting events (Olympics,
Commonwealth games, World cup soccer) discount on
Rooms may be eliminated, as there is a temporary surge
in demand for those days of the event. These are sound
Yield Management tactics, but they must be managed
carefully so The Hotel does not alienate regular guests.

Fair Market Share Forecasting

On of The other important element of Revenue

Management is, understanding how well the Hotel is doing
in relation to the competition. This is known as the fair
Market share. It is important to know whether the rates
quoted are being Competitive and whether The Hotel is
actually getting its fair share of its available business in a
Market.

A primary tool for analysis is The Smith travel

Accommodations Report, or STAR report. The STAR report is
historical, so the information it provides tells us Hotel
Management how Well Their Revenue Management strategies
and tactics worked in the past. By r eviewing the past,
however the manager can make key decisions on how The
Hotel should be positioned in The future. The key statistic in
The STAR report is RevPAR index. This statistic tell Hotel
Management whether The property received its fair share of
The business for The period reported compared to its
competition .for example if The property has 100 percent
RevPAR index, it would have received its fair share of
business for The Market.

RevPAR index = (Hotel RevPAR/Competitive set Rev PAR)

* 100
 Using Yield Management

Potential High & Low Demand Tactics

Yield Management required each Hotel to determine its

strategies for both high and low demand periods. In The case
of high demand peaks, The Theory is to increase Room
Revenue by maximizing average Room rate. Transient and
Group business Market Segments may each call for a unique,
specific strategy.

Implementing Yield Strategies

The manager has to determine What is The lowest rate, to be

offered on a particular day. This rate is known as “The Hurd le
rate”. Rates below this will not be offered on a particular
day.

Staff may be offered incentives for selling above The hurdle

rate. Incentives may be provided for long -stay guests.

How to communicate Hurdle rates?

Post those in reservation and at re ception. Computers may

automatically display them. The Yield strategies may change
several times during a single day & it must be
communicated to the staff.

Availability Strategies

 Minimum Length of Stay: A reservation must be for at

least a specified number of nights in order to be
accepted. It helps a Hotel to develop a relatively even
occupancy pattern. Common for resorts during peak
periods. May also be used during special events or high
occupancy period by other Hotels. This is intended to
keep an occupancy peak on one day from reducing
occupancy on the days before or after The peak.

 Closer-To-Arrival Strategy: This allows reservations to

be taken for a certain date as long as the guest arrives
before that date (to avoid strain on that day due to too
many check-INS.)
Sell-Through Strategy: Works like a minimum length of
stay requirement except that the length of the required
stay can begin before the date, the strategy is applied.
This strategy is effective when one has a peak in
occupancy and The Management does not want the peak
to adversely affect reservations on other side of the
peak days.
Ten Revenue Management Mistakes Hotels Can Make

 To recognize Revenue Management as a job done only by

The Front Office of a Hotel.

 To allow an internet discounting agency to sell our

Rooms at prices of Their choosing, Then complain about
The erosion of rate integrity.

 As a Revenue maximization strategy, to claim

differentiating our Hotel on service excellence and Then
promote discounts, "value package" offerings, free
frequent guest points and other freebies.

 To think that Weekday strategy and Weekend strategy

can be The same.

 To expect that the "flag" (brand) will fill The Hotel

without us lifting a finger.

 To count Revenue dollars as equal, regardless of the

distribution channel they came through.

 To think that short term goals must always have priority

over long term goals.

 To be convinced that artificial intelligence (our RM

software) is superior to human intelligence.

 To believe that the right price to charge for a Room

night is established on our costs and ROI expectations.

 To believe that discounting is an effective way of

increasing Revenue.
 The Revenue Management Team

Those individuals that participate in the process Of revenue

management are referred to as the Revenue Management
Team or RMT. Some RMT members just provide marketing or
competitivr intelligence along the path, while others are
instrumental in the developi ng, executing and evaluating
strategies and tactics for the upcoming year.

Those personnel’s that are directly involved in the Revenue

Management Process are:

 The General Manager

 The Director Of Sales
 The Controller
 The Director of Revenue Management
 The Revenue Manager
 The Revenue Agents
 The Reservations Manager
 The Reservations Sales Manager
 The Reservations Sales Agents
 The Front Office Manager
 The Director Of Rooms Division

The Composition of the RMT may vary from the Individuality

of the Hotel and its needs.

