Necessary conditions for RM

1. Relatively fixed capacity a. Ability to convert and merge rooms b. Play with room sizes and offer more categories of products with the limited resources 2. Ability to segment markets a. Segmentation criteria: price sensitivities (taken into consideration purchasing power), and willingness to pay i. (re-segment market from the previously segments for marketing criteria based on price sensitivity) b. Distinguish customers from the booking phase 3. Perishable inventory a. Room nights b. employees 4. Product sold in advance a. Secure sales esp. non-refundable bookings (zero risk in exchange for a discounted rate) b. Usually accepted by leisure travellers c. Allow demand to be forecasted 5. Fluctuating demand a. Caused mainly by the factor seasonality b. Room for revenue management c. If demand is smooth, there is no need for RM, only pricing strategies 6. Structure of marginal costs a. Low variable (sales) costs and b. High fixed production costs i. Cost almost nothing to have an additional guest which allow maximizing of revenues, which are insignificant

Strategic Levers of YM
(time based inventory unit) RevPATI = Average rate * Capacity utilization Average rate = price (rate allocation); Capacity utilization (duration) MUST FIND THE RIGHT ALLOCATION/ COMBINATION BASED on different consumption patterns.. RevPAR (room) RevPASM (seat mile) RevPATT (tee-time)

Differential pricing/ dynamic pricing

In the same airplane, same flight, one customer can be paying 1000fr, while the one sitting next to him pays 2000fr. Rack rates Package rates: bundles with extras Advanced booking Refundable Entitlement rates: Negotiated with companies, affiliations Rule of Saturday night(same day travel): understand customer consumption pattern, price sensitivity and charge them accordingly closest to their price sensitivities Promotional rates: o Note: Last minute discounts can work occasionally but not regular. Customers will always wait till the last minute to book.

o o

White triangles are revenue unexploited with only one rate Variable costs
35 30 25 20 15 10 5 0 K3 K2 K1 Series 1

Series 1
Available capacity

o o o o

Have multiple rates for different customer segments with different price sensitivities Cannot go beyond VC, otherwise will incur loses Cannot overbook too much above available capacity

Rate Fences (restrictions to the rate; without this, there is no RM)

o To avoid revenue erosion/dilution be encouraging price insensitive customers to choose higher rates Tangible o Inventory type: o Position (near the elevator), view, o Amenities Wifi (business travellers) Minibar a lot of hotels are offering these free nowadays; already included in heightened room price Intangible o Restrictions E.g. Zermatt Skimming market: imposing min. stay of 3 nights or 7 nights Hotels have the bargaining power since demand exceed supply However, hotel may lose some customers forever Can push low-price customers to low season if there are no restrictions o Time of usage: different rates dependent on seasonality o Time of reservation: how many days in advance o Special (negotiated ) rates: company can offer volume for a guaranteed amount of time; member of loyalty programs

Key issues Perceived price fairness o Customer will perceive hotel are changing rates without reasons, esp. when they can cover costs with low rates during economic downturn Employee morale o Front Office: contradictions between RM and what is logical staff cannot accept walk-ins by offering a slightly lower rate to clear the empty rooms because RM only agrees on a higher price should provide RM training to employees incentivize employees by offering performance based benefits o Sales Sales techniques (which rate to quote) a. Date of arrival: seasonality- which way of the week; Booking Lead time b. Length of stay: How many nights? i. Determine what kind of guest profile c. How many people? i. Single occupancy/ double occupancy d. Room type? e. Refundable? **Can perform upgrading by offering a room which is of a higher category for the same price if the category asked for has sold out

** RMS takes info. From PMS, crunches the historical data and sends decisions from RMS to PMS (filer in between the 2 systems: Revenue manager)

Duration issue