De Mystifying Revenue Management

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Session designed to help meeting planners better understand hotel revenue management

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  • Are you wondering who the Revenue Manager at a hotel is and what impact he or she has on your negotiations? Do you want to better understand how hotels evaluate group business or manage and control inventory and pricing to maximize RevPAR? This session will help remove some of the mystery of revenue management and give valuable tips on how you can best position your business to attain desired results. Learner Outcomes 1. Understand how hotels are using revenue management pricing strategies to increase revenues and drive profit. 2. Gain new insights into how a hotel analyzes and prices group business. 3. Learn how hotels use overbooking and post cut off pricing strategies to maximize occupancy and rate.
  • De Mystifying Revenue Management

    1. 1. DeMystifying Revenue Management PCMA POWER Chapter September 12, 2007
    2. 2. Today’s Agenda <ul><li>What is Revenue </li></ul><ul><li>Management </li></ul><ul><li>How Rev. Mgmt is applied to meetings </li></ul><ul><li>Revenue Mgmt tools used by hotels </li></ul><ul><li>Best practices for RFP’s & hotel negotiations </li></ul>
    3. 3. Who’s going to win Sunday?
    4. 4. Revenue Management Definition <ul><li>A combination of pricing strategies, stay pattern controls, and information systems to sell the right rooms to the right customer at the right time for the right price via the right distribution channel… in a way that maximizes revenue or yield . </li></ul>
    5. 5. Consumer Case
    6. 6. 6 Revenue Mgmt. Attributes <ul><li>Fixed capacity </li></ul><ul><li>High fixed cost, low variable cost </li></ul><ul><li>Perishable inventory </li></ul><ul><li>Reservations are made in advance </li></ul><ul><li>Variance in demand – season or day or length of stay </li></ul><ul><li>Some customers price sensitive, some not (marketable segments) </li></ul>
    7. 7. What other business could use revenue management?
    8. 8. Rev. Mgmt. Strategic Levers <ul><li>Controlling duration - length of stay </li></ul><ul><ul><li>Arrival – Departure pattern </li></ul></ul><ul><ul><li>Open, closed, no arrivals, max/min length of stay, allocations </li></ul></ul><ul><ul><li>Meeting space maximization </li></ul></ul><ul><ul><li>Managing wash – reminders, deposits, attrition, cancel fees, overbooking, early departure policy, blind cuts </li></ul></ul><ul><li>Price </li></ul><ul><ul><li>Channel/Distribution management </li></ul></ul><ul><ul><li>Competitive pricing </li></ul></ul><ul><ul><li>Demand based pricing </li></ul></ul>
    9. 9. Rate Fences <ul><li>Physical rate fence : rates determined by room location, view, or amenities </li></ul><ul><li>Product-line rate fence : rates determined by product category such as concierge, business class, standard or double </li></ul><ul><li>Restrictive rate fence : lower rate with non-refundable deposit </li></ul><ul><li>Controlled-availability rate fence : rates determined by coupons, by the guest or hotel's geographic location, or by distribution channel </li></ul><ul><li>Buyer-characteristic rate fence : senior discount, frequent customer, AAA, kids, or special rate for being part of a group </li></ul>