The Hierarchy of The RMT varies from Hotel to Hotel; some

hotels have the director of sales and revenue management in
a position higher than the GM, Operating in the corporate
level. In the organization Chart Given Is a Standard Hotel
RMT Where the members may be playing a role either in data
collection or in the actual Strategising and implementing of
Revenue tools
Roles And Responsibilities Of A Revenue Manager

It may appear daunting at first to consider all the tasks that

a Revenue Manager or Director needs to perform. However,
these can be broken down on a daily, a weekly, a monthly
and an annual basis to make it become quickly achievable.

 The first task that a revenue professional will usually

perform in the morning is a quick analysis of the flash
report.

 The Revenue Director should immediately address any

major deviations from expectations that occurred and
find out their cause. Any deviation between foreca st and
actual production is recorded on a variance report.
 To make sure that all the adjustments needed to be
made, ensure that these issues do not impact upcoming
demand.
 The Revenue Manager must prepare the short term 3 -5
day forecast by utilizing the mo st currently received
data.
 He should adjust the next 90 -day forecast based upon
the most current data.
 All the selling strategies in place for the next 90 days
should be reviewed to ensure their continued
application. Any needed changes to selling strate gies
should be made in the appropriate channels.
 On a weekly basis, the Revenue Director will review and
asses a series of reports.
 He or she must review the pickup activity by day for the
90-day forecast period. [Pickup refers to the number of
rooms sold. If 10 rooms were reserved yesterday for
September 1 and this morning there are 16 rooms
reserved for September 1, then the daily pickup for that
day was6 rooms.]
 Next, cut-off date and group block pickup are reviewed
to determine the action to be taken. [ A cut-off date is
the date that all unconfirmed reservations will be
released to general inventory for resale.]
 The Revenue Director would prepare a midterm forecast
generally covering 10 -14 days and review the accuracy
of the previous week’s forecast.
 The Revenue Manager must make sure that a check must
be made on peak and weak periods occurring in the next
6 to 12 months. All selling strategies for those dates
must be reviewed and adjusted as needed.
 The Revenue Director should review all third -party
vendor reports to assess how the organization fared over
previous week in market and competitive set
performance.
 Tracking reports should be analyzed to determine where
the organization’s business is emanating from to seize
any potential opportunities arising from the appearance
of effectiveness of pricing strategies should also be
determined.
 Most organizations set anticipated production figures of
business expected from their key and target accounts.
Each week the Director of revenue should compare these
figures to actual production. Should discrepancies
appear, strategies and tactics may need to be re -
evaluated.
 Upon completion of the weekly reviews, the Revenue
Director should reforecast demand based on a rolling 12 -
month basis.
 All selling strategies shou ld be adjusted as needed to fit
the newly projected demand.
 Now, based upon the size of the revenue management
team, the size of the organization, and the amount of
resources available, many of these weekly tasks will also
be performed on a monthly basis.

Position Title: Director of Revenue Management

Department: Sales & Marketing

Reports To: Director of Sales and Marketing

ESSENTIAL FUNCTIONS
 Formulate and deploy transient/group inventory
restrictions and pricing strategies to maximise
revenue from a rate and occupancy perspective.
 Manage hotel inventory control, including stay
controls, open/close status.
 Achieve and maintain rate integrity within all
distribution channels. Minimize rate issues with group
contracts.
 Grow market share.
 Grow ADR over budget with the corporate and leisure
discount market segments through promotions with
our e-commerce partners.
 Secure relocation rooms in the event of a relocation.
 Provide “walk day” support for the front office team.
 Train and mentor reservation manager to maintain and
exceed current service levels in the reservation
departments.
 Ownership of rate integrity throughout the distribution
system.
 Compile revenue and occupancy pace and forecast
reports ; market segment (group and transient) pace,
transient sub market segment pace, daily revenue
pace report, daily inventory pickup, 10 day and 4 day
forecast via reservation manager.
 Compile 90 day forecast report in accordance with the
scheduled deadline.
 Consult with sales managers on rate/ inventory
suitability of all potential group business that exceeds
group selling.
 Conduct displacement analysis utilizing profit
calculation.
 Analyse End of Month Reports and compile Revenue
Management Recap.
 Manage group block activity. Through Reservation
Manager responsible for management of group cut -off
dates, securing and reviewing all rooming lists,
monitoring group block activity. When necessary or
appropriate, communicate with group contacts and/or
housing bureaus.
  Participate in Daily Business Review and weekly
Marketing Meeting in accordance with company
standards.
 Manage/monitor Central Reservation System and
Global Distribution Systems to maintain consistency
and property-level inventory strategies and align with
company’s Best Available Rate pricing philosophy.
 Prepare weekly and monthly occupancy and revenue
forecasts. Assist in preparation of annual budget and
Strategic Business Plan.
 Prepare Quarterly Action Plans.
 Prepare Monthly Summary Report.
 Mentor, coach, and supervise Reservations Manager
relating to the daily operation of the Reservations
Department. Oversee recruiting, hiring, and training
within the department.
 Oversee divisional matters as they relate to federal,
state, and local employment civil rights law.
 Adhere to Sales and Marketing expense budget.

