Rooms Division Basic Theories Series II - Revenue Management
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Rooms Division Basic Theories Series II - Revenue Management

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Rooms Division Basic Theories Series II - Revenue Management

Rooms Division Basic Theories Series II - Revenue Management

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  • Ask : Who remembers their economics basics? Remember Supply and Demand? Explain : When prices are lowered consumers will tend to buy more of the product. Likewise if prices are increased, consumers tend to purchase less of the product. Click to display graphic. Rate and occupancy are related similarly. An increase in rate can result in a decline in occupancy and an increase in occupancy can often be achieved by offering lower (discount) rates. The key to revenue management is to understand the possible implications of pricing decisions and to maintain a balance of occupancy and ADR that maximizes the hotel’s revenue over time. *** If you are comfortable with RevPAR as a term and its use in the hotel industry, now would be a good time to take 2 or 3 questions at this time. If not, move on to the next slide. Click to advance slide.
  • Explain: There are several strategies for improving REVPAR. Click to advance graphics (3 clicks). Stress the danger associated with the risky strategies. These include: Alienated customers, Reduced occupancy and a Over-reliance upon rate to maintain profitability. Click to advance slide.
  • Click to advance slide graphics - 4 clicks total Explain : The Revenue Cycle consists of: Demand Generation- performed by Sales and Marketing Maximizing revenue Providing a superior customer service experience - performed by operations Maximizing revenue is not possible unless we continue to keep our customers happy and loyal to Islamabad Serena Hotel. Click to advance slide
  • The major focus of Revenue Management for each demand segment (transient, group and catering) is to maximize revenue. We do this through… Click to display 1st box and read. Click to display 2nd box and read. Click to display 3rd box and read. Click to advance slide.
  • The major focus of Revenue Management for each demand segment (transient, group and catering) is to maximize revenue. We do this through… Click to display 1st box and read. Click to display 2nd box and read. Click to display 3rd box and read. Click to advance slide.

Rooms Division Basic Theories Series II - Revenue Management Presentation Transcript

  • 1. By Eugene Win CRDE For Kabul Serena Hotel 2009
    • Copyright. Eugene Win CRDE 2009
  • 2. Revenue Management... Marriott International Lodging Revenue Management
    • Copyright. Eugene Win CRDE 2009
    Where is it originated? It is originated in the airline industry.
  • 3. Seats on airplane divided into different products base on different restrictions. $1,000 Y Class: Can be purchased at any time, refundable. $ 200 Q Class: Required 3 weeks advanced purchase. Penalties on cancellation or amendment. Revenue Management... Marriott International Lodging Revenue Management
    • Copyright. Eugene Win CRDE 2009
  • 4. “ Selling the right product to the right customer at the right time for the right price.” Revenue Management is ….
    • Copyright. Eugene Win CRDE 2009
  • 5. Revenue Management is concerned with maximization of revenue by allocating fixed capacity (room-nights) to different customer segments with different rates. Revenue Management is… Marriott International Lodging Revenue Management
    • Copyright. Eugene Win CRDE 2009
  • 6. BASED ON SUPPLY AND DEMAND. Prices tend to rise when demand exceeds supply; prices tend to fall when supply exceeds demand . Revenue Management is ...
    • Copyright. Eugene Win CRDE 2009
  • 7. Desire is to Focus on REVPAR REVPAR = Rate x Occupancy
    • Copyright. Eugene Win CRDE 2009
    Rate Occupancy
  • 8. How Does a Property Increase REVPAR ?
    • Copyright. Eugene Win CRDE 2009
    SAFEST
    • Increase restrictions on lower rates
    • Eliminate last room availability for Special Corporate