    10. 10. RevPAR Calculation <ul><li>Room Revenue / Rooms Available or </li></ul><ul><li>Average Rate X Occupancy </li></ul><ul><li>Example: </li></ul><ul><li>A 400-room hotel in the month of May is running 72% at an average rate of $122.59. </li></ul><ul><li>400 rooms x 31 days = 12,400 room nights available. 72% are occupied = 8,928 </li></ul><ul><li>8,928 x $122.59 = $1,094,483.52 </li></ul><ul><li>$1,094,483.52 / 12,400 = $88.27 RevPAR </li></ul>
    11. 11. Hot/Warm/Cold <ul><li>Some hotels will assign a value to each day </li></ul><ul><ul><li>Hot dates – 90% or greater occupancy </li></ul></ul><ul><ul><li>Warm dates – 70 – 89% </li></ul></ul><ul><ul><li>Cold dates – less than 70% </li></ul></ul><ul><li>RevPAR can generally be improved by increasing occupancy on cold days and ADR on Hot days. Discounted rate categories are closed as demand increases. </li></ul>
    12. 12. Demand Control Chart Source – Sherry Kimes, Cornell University 150 room hotel
    13. 13. Booking Curve Forecast Days before arrival % of Peak
    14. 14. Group Business Evaluators <ul><li>Room Blocks </li></ul><ul><li>Peak night and pattern (booking parameters) </li></ul><ul><li>Prime, shoulder or distressed periods </li></ul><ul><li>Rooms to Space Ratio </li></ul><ul><li># of rooms to amount of space needed </li></ul><ul><li>F&B contribution per room night – i.e. $50/optimum </li></ul><ul><li>Concessions, rebates, commission </li></ul>
    15. 15. Revenue Management Analysis
    16. 16. Getting on the Same Page Revenue Management Operations Sales & Marketing
    17. 17. Business Review Meetings <ul><li>Attendee’s </li></ul><ul><li>GM, Revenue Manager, DOS, Sales Team, Rooms Executive, Dir. of Catering, Dir. of Convention Service </li></ul><ul><li>Frequency </li></ul><ul><li>Held Daily to evaluate group business opportunities </li></ul><ul><li>Criteria </li></ul><ul><li>Dates, Patterns, Future Business, Meeting Space, Rates, F&B Revenue, Historical Data – rates, booking cycle, RevPar results, city events and occupancy, Competition – Local and National </li></ul>
    18. 18. Group Booking Scenario <ul><li>400 room Hotel </li></ul><ul><li>65% group/35% transient business </li></ul><ul><li>10,000 sq ft ballroom </li></ul><ul><li>Groups usually book 200 rooms or more on peak night, book beyond six months  </li></ul><ul><li>Sun-Thurs – 240-200 rooms avail to book  </li></ul>
    19. 19. Group <ul><li>Nationwide Insurance </li></ul><ul><li>125 rooms on peak night for 2 nights (Tue – Thurs pattern) </li></ul><ul><li>250 ppl classroom </li></ul><ul><li>Continental breakfast and 2 breaks for 250ppl </li></ul>
    20. 20. Negotiation Tactic <ul><li>&quot;If I were a planner, I might ask the question, 'So how does my meeting fit into the revenue management strategy for your property on those dates?‘ If the reaction is a 'deer-in-the-headlights' one, the planner will know the salespeople are probably compensated on the traditional model.&quot; </li></ul><ul><li>Carol Verret – Consultant/Trainer </li></ul>
    21. 21. Other Revenue Meetings <ul><li>Yield Meeting – Once a week - Determine pricing & controls strategy. Review transient booking cycle & competition for the next 60 – 90 days </li></ul><ul><li>Yield Strategy – Once a month looking one year out. </li></ul>
    22. 22. RevPAR Benchmarking
    23. 23. Beat the Competition!