SUPPORTIVE FUNCTIONS:
In addition to performances of the essential functions, this
position may be required to perform a combination of the
following supportive functions.
 Professionally represent the hotel by participating in
and/or conducting client and industry functions.
 Develop working relationships with managers in the
Group and Catering Sales Offices, providing consultation
on strategies for booking optimal group and catering
business.
 Continually monitoring actions of competitive hotels.

Position Title: Revenue Manager

Department: Sales & Marketing

Job Overview:
To manage external and internal programs, processes,
systems, inventory, and information for the
Reservation/Sales/Accounting Departments, including rate
and inventory management in al l internal and external GDS
(global distribution system), ADOS (alternative distribution
system), website and other distribution partners. This
includes all pricing for all the products, packages, room
inventory and amenities sold in and through reservatio ns.
This position is to provide analysis, reports, information, and
data that allows the property management and staff to
optimize and maximize its room inventory sales, revenue and
services, which includes Group and FIT travel sales,
wholesale and other market.

STANDARD SPECIFICATIONS:

Requirements are representative of minimum levels of

knowledge, skills and/or abilities to perform this job
successfully. The associate will possess the abilities to
perform each duty proficiently.

ESSENTIAL JOB FUNCTION S:

 Develop and maintain a record and reporting system
which provides current and historical data for analysis
on sales, inventory of all room types, rates, source of
business, and length of stay patterns.
 Manage all rates, inventories, and information nece ssary
to represent and sell the property in all distribution
channels including but not limited to the GDS, Internet —
Expedia, Orbitz, HRN, Travelocity, site59 and other
alternative and Internet distribution channels.
 Provide information and reports to the management
company as required.
 Review all group billing procedures and group blocks for
accuracy and consistency.
 Maintain an excellent working relationship and
information flow process with accounting, reservations
and sales.
 Maintain all contracts, bil ling procedures and account
reconciliation with wholesalers both domestic and
international.
  Find new avenues to produce incremental revenue during
soft time periods.
 Participate in and execute some marketing and sales
strategies directed to the FIT and Gr oup and wholesale
market segments of the property, including but not
limited to direct mail, packages, web specials, past -
guest mailings and newsletters, communication with
domestic wholesalers and travel agents.
 Assist in the development and marketing of FIT travel
through input on packaging, pricing and promotion.
 Maximize homeowner revenue monthly, including
identifying “distressed” properties and using rotation.
Responsible for yield management of properties.
 Manage/input homeowner stays via direct call s and
owner response forms.
 Manage all reservations changes that occur as a result of
properties being added or removed to the rental
inventory.
 Manage complimentary and special rate business.
 Develop and maintain correspondence in SMS.
 Develop and build r ate package plans for all
reservations.
 Produce a weekly, monthly, and 90 day forecast and
distribute to staff. Produce monthly statistics report,
including source code, travel agent and top states
report.
 Have a comprehensive understanding of the property and
community activities, recreation, cultural and dining
opportunities.
 Maintain a professional appearance and attitude at all
the times in dealing with clients or potential clients.
 Provide any other reports or information as may be
requested.
 Can interface with homeowners, vendors, wholesalers,
group contacts and industry -related contacts
professionally and with the ability to handle their needs.

Position Title: Reservation Manager

Department: Sales and Marketing

Job Overview:
To manage all reservations sales and staff, internal and
external programs, processes systems, inventory and
information for the Reservation/Sales Department, including
rate and inventory management. This includes participation in
development of pricing for all products , packages, room
inventory and amenities sold in and through reservations.
This position is instrumental in Reservations cross training of
all Front Office Associates and the maintenance of the
property’s commitment to exceptional customer service.

STANDARD SPECIFICATION:

Requirements are representative of minimum levels of

knowledge, skills, and/or abilities. To perform this job
successfully, the associate will possess the abilities to
perform each duty proficiently.

