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1Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management
2Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Role of the Revenue Manager
• Importance of revenue management
• Different than “room rate management”
• Factors to consider when answering the question: “How much are your rooms?”
3Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management
• Negotiated Rate: A special room rate offered for a fixed period of time to a specific hotel client.
• Black-out Date: Any day(s) in which the hotel will not honor a negotiated rate.
• Negotiated Rate Agreement: A document that details the specific contractual obligations of a hotel and client when the hotel has offered, and the client has agreed to, a negotiated rate.
4Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management
• Length of Stay (LOS): The number of nights a hotel’s individual guests use their rooms.
Room Nights Sold = LOS Rooms Sold
5Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Management
• Central Reservation System (CRS): An entity, operated by a franchisor, that offers potential guests the opportunity to make reservations at its affiliated (branded) hotels by telephone, fax, and/or the Internet.
6Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Management
• Responsibilities are shared by:– Revenue manager– FOM– DOSM
7Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Management
• Rate Resistance: Refusal to make a reservation because the rate quoted is perceived to be too high.
• Displace (Revenue): To substitute one source of revenue for another.
8Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Supply: The total amount of a good or service available for sale.
• Demand: The total amount of a good or service consumers want to buy at a specific price.
• Room Rate Economics: The process by which revenue managers price rooms while considering how consumers may react to the pricing strategies that are used.
9Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Law of Demand: The concept of economics that recognizes, when supply is held constant, an increase in demand results in an increase in selling price. Conversely, with supply held constant, a decrease in demand leads to a decreased selling price.
10Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Law of Supply: The concept of economics that recognizes, when demand is held constant, an increase in supply leads to a decreased selling price. Conversely, with demand held constant, a decrease in supply leads to an increased selling price.
11Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Rate Type: A single (unique) rate for a specific type of room that is programmed into a hotel’s PMS.
• Rack rates can vary by:– Bed type– Amenities– Location– Size
12Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Seasonal rates• Special event rates• Corporate rates• Government rates• Group rates• Package rates
13Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• American plan• Modified-American plan• All-Inclusive plan• European plan
14Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Day rates• Half-day rates• Fade (flex) rates
15Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Traditional pricing strategies:– Hubbart room rate strategyROI: Short for “return on investment”; the percentage rate of return achieved on the money invested in a hotel property.
FF&E: Short for the “furniture, fixtures, and equipment” used by a hotel to service its guests.
16Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Traditional pricing strategies:– $1 per $1,000 ruleCost Per Key: The average purchase price of a hotel’s guest room expressed in thousands of dollars.
– Bottom-up Selling: A tactic to first sell the hotel’s least expensive rooms.
– Top-down Selling: A tactic to first sell the hotel’s most expensive rooms.
17Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Web-influenced pricing strategies–Competitive pricing–Follow-the-leader pricing –Prestige pricing –Discount pricing
18Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Call-around: A telephone “shopping” technique in which a hotel staff member calls competitive hotels to inquire about room rates and availability. The information is used by the calling hotel to help determine room rates.
• www.RoomSearch.com
19Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Room Rate Economics
• Rate Integrity (Parity): The degree to which a hotel’s room rates are comparable regardless of the distribution channel on which they are found.
• Distribution Channel: A source of potential room reservations.
20Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management Tools
• Room types• Market Code: Guest types differentiated by sales source. Typical market codes include transient and group.
• Track Code: Guest types differentiated by traveler demographics.
21Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management Essentials
• Managing occupancy:– CTA: “Closed to Arrival;” in this situation, the hotel declines reservations for guests wanting to arrive on this specific date.
– Over-booking: A situation in which the hotel has more guest reservations for rooms than it has rooms available to lodge those guests. Sometimes referred to as “oversold.”
– Walk(ed): A situation in which a guest with a reservation is relocated from the reserved hotel to another hotel because no room was available at the reserved hotel.
22Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management Essentials
• Managing ADR:– Lowering rates does not always increase demand.
– In some situations, room discounting may be an effective managerial strategy.
23Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management Essentials
• Measures of Effectiveness– Occupancy Index =
Occupancy Rate of a Selected Hotel
Occupancy Rate of That Hotel’s Comp Set
24Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management Essentials
• Measures of Effectiveness– ADR Index =
ADR of Selected Hotel ADR of That Hotel’s Comp Set
25Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management Essentials
• Measures of Effectiveness– RevPar Index =
RevPar of a Selected Hotel RevPar of That Hotel’s Comp Set
26Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Revenue Management Essentials
• Measures of Effectiveness– GoPar =
Revenue – Management-Controllable Expenses
Available Rooms for That Period
27Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Yield Management
• Philosophy• Implementation• Techniques
28Woods et al., Professional Front Office Management
© 2007 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.
Yield Management
• Most revenue managers would agree that:–Occupancy and ADR indices should be close
–Rate integrity is essential–Revenue management is a daily activity
–It is necessary to gamble at times