    24. 25. <ul><li>Micros Opera Rev. Mgmt Software </li></ul><ul><li>4 – 12% increase in RevPar with existing demand. </li></ul><ul><li>Re-forecast & re-optimize every hour. </li></ul><ul><li>Group optimizer </li></ul><ul><li>Used by hotels with over 100,000 total installed. </li></ul>
    25. 26. Displacement Analysis <ul><li>A method of comparing the entire group value </li></ul><ul><li>vs. </li></ul><ul><li>the value of other business (transient or another group) that would be displaced </li></ul>
    26. 27. Group vs. Transient 40 Group Rooms 40 Transient Rooms Source: Defining Revenue Management: Top Line to Bottom Line
    27. 28. Displacement Exercise
    28. 29. RFP Overload – Case Study <ul><li>Question - I work in convention sales in a hotel & many meeting planners are trending towards online RFP's and response forms.  Most often, we receive these type of leads from a 3rd party who conceals the identity of the end user, provides limited information on the client & their true reasons for buying, & never lists who we are competing against. These RFP's can be distributed to over 50 hotels across the country & the information we submit is presented to the client in the form of a grid with dates, rates & meeting space availability. Has my ability to sell been taken away?  It seems almost impossible to build a relationship under these circumstances.   I know this is a whine, but, it is very frustrating because responding to leads this way cuts into the time I can really sell. </li></ul>
    29. 30. RFP Overload – Response <ul><li>Submit a proposal that shows you’ll rent out rooms for $1 a night, plus extras. And they have to call you to find out what the extras are. This will get you a direct response from the customer. Third-party bidding will never build a sales relationship until you’re either lucky or unlucky enough to win the bid and meet the customer. I would call the third party & tell them that it’s impossible for you to submit a valid bid until you know the expected outcome of the meeting. I would also include in the bid as many customized features as you can that allows the customer to choose what they want with respect to meals & other amenities for their event. But in the end, you’re correct. It’s a no-win situation, and you have to decide whether you want to play in that environment or not. </li></ul><ul><li>Jeffrey Gitomer – www.gitomer.com </li></ul>
    30. 31. Does your RFP get noticed? <ul><li>Limit the playing field </li></ul><ul><li>Pick up the phone </li></ul><ul><li>Help them help you </li></ul><ul><li>Put all your cards on the table </li></ul><ul><li>Be flexible </li></ul><ul><li>Give them adequate time </li></ul><ul><li>Ask the hotel to sell you </li></ul><ul><li>Be empowered </li></ul><ul><li>Be timely </li></ul><ul><li>Be loyal </li></ul>
    31. 32. Info Needed for a Quality Bid <ul><li>Account name, meeting name, URL </li></ul><ul><li>Room block & meeting/expo space requirements </li></ul><ul><li>Preferred dates (flexibility) </li></ul><ul><li>Competition – cities or hotels considered </li></ul><ul><li>At least two years of history </li></ul><ul><li>Desired properties to include (for CVB) </li></ul><ul><li>Concessions, communicated “wants” </li></ul><ul><li>Meeting purpose, critical decision factors </li></ul><ul><li>Individual names and roles in decision process </li></ul><ul><li>Decision date </li></ul>
    32. 33. Marriott Key Center Rates $129 Mar-07 Pri-Med $179 Feb-07 Pace Ambassadors Conference $144 Oct-07 Assoc. for Iron & Steel Training Seminar $119 Sep-07 Federation of Tax Administrators Investigation Class $139 Oct-07 Midwest School Social Work Council Conference $139 May-07 Urban Libraries Council $149 Oct-07 Mechanical Construction Student Chapter Summit $99 Oct-07 34 th Annual Natural Areas Conference $139 May-07 School of Dental Medicine Alumni CWRU Rate Month/Yr Group
    33. 34. Quantify Concessions <ul><li>Comp rooms, suites, discounted staff rooms, 1 per 50’s </li></ul><ul><li>Upgrades, amenities, airport limos </li></ul><ul><li>F&B discounts, other </li></ul><ul><li>Put a value on each (x # of nights + tax) and divide by group rate to get concession / comp ratio </li></ul>
    34. 36. Negotiating Pitfalls <ul><li>Negotiating with the wrong person </li></ul><ul><li>Not having an alternative, being able to walk away </li></ul><ul><li>Negotiating before there is an agreement in principle </li></ul><ul><li>Tossing out the 1st offer with little to no information </li></ul><ul><li>Giving concessions without getting something in return </li></ul><ul><li>Poor planning, poor qualifying </li></ul><ul><li>Getting emotional </li></ul><ul><li>Focusing only on price </li></ul><ul><li>Getting hung up on Terms & Conditions </li></ul>
    35. 37. Questions

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