ESSENTIAL JOB FUNCTIONS:

 Hire and train all Reservation Sales Agents in Springer

Miller software, properties, bookings procedures, the
Tariff Book, and other elements of their job description.
 Develop and implement comprehensive Sales Training
with the use of various training resources.
 Manage block space form wholesalers.
 Develop and maintain a comprehensive resource and
training manual that provides information on the
property, its services, amenities, packages, products and
programs.
 Provide information and reports to the management
company as required.
 Establish and maintain all group billing procedures and
process all necessary paperwork as outlined and
required.
 Maintain an excellent working relationship and
information flow process with accounting and revenue
manager.
  Establish and maintain strong relationships with all
wholesalers, both domestic and international.
 Find new avenues to produce incremental revenue during
soft time periods.
 Travel if necessary to promote and sell property.
 Participate in and execute some marketing and sa les
strategies, directed to the FIT, group and wholesale
market segments of the property, including but not
limited to, direct mail, packages, web specials, past
guest mailings and newsletters and communication with
the wholesalers and travel agents.
 Develop, implement and oversee the daily routine for the
effective operation of the Sales Department, which
includes processing of leads, follow ups, contracting, and
group maintenance.
 Assist the development and marketing of FIT travel
through input on packagi ng, pricing and promotion.
 Responsible for moving reservations as deemed
necessary by General Manager, Homeowner Relations,
Maintenance and Front Desk.
 Develop, manage and execute incentive programs for all
personnel in Reservation Department.
 Coordinate/communicate with Group Sales Manager as it
related to room blocks and group reservation.
 Attend weekly departmental and staff meetings.
 Develop and manage reservations agents, conversion
ratios. Track phone volume.
 Have a comprehensive understanding of the property and
the community activities, recreation, cultural and dining
opportunities.
 Maintain a professional appearance and attitude at all
times in dealing with clients and potential clients.
 Provide any other reports or information as maybe
requested.

Revenue Management Meetings

One essential duty on the job descriptions that we have not
yet addressed is the subject of meetings. Meetings are a
daily event in nearly every large organization and occur with
varying frequencies in similar ones. We have sta rted all along
that revenue management is a team process. So the team
coming together to assess information and then revenue and
adjust strategies and tactics is critical to obtaining optimal
revenue management success.
Many hospitality organizations have a daily meeting to assess
the previous day’s activity and prepare for the upcoming day.
Depending upon the size of the organization and the
efficiency of the RMT, this meeting will range from 15
minutes to 2 hours each day. In addition to its immediate
needs, the team reviews changing forecast information and
suggest possible adjustments to rates and inventory in the
various channels. Displacement analyses are conducted on
any group business pending decision. During group
displacement analysis, the organiza tion needs to determine
the total customer worth of two or more competing pieces of
business and select the business which will generate the
highest total customer worth. It should be noted that
displacement analyses may also apply to individual transient
business. It is important that an organization calculate the
total customer worth of its various market segments and sub
segments to facilitate future displacement analyses.

RMT ROUITNE AND SCHEDULE

Daily Activities
 Review daily activity from previous day
 Prepare short term(3 -5 day) forecast
 Review previous day booking report
 Review availability for next 90 days in all systems
 Evaluate strategies for next 90 days
 Implement changes to selling strategies in all
systems
 Meet with Reservation Manager to rea ffirm selling
strategies.
 Review and track reservations call statistics from
prior day, including:
1. Number of calls to reservation office
 2. Number of calls answered in reservation office
3. Number of calls converted to bookings
(conversion ratio)
4. Lost business reports, denial and regret reports.
 Review group block and pick up for the next 30 days
 Meet with Front Office Manager to discuss that day’s
selling strategies.
 Review competitors’ rate strategies
 Attend the daily business review meeting

Weekly and Monthly

 Review room picked up by the day for the next 90
days since prior review
 Review group cut off dates
 Review group blocks and pick up for the next 90
days
 Analyse the variance from forecast to actual
production from last week or last mont h
 Prepare midterm (10 -14 day) op monthly forecast
coming
 Evaluate peak and weak demand periods for the
next 6 to 12 months adjust selling strategies and
tactics as needed.
 Review channel reports to evaluate market and
competitive performance.
 Track and review sources of business from the
following:
1. Geographic location
2. Mode of transportation
3. Channel or booking method
4. Reason for travel
5. Rate plans booked
 Evaluate key account production and compare to
established target.
 Meeting with other property departme nts to
discuss additional revenue opportunities.
 Evaluate 1-800 number logs.
 Reforecast for a rolling 12 -month period and
adjust selling strategies and tactics as indicated.
  Attend weekly yield meeting and weekly group
business review meeting.
 Attend monthly forecast meeting and marketing
plan update meeting.

Annually
Attend all strategies revenue management planning
meetings assigned.

SMART ACTION PLANS:

STEP ONE: CUSTOMER KNOWLEDGE

To get started, the revenue management team (RMT) may easily apply the
'5Ws and an H analysis and ask the following questions in an effort to better
understand the organization's customers (note that these questions should
be asked regarding both individuals and groups):

Who?
 Who are our past and current customers?
 Who are our potential customers, the ones we wish to acquire?

