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Revenue Management: MPTH 112 Week 5

Revenue management involves allocating the right type of hotel room capacity to the right customer at the right price to maximize revenue. It uses market segmentation, historical booking data, pricing strategies, and overbooking policies. Effective information systems are also needed to support revenue management through sorting data and integrating reservation and property management systems. Key performance ratios like occupancy rate, average daily rate, and revenue per available room are used to measure yield efficiency and financial success.

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59 views19 pages

Revenue Management: MPTH 112 Week 5

Revenue management involves allocating the right type of hotel room capacity to the right customer at the right price to maximize revenue. It uses market segmentation, historical booking data, pricing strategies, and overbooking policies. Effective information systems are also needed to support revenue management through sorting data and integrating reservation and property management systems. Key performance ratios like occupancy rate, average daily rate, and revenue per available room are used to measure yield efficiency and financial success.

Uploaded by

Van Santos
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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REVENUE MANAGEMENT

MPTH 112 WEEK 5


 The process of allocating the right type of
capacity or inventory unit to the right type of
customer at the right price so as to maximize
revenue or yield.
 It is concerned with the market sensitive pricing of
fixed room capacity relative to a hotel’s specific
market segments.

Definition  Yield management in hotels consists of two functions:


rooms inventory management and pricing.
 The goal of yield management is the formulation and
profitable alignment of price, product and buyer.
 It is a revenue maximization technique which
aims to increase net yield through the predicted
allocation of available bedroom capacity to
predetermined market segments at optimum price.
 It is a tool with the capacity to yield a net result of
enhanced revenue and customer service through a
melding of information systems, technology,
profitability, statistics, organization theory,

Definition business experience and knowledge.


 On a strategic level, the definition of yield
management is extended to incorporate historical
performance, demand forecasting, and decision
making to enable revenue optimization.
 The airline industry has been credited with the
development and refinement of yield management
following deregulation of the US airline in the late

Historical 1970’s.
 The resulting heavy competition led to a price
Development cutting war with some airlines going out of
of Yield business.

Management  Yield management was introduced as a method of


utilizing capacity and maximizing revenue or yield
where airline companies sought to fill their planes
with the optimum mix of passengers.
 Yield management began to be adopted in the

Historical hotel industry around the middle of the 1980’s.


 At this time the industry was being confronted
Development with excess capacity, severe short-term liquidity
of Yield problems and increasing business failure rates.

Management  Major hotel chains such as Hyatt, Marriott, Quality


Inn and Radisson endeavored to redress these
difficulties.
 Fixed Capacity- hotels tend to be capacity
constrained with no opportunity to inventory their
products or goods. Capacity can only be changed
by adding a number of new rooms but this usually

Precondition involves a large financialinvestment.


 High Fixed Costs- the industry is characterized
s of Yield by high fixed costs and the cost of adding
Managemen incremental capacity can be very high and is not
quickly adjusted.
t  Low Variable Costs- the costs incurred by selling
a room to a customer in otherwise unused
capacity is relatively inexpensive and incurs only
minor servicing costs.
 Time-Varied Demand- since hotel capacity is
fixed, organizations cannot easily adjust their
capacity to meet peak and lean demands. When
Precondition demand varies, hotels can benefit from controlling
s of Yield capacity when demand is high and relaxing control
when demand is low.
Managemen  Similarity of Inventory Units- yield
t management systems operate in a situation where
inventory units are similar. Hotels differentiate
their units by offering add on luxury features or
the possibility of upgrades.
 Market Segmentation-

Ingredients  Historical Demand and Booking


Patterns
of Yield
 Pricing Knowledge
Managemen
t  Overbooking Policy
 Information Systems
 Hotels normally have the ability to divide their
customer base into distinct market segments such
Market as leisure, business, long and short stay.

Segmentatio  Business or corporate clients who are usually time


sensitive are willing to pay higher rates while
n leisure travelers who tend to book longer in
advance are price sensitive.
 One of the components needed to apply revenue
management in hotels is market segmentation.
 It allows you to target a variety of consumer
groups with different behavior with an offer that
Market matches their needs and budget level.

Segmentatio  Your market segmentation shall help to identify


the purpose of the trip: either business or leisure.
n  The price does not determine the market
segmentation.
 Clear distinction must also be achieved between
individual and group business.
Historical  Detailed knowledge of a hotel’s sales and booking
data per market segment should help managers
Demand and predict peak and lean season in demand and
Booking assist the hotelier in more effectively aligning
demand with supply.
Patterns
 Yield management is a form of price
discrimination.
 In order to stimulate demand in periods of low

Pricing
demand, hotels can offer discounted prices while
during periods of high demand low rates can be
Knowledge closed off.
 By offering a number of rates in the hotel, the
manager will profitably align price, product and
buyer and increase net yield.
 Overbooking is an essential yield management
technique.
 Overbooking levels are not set by chance but are

Overbooking
determined by a detailed analysis of what has
happened in the past and a prediction of what is
Policy likely to happen in the future.
 Predicted no-shows, cancellations, and denials all
form part of a complex calculation carried out in
advance.
 Effective management information is essential for
successful yield management whether the hotel is
operating a manual or computerized system.

Information  Information technology can assist greatly in the


sorting and manipulation of required data.
Systems  Yield management systems need to be integrated
to property management systems, reservation
systems and group systems.
 Traditional methods of performance measurement
in hotels such as occupancy rate and average
room rate have tended to focus on the volume or
value aspects of accommodation sales.
 However, high occupancy rates are no indication
of financial success since the rate per room
charged to the customer may be highly discounted
Measuring and well below the rack rate.

Yield  While the average room rate gives an indication of


the level of revenue generated per sold room, it
gives no indication of the actual number of rooms
sold.
 Yield management aims to optimize both
occupancy and average room rate
simultaneously .
 Yield Efficiency = Revenue Realized / Revenue Potential
Yield  = (rooms sold x average room rate) / (room rate x
Efficiency available rooms)
 ADR
Key  REVPAR
Operating  ROP
Ratios
 DOP
ROOM OCCUPANCY PERCENTAGE (ROP) = number of rooms sold / number of
rooms available for sale
SALES PER OCCUPIED ROOM or ADR = room sales / number of rooms sold

ADR (Average Daily Rate) - the number represents the average rental income
per paid occupied room in a given time period.

RevPar (Sales per Available Room) = room sales / number of rooms available
for sale
MATHEMATICAL CHECK: ADR x OCCUPANCY = RevPar

DOUBLE OCCUPANCY PERCENTAGE (DOP) = number of guest – number of rooms sold


number of rooms sold
 It is the foundation of yield management
 Forecasting must be done on a daily
basis, with 30 days, 60 days, 180 days
and 365 days projections
Yield  A continuous examination of demand and
Management supply variables is required in order to
Decision take effective yield management
Variable: decisions
FORECASTING
 Factors that may effect demand an
supply include: past business forecasts,
sales mix, special events, weather and
competitors’ behavior.

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