Principles of Revenue Management

Zak Ali – FHOSPA, CRMEDirector Global Revenue Development

Principles of Revenue Management and Interactive

Workshop

PROGRAM10:30 – 11:35 – Introduction, Budgeting, Market Segmentation,

Forecasting, Pricing

11:35 – 11:45 – Ara

11:45 – 12:30 – Revenue Management Araçları, Excel and RMS

12:30 – 13:00 – Soru ve Cevap

Hotel Linkage Academy 2016 ® | Istanbul

INTRODUCTION TO REVENUE MANAGEMENT

COMMON MISCONCEPTIONS

Full Hotel = Profitable Hotel?

• Obsession with occupancy %

• Opportunity Cost

THE COST OF GETTING IT WRONG

HOTEL REVENUE MANAGEMENT

Optimize

Monitor

Control

Forecast

Revenue Optimization

CycleBest

Revenue Management Practice

People

Process

Key RM Components Revenue Management Cycle

THE ROLE OF REVENUE MANAGER

• Not just about

• Proactive vs Reactive – More than looking at past data.

RMS CAN REPLACE MY REVENUE MANAGER

WHAT A SYSTEM CAN NEVER KNOW….

• Rihanna is much more popular than Britney Spears

• The RM from the hotel next door has resigned and not replaced.

• F1 has just announced that in 2016 the race will move from Singapore to KL

• Volcanic ash in Indonesia is causing havoc to flights in the region.

BENEFITS OF RMS

Fully Yieldable RMS

Integrated pricing and inventory optimization by:

Product availability True value of the

demand Specific stay

pattern

BENEFITS OF RMS

HOTEL BUDGETING

INFLUENCES OF DECISION MAKING

• Activity based costing• Product based

profitability• Targets & Objectives

Strategic & Operational Planning

Financial plans & BudgetIndustry Forecast

• Market Share• Local Trends• Channel Mix

• Deviation Analysis• Promotion Effectiveness

• Consolidation• Management Reports

• Performance measurement

• Product performance• Customer Analysis

Information

Report

HOW TO BUILD A BUDGET

BUDGETING TOOLS

Spreadsheets Specialized budgeting Software

Must be able to view;

Balance Sheet Cash Flow Cost P & L Departmental Budget Business Segmentation

MARKET SEGMENTATIO

NHotel Linkage Academy 2016 ® | Istanbul

WHAT IS MARKET SEGMENTATION

• Targeted Sales and Marketing Activities

• Increase Guest Retention Levels

• Targeted Pricing• Increased Market

Share of the Desired Segments

Drivers for Segmentation

Incorrect Segmentation

Segmentation involves subdividing markets, channels or customers into groups with different needs.

• Inaccurate Forecasting

• Ineffective Pricing Strategies

• Incorrect Sales and Marketing Activities

• Strategy Impact

MARKET SEGMENTATION - DEFINE

MeasurabilityIs your market segment measurable? Can you measure the visits of a certain segment to your city/area?ActionabilityAre your product offering and price interesting enough for that segment to buy from you? Can they actually book a room at your hotel?AccessibilityCan you reach that segment?SubstantiationIs this segment large enough to be viable?

BEHAVIORAL VARIABLES

What are some common behavioral variables tracked in a hotel?

• Product Type• Additional Spend• Sold Nights• Rate• Frequency of Purchase• Distribution Channel• Day of Week• Length of Stay• Revenue

KEY CONSIDERATION OF SEGMENTATION

Customer Behavior / Lifestyle

Price & Buying

Behavior

Contribution Channel and Cost

ACCURATE AND CONSISTENT TRACKING – BEST PRACTICE

How is segmentation data collected by your organization?

Reservations Front OfficeGroup & Convention Sales Night Auditor

• PMS Setup Arrivals Check• Major/minor market codes Check-In Coding Procedures• Correct PMS Set-Up in-House and Arrivals Check• Standard training. Standard training

SEGMENTATION OPTIMIZATION CYCLE

Establish New Market

Opportunities

Implement New

Segment and

Review Annually Identify Hotel Goals &

Distribution Strategy

Analyze Historica

Current Data

Segmentation

Optimization Cycle

MARKET SEGMENTATION CONCLUSION

Segment Transient Direct, Transient OTA, Corporate, Group, Wholesale,

Cost of Acquisition & Cost of Distribution

Net ContributionNet RevPAR, GOP

OptimizationPricing, Inventory, Channel Mgt, Conversion

Planning - StrategyContribution, Profit Mix

GenerationAdvertising, OTA optimization, Sales Opportunities

FORECASTING

THE REVENUE OPTIMIZATION CYCLE - FORECAST

Optimize

MonitorControl

Forecast

Revenue Optimization Cycle

Historical Data

Daily Extracts

User Interaction

User Set-Up

WHAT IS FORECASTING IN REVENUE MANAGEMENT?