What?
 What do our customers need, want and desire?
 What (or which) primary products and services do our customers buy?
 What (or which) ancillary products and services do our customers buy?
 What is the total customer worth of our average customer?
 What (or which) products and services do our potential customers
buy?
 What (or which) products and services do we offer?
 What trends are occurring with the potential to impact consumer
buying behavior?
 What (or which) new products and services could we develop to
capitalize on those trends?
 What (or which) products and services can be modified to add more
value?

Where?
 Where do we sell our products and services?
  Where do our customers prefer to make their purchase (online, at a
ticket window)?
 Where do our potential customers make their purchases?
 Where should we sell our products and services to attract our desired
customers?

When?
 When are our products and services in demand?
 When do our customers buy (time of day, week, and year)?

Why?
 Why do our current customers purchase our products and services?
 Why do our current customers buy products and services from our
competitors?
How?
 How far in advance do customers purchase these products and
services?
 How do customers make their reservations (directly, through a travel
agent)?
 How can we bundle together goods and services to increase the
customer propensity to purchase?
 How can we customize our products and services to reach various
niche markets?
 How can we expand this customer-centric approach?
 How do customers perceive the price value of our services?
 How can we our price/value positioning?

While this list in no way exhaustive, it is a wonderful start along the path to
customer knowledge. The RMT may wish to develop a perceptual positioning
map to determine where its products and services are positioned in the
marketplace, And to review, the equations for calculating total customer
value and total customer worth are:

Total Customer value = Perceived product or Service value - Total

acquisition Cost

Total Customer Worth= (Primary Revenue + Ancillary Revenue -

Acquisition Cost) × Propensity

Remember that total customer value is assessed from the perception of the
customer, while total customer worth is assessed from the perception of the
hospitality provider.
 The RMT should use all of the available resources at its disposal to
determine answers to the questions posed. To begin, they should gather all
the information acquired through the organization’s marketing intelligence
program. An analysis of both primary and secondary data will yield the most
comprehensive portrait of the organization's customers. An example of
internally gathered data includes:

 Guest Comment Cards

 Guest registration cards
 Segmentation sales statistics
 Meal cover reports
 Beverage sales reports
 Season ticket-holder data
 Point of sale reports
 Automated Sales systems
 Personal Observation
 Mystery shoppers
 Listening to and speaking with the guests
The organization should also obtain information regarding consumer
purchasing patterns by looking at:

 Booking patterns and pace reports

 Channel reports
 Cancellations and no shows
 Reservation conversion percentages (the percentage of inquiries to
reservations)
 Comparisons to historical sales
 Vendor reports

Next, the RMT should learn more about the buying habits of the market by
consulting with and reviewing a variety of resources, including:

 Conventions and visitors bureaus

 Chambers of commerce
 Resort association
 Park services
 Ticket agencies
 AAA motor club
 Travel agencies and consortia
 Tourist organizations
 Trade associations
 Trade publications
  Channel reports
 Vendor reports
 Retail sales reports
 Local colleges and universities

Strategies and Tactics to Consider for Acquiring and Retaining

Customers
 Capitalize on brand equity
 Create value- added products and services
 Develop new products and services to meet changing consumer trends
and behaviors
 Enable consumers to customize their products or services
 Bundle products and services to create a variety of packages

STEP TWO: MARKET SEGMENTATION AND SELECTION

After the RMT has gathered and reviewed all of the marketing intelligence on
the market's customers, it should next proceed to break down and analyze
that data by market segment.

Who?
 Who comprises the different market segments and subsegments?
 Who are our current customers?

What?
 What do these customers need, want, and desire by market segment
and subsegment?
 What (or which) primary products and services are purchased by each
market segment and subsegment?

Where?
 Where does each market segment and subsegment purchase its
products and services?
 Where do we sell our products and services to these market segments
and subsegments?

When?
 When are our products and services are in demand as determined by
market segment and subsegment (time of day, week, year)?
 When do customers purchase (analyzed by market segment and
subsegment)?
Why?
 Why do customers from each market segment and subsegment buy
our products and services?
 Why do customers from each segment and subsegment buy products
and services from our competitors?

How?
 How are purchases made by market segment and subsegment?
 How far in advance do the different market segment and subsegment
book?

Once the RMT has answered these questions, it should take a long look at its
responses. First, which market segments and subsegments contain the
greatest total customer worth? Is the organization capable of increasing its
capture of these highest producing market segments and subsegments given
the organization's current array of resources? What should be the impact of
changing the current mix of business?

