De Mystifying Revenue Management

DeMystifying Revenue Management PCMA POWER Chapter September 12, 2007

Today’s Agenda
What is Revenue
Management
How Rev. Mgmt is applied to meetings
Revenue Mgmt tools used by hotels
Best practices for RFP’s & hotel negotiations

Who’s going to win Sunday?

Revenue Management Definition
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 .

Consumer Case

6 Revenue Mgmt. Attributes
Fixed capacity
High fixed cost, low variable cost
Perishable inventory
Reservations are made in advance
Variance in demand – season or day or length of stay
Some customers price sensitive, some not (marketable segments)

What other business could use revenue management?

Rev. Mgmt. Strategic Levers
Controlling duration - length of stay
Arrival – Departure pattern
Open, closed, no arrivals, max/min length of stay, allocations
Meeting space maximization
Managing wash – reminders, deposits, attrition, cancel fees, overbooking, early departure policy, blind cuts
Price
Channel/Distribution management
Competitive pricing
Demand based pricing

Rate Fences
Physical rate fence : rates determined by room location, view, or amenities
Product-line rate fence : rates determined by product category such as concierge, business class, standard or double
Restrictive rate fence : lower rate with non-refundable deposit
Controlled-availability rate fence : rates determined by coupons, by the guest or hotel's geographic location, or by distribution channel
Buyer-characteristic rate fence : senior discount, frequent customer, AAA, kids, or special rate for being part of a group

RevPAR Calculation
Room Revenue / Rooms Available or
Average Rate X Occupancy
Example:
A 400-room hotel in the month of May is running 72% at an average rate of $122.59.
400 rooms x 31 days = 12,400 room nights available. 72% are occupied = 8,928
8,928 x $122.59 = $1,094,483.52
$1,094,483.52 / 12,400 = $88.27 RevPAR

Hot/Warm/Cold
Some hotels will assign a value to each day
Hot dates – 90% or greater occupancy
Warm dates – 70 – 89%
Cold dates – less than 70%
RevPAR can generally be improved by increasing occupancy on cold days and ADR on Hot days. Discounted rate categories are closed as demand increases.

Demand Control Chart Source – Sherry Kimes, Cornell University 150 room hotel

Booking Curve Forecast Days before arrival % of Peak

Group Business Evaluators
Room Blocks
Peak night and pattern (booking parameters)
Prime, shoulder or distressed periods
Rooms to Space Ratio
# of rooms to amount of space needed
F&B contribution per room night – i.e. $50/optimum
Concessions, rebates, commission

Revenue Management Analysis

Getting on the Same Page Revenue Management Operations Sales & Marketing

Business Review Meetings
Attendee’s
GM, Revenue Manager, DOS, Sales Team, Rooms Executive, Dir. of Catering, Dir. of Convention Service
Frequency
Held Daily to evaluate group business opportunities
Criteria
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

Group Booking Scenario
400 room Hotel
65% group/35% transient business
10,000 sq ft ballroom
Groups usually book 200 rooms or more on peak night, book beyond six months
Sun-Thurs – 240-200 rooms avail to book

Group
Nationwide Insurance
125 rooms on peak night for 2 nights (Tue – Thurs pattern)
250 ppl classroom
Continental breakfast and 2 breaks for 250ppl

Negotiation Tactic
"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."
Carol Verret – Consultant/Trainer

Other Revenue Meetings
Yield Meeting – Once a week - Determine pricing & controls strategy. Review transient booking cycle & competition for the next 60 – 90 days
Yield Strategy – Once a month looking one year out.

RevPAR Benchmarking

Beat the Competition!

Micros Opera Rev. Mgmt Software
4 – 12% increase in RevPar with existing demand.
Re-forecast & re-optimize every hour.
Group optimizer
Used by hotels with over 100,000 total installed.

Displacement Analysis
A method of comparing the entire group value
vs.
the value of other business (transient or another group) that would be displaced

Group vs. Transient 40 Group Rooms 40 Transient Rooms Source: Defining Revenue Management: Top Line to Bottom Line

Displacement Exercise

RFP Overload – Case Study
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.

RFP Overload – Response
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.
Jeffrey Gitomer – www.gitomer.com

Does your RFP get noticed?
Limit the playing field
Pick up the phone
Help them help you
Put all your cards on the table
Be flexible
Give them adequate time
Ask the hotel to sell you
Be empowered
Be timely
Be loyal

Info Needed for a Quality Bid
Account name, meeting name, URL
Room block & meeting/expo space requirements
Preferred dates (flexibility)
Competition – cities or hotels considered
At least two years of history
Desired properties to include (for CVB)
Concessions, communicated “wants”
Meeting purpose, critical decision factors
Individual names and roles in decision process
Decision date

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

Quantify Concessions
Comp rooms, suites, discounted staff rooms, 1 per 50’s
Upgrades, amenities, airport limos
F&B discounts, other
Put a value on each (x # of nights + tax) and divide by group rate to get concession / comp ratio

Negotiating Pitfalls
Negotiating with the wrong person
Not having an alternative, being able to walk away
Negotiating before there is an agreement in principle
Tossing out the 1st offer with little to no information
Giving concessions without getting something in return
Poor planning, poor qualifying
Getting emotional
Focusing only on price
Getting hung up on Terms & Conditions

Questions

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De Mystifying Revenue Management

by Velvet Chainsaw Consulting on Dec 13, 2008

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