Predicting demand based on quantitative methods and a combination of a decision makers experience, logic and intuition to supplement the forecasting quantitative analysis.

OBJECTIVE OF FORECASTING

Measure demand Foresee

falls in demand

React to low demand

Define commercial

strategy Apply rates Control

costs Restrict sales

Control commission

Financial planning

Human Resources planning

WHAT FLOWS IN TO A FORECAST?

Room Nights RevPARRevenue CancellationsLead time / booking pace by segment

Transient rooms

No shows (both guaranteed and non-guaranteed

Arrivals

Group Rooms Walk-insDepartures Early departuresExtended stays Lengths of stay patternDenials / Regrets Transient and group mixDemand generators “On the books” bookingsRate changes Group blind cut and group

FORECAST ACCURACY

Accurate forecasts are crucial to good revenue management. Research has found that a 10% increase in forecast accuracy in the industry increased revenue by 0.5 – 3% on high demand dates.

Without accurate forecasts, the rate and availability recommendations produced may be highly inaccurate.

Industry Standard – 5%

FORECASTING EXAMPLE

THE REVENUE OPTIMIZATION CYCLE - OPTIMIZE

Optimize

Monitor

Control

Forecast

Revenue Optimization

PRICING

QUICK QUIZ

The key to success pricing is to match the product or service with the customer’s….

• Brand consciousness• Income• Value Perceptions• Interests

PRICE VS VALUE

PRICING EVOLUTION – FLAT LINE APPROACH

High Demand

Low Demand

PRICING EVOLUTION – REALIZATION OF FLUCTUATION

PRICING – AN OPTIMAL PRICEThe Optimal price is the maximum consumers are willing to pay. Prices are influenced by multiple factors…But they are only perceived as ‘the right price for me or not’

DERIVATIVE OF REVENUE CURE GRAPH

PRICING - DEFINITION

To determine the “optimal” price we must take into account:Value of ProductCustomer’s perceived

valuePositioningCompetition

Optimal PriceThe overall goal of Pricing in Hotel RM is:• Setting Prices in both non

competitive and competitive environments

• Demand as a function of price is learned over time via price elasticity.

Overall Goal

Consumers pay lower when the demand is weak• Supply outweighs demand Consumers pay higher prices when the demand is strong• Demand outweighs supply

FUNDAMENTAL DEMAND MODEL OF RM

How Many Rooms Can I Sell At Each Rate? Data point 1. How many rooms sold when we charge a low rate (L,H) Data point 2. How many rooms sold when we charge a high rate (H,L)

Rooms (Q)

Low Rate(P) High

(L,H) Data Point 1

(H,L) Data Point 2

REVENUE POSSIBILITIES

Revenue = Rate * Rooms Sold

COMPETITIVE ANALYSIS

DETERMINING THE COMPETITIVE SET

”A competitive set is defined as a group of hotels by which a property can compare itself to the group’s aggregate

performance. Before a hotel can construct a strategic plan it is important that

they understand the market in which they operate in.If this critical first step is not completed, then the foundation upon which the future strategy is built may be fundamentally

unsound.”

COMPLETING A SWOT ANALYSIS

SWOT is a strategic planning method used to evaluate the: Strengthsweaknesses, Opportunities andthreats involved in a business.

COMPLETING A VALUE ASSESSMENT – STEP 1

A Value Assessment is a very useful tool, allowing the ranking of the comparative value of the hotel.

1st Step - determine the relative quality of each of the selected competitors

LocationQuality of ServiceFood and Beverage QualityBreakfast offeringInternet Price & SpeedLeisure FacilitiesAverage Transient RateGuest Room Types

Age and DesignLoyalty ProgramComplimentary ServicesBrandCleanlinessReviewsRanking on Review Sites and Average ranking on OTA sites.

Factors to Compare

COMPLETING A VALUE ASSESSMENT

2nd Step - Once rating criteria have been selected, each of the competitors will be rated against the hotel.

COMPLETING A VALUE ASSESSMENT

3rd Step - Once the product offer is rated, each of the comparative values must be plotted on a matrix against the price offered

Primary Competito

CONTACT

HOTEL LINKAGEINFO@HOTELLINKAGE.COM

0850 885 00 28

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