To answer that last question, the RMT needs to perform a displacement

analysis based upon the average total customer worth of its various market
segments and subsegments. It should then use this analysis to determine
the organization's optimal mix of business. Some additional resources that it
may wish to review when completing this assessment include:

 Market segment and subsegment reports

 Customer relationship management system data
 Database reports purchased from the major credit cards agencies
 Industry publications specific to individual market segments and
subsegments

Strategies and Tactics to Consider in Selecting Market Segments and

Subsegments

 Create products and services to appeal to different market segments

and subsegments
 Add value through additional products, services, or amenities
 Sell benefits alongside features
 Seek out opportunities to increase primary and ancillary spend
 Displace lower-rated business with higher rated business
 Pursue the optimal mix of business
STEP THREE: INTERNAL ASSESSMENT

The next step in the process is for the RMT to conduct an internal
assessment and develop an initial SWOT analysis. Before it begins, the RMT
must identify its competitive set. It should also develop a list of its other
primary and secondary competitors. When developing the internal SWOT
analysis, the organization's strengths and weaknesses should be assessed
relative to the competitors. Some common strengths found in the hospitality
industry are:
 Location
 Destinations Serviced
 Facilities
 Amenities
 Excellent price/value perception
 Brand/image
 Reputation
 Product positioning
 Human resources
 Financial Resources
 Customer loyalty/repeat business

SMART action plans:

S- Specific
M- Measurable
A- Achievable
R- Realistic
T- Trackable
Some common weaknesses found in the hospitality industry are:
 Location
 Destinations serviced
 Facilities
 Amenities
 Poor price/ value perception
 Poor Brand/image
 Poor reputation
 Poor or incorrect positioning
 Weak or lacking human resource talent
 Low financial resources
 Little repeat business
Strategies and Tactics to Consider Regarding the Organization's
Internal Assessment
 Use our competitive advantage and distinctive competencies in
establishing higher prices for our products and services
 Capitalize on opportunities by utilizing our available resources
 Use our strengths to acquire and maintain customers
 Reallocate resources to reduce our weakness
 Prepare contingency plans for each major possible threat

The answers to the above questions help the RMT develop SWOT analysis for
each of the organization's competitors. The completion of the competitive
SWOT analysis helps the organization return and refine its own SWOT
analysis. Therefore, the development of an internal SWOT and competitive
SWOT analysis are complementary activities. They could be performed in
either order as long as the organization takes the final step of refining the
internal SWOT upon conclusion of the SWOT construction process. However,
we feel that most organizations know themselves better than they may know
their neighbor so it is usually easier to start with the internal SWOT
development.

STEP FOUR: COMPETITIVE ANALYSIS

Once the internal assessment and SWOT analysis have been completed, the
RMT should turn its attention to the competition. To begin, the RMT should
gather together all the competitive intelligence obtained by its group of
specialist. It should review the primary research that it obtained as a result
of its:
 Review of competitors' daily event or reader boards
 Parking lot observations
 Customer surveys
 Employment of mystery shoppers
 Vendor Inquiries
 Nightly call-around assessing availability
 Listening to and speaking with competitors' employees
 Visiting the competitors premises and listening to their guest

Next, the RMT should review the pertinent secondary research obtained from
the following sources:
 Financial websites
 Company annual reports
  brochures and other collateral
 Press releases
 News articles
 Business journals
 trade publications
 Trade associations
 Marketing materials
 Online database
 Sector performance report
 Convention and visitors bureaus
 Chambers of Commerce
 Resort associations
 Park Services
 Ticket agencies
 Travel agencies and consortia
 Tour operators and wholesalers
 Channel reports
 Vendor Reports
 Local colleges and universities
 Guest review and comments posted on websites
Again, notice that several of these resources are sources of both market and
competitive intelligence.

Information that the RMT should try to glean about their competitors from
these resources include:
 Company historical background
 Physical and online presence
 Ownership and management entities
 Analysis of key financial ratios if possible
 Products and services available and pending

The RMT should then develop a SWOT analysis for of its primary
competitors. Often from this process, the RMT may learn that it needs to
adjust its competitive set. As previously stated, the organization should go
back and re-assess and possibly revise its own SWOT analysis. Following the
development of the competitive SWOT and revision of the organization's
SWOT, the RMT should apply the 5W's and an H analysis to ask itself the
following questions:

Who?
 Who are our primary competitors?
  Who are their customers?

What?
 What are their primary products and services?
 What are their strengths and weaknesses?
 What opportunities and threats exist for our competitors?

Where?
 Where do they sell their products and services?
 Where do they operate?

When?
 When their products and services are most in demand (time of day,
week, month, or year)?
 When do customers see them as their first choice for their purchase?

Why?
 Why do we compete directly with our competitive set?
 Why do consumers purchase their products and services?
 Why do we compete directly with these organizations?

How?
 How do we compete for customers?
 How can we change our product or service mix to become more
competitive?
 How can we take advantage of opportunities in advance of our
competitors?
Once an organization becomes adept at creating SWOT analysis for its
competitive set, it may wish to expand their analysis to secondary, or
indirect, competitors.

Strategies and Tactics to Consider in Regard to Competitors

 Take advantage of price transparency by continually monitoring
competitors' rates and inventory.
 Use automated tools and resources whenever possible to capture
competitors' rates and inventory allocation
 Monitor competitors' changes in price
 Monitor competitors' reaction to changes in our pricing strategies
 Seek out opportunities for capturing increased market share
 Develop more competitive products and services
STEP FIVE: DEMAND FORECASTING
The RMT must develop an exceptional understanding of the mechanics of
supply and demand in its market place. First, it should become aware of all
products and services available. It should also make a list of all items that
are substitutes for these products and services. Second, the RMT needs to
determine the price elasticity of demand for its products and factor that may
impact that elasticity. It should understand how this elasticity impacts
consumer spending and total revenue for the organization. Charts are
available showing the price elasticity for many different consumer products.

Upon completing this analysis, the RMT should turn its attention to
developing a demand forecast. The demand forecast is created upon all of
the data collected thus far in the first five steps. Additional historical reports
to review and incorporate into the demand calendar include:
 Denials and regrets
 Lost business reports Cancellations
 No-shows
 Walk-ins
 Group arrival/departure and stay patterns
 Transient arrival/departure and stay patterns

Annual forecast and 30/60/90-day forecasts are the most prevalent buy
many organizations now also create 7/14/21-day forecasts.

Strategies and Tactics to Consider in Demand Forecasting

 Use all automated resources available to assist with the development
of the forecast
 Continually monitor and adjust forecast
 Develop strategies to increase capture of demand from special events
and area demand generators
 Use demand to assess proper positioning of prices and inventory

STEP SIX: CHANNEL ANALYSIS AND SELECTION

Determining which channels through which to sell their products and
services is a significant challenge to most organizations today. The
abundance of traditional and electronic channels of distribution makes the
choice more complex than ever before. The best place for an organization to
begin is to gather some production reports. It needs to determine which
channels are producing which customers. Production reports should be
obtained from:
  The major global distribution systems
 The organization’s central reservation office
 Central reservation systems
 The organization’s proprietary website
 The merchant models
 Retail operations
 Opaque sites
 Auction sites
 Referral services
 Special-interest sites
 General web portals
 Marketing campaigns
 Personal sales efforts
 Promotional programs
 Travel agents and consortia
 Ticket office
 Any other channels used to distribute its products and services

The next step for the RMT is to determine the distribution cost per channel.
Once, the production and distribution costs have been obtained, the RMT
needs to determine the contribution per channel. The RMT completes the
analysis by determining which channels produce the greatest total customer
worth. It may then select the channels to use when allocating inventory to
achieve its optimal mix of customers.

STEP SEVEN: DYNAMIC VALUE-BASED PRICING

Establishing the right price is such a key component in optimizing revenue
that the RMT needs to give this step a lot of attention. It begins by reviewing
the price/value analysis performed on its products and services. What does
the customer think they are worth? In value-based pricing, price is set based
upon the customer’s value perception and demand for the product or
service. Each customer assesses value differently. Therefore, success is
based upon creating the optimal price/value relationship.

Strategies and Tactics to Consider with Dynamic Value-Based Pricing

 Set initial prices low to induce trial
 Set initial prices high to position products and skim the market
 Use lowered prices to increase market share
 Assess pricing strategies for frequent guest programs
 Construct price fences
  Use competitive advantages and distinctive competencies in
determining price
 Price superior products higher and inferior products lower
 Maintain channel price parity and rate integrity
 Develop a proactive rather than reactive approach to pricing
 Use price to lengthen stay patterns
 Discount sparingly and carefully
 Adjust price to more accurately reflect the location of the product or
service in its life cycle
 Negotiate volume business on percentage off best available rates
 Use promotional pricing to increase capture of special event-related
business
 Analyze competitors’ price positioning surrounding special events

STEP EIGHT: CHANNEL AND INVENTORY MANAGEMENT

And finally, we have arrived back at our warehouse and now our revenue
manager needs to allocate inventory per channel. We selected our channels
in step six, and now we have to determine levels and pricing of inventory to
load into each channel. Based upon achieving our optimal business mix of
customers, the RMT must locate the appropriate amount of inventory in the
appropriate channel. Thus, inventory may need to be loaded into the mix of
the following channels:
 The major global distribution systems
 The organization’s central reservation office
 Central reservation systems
 The organization’s proprietary website
 The merchant models
 Retail operations
 Opaque sites
 Auction sites
 Referral services
 Special-interest sites
 General web portals
 Franchise programs
 Discount clubs
 Group sales office
 Catering sales office
 Promotional programs
 Travel agents and consortia
 Ticket office
 Any other channels used to distribute its products and services
Once the inventory is loaded, it needs to be managed. Remember that the
three key elements in managing inventory are:
1. Pricing
2. Unit availability
3. Purchasing rules and restrictions

The revenue manager must continually monitor booking pace and pattern
and the changing demand forecast. Price feces should be constructed to
maintain inventories for the appropriate customers. As demand changes,
price will need to be changed and inventory levels adjusted. Reservation
content must also be updated per channel. Decisions will need to be made
regarding volume discounts, duration pricing, and stay restrictions applied.
Some possible stay controls that may be implemented include:
 Closed to arrival
 Minimum length of stay
 Maximum length of stay
 Must stay
 Full pattern length of stay

When no stay restrictions are implemented, inventory is said to be open for

sale. The RMT must also learn how cross-channel behavior impacts the
selling of its products and services. And the RMT should develop strategies
for increasing its ‘ownership’ of customers arriving via these various
channels. Continual monitoring of date, rate and inventory is required to
manage channels effectively. The organization may also wish to maintain
price parity across channels. And the RMT must continually keep an eye on
the rates and inventory loaded into these channels by its competitors. A final
analysis is conducted using the 5 Ws and an H.

Strategies and Tactics to Consider for Channel and Inventory

Management
 Improve and enhance website
 Develop e-mail strategies for capturing new and repeat business
 Maximize franchise opportunities
 Develop internet linkage strategy for connecting to other sites
 Determine search engine optimization options
 Update price, availability, and content across channels as often as
needed
 Implement stay controls and other restrictions when appropriate
 Utilize available tools and resources to effectively manage channels
 Purchase new technology (hardware and software) to improve the
management of channels and inventory
 Develop an electronic marketing plan
  Audit and update content (including descriptions and images) through
all channels as appropriate
 Partner with a Channel Distribution Consultant

In addition to distributing products and services, many channels today offer

a variety of marketing and reservation services as well. And that takes us to
the topic of Electronic Resources.

ELECTRONIC RESOURCES
By now, many of you are thinking that you will need a team of thousands
just to address the items included in your travel kit above. This may be true
if you were trying to accomplish this all manually. Fortunately, electronic
resources are available to provide you solutions to managing price, channels
and inventory today. The following are a sampling of the electronic resources
available for purchase today:
Market and competitive intelligence:
 Analysis of market penetration
 Performance data on the organization and its competitors
 Historical information on the organization and its competitors
 Competitive inventory availability reports
 Market data trend analysis and monitoring
 Market positioning
 Breakdown of arrival patterns and length of stay
 Capture of customer information
 Customer relationship management and communication tools

Demand Forecasting:
 Future booking data from the GDS
 Comparison of booking pace to competitors
 Identification of peak and weak periods to enable action to be taken
early
 Identification of market demand
 Analysis of booking pace and stay patterns developing

Channel Analysis:
 Production reports across GDS and IDS
 Booking contribution by channel
 Identification of top producing channels for the market

Dynamic Value-based Pricing:

 Rate shopping tools and reports
 Pricing opportunity alerts
  Competitive pricing change alerts
 Rate recommendation tools
 Confirmation of price parity across channels
 Pricing data per market
 Monitoring of best rate guarantees
 Length of stay rate comparisons

Channel and Inventory Management:

 Central Reservation Systems
 Tools for updating rate, inventory and restrictions across multiple
channels
 Reservation conversion improvement tools
 Value added product development

Electronic Marketing Services:

 Marketing management in the GDS and IDS
 Pay-per-click advertising
 Online merchandising opportunities
 Website design and management
 Digital media display distribution to multiple sites
 Travel agent enhanced screen display
 Headline and point of sale marketing in GDS
 Web links
 Package development and marketing
 Search engine optimization

The following is a list of just a few of the vendors that an organization may
consult for these products and services:
 Blizzard marketing
 E-Site marketing
 EZ Revenue Management
 Google Ads
 IdeaS
 Micros/opus
 Pegasus
 Rubicon group
 Smith travel research
 SynXis
 TravelClick

It is important to remember that this activity is circular, meaning that once

the process is complete, it’s simply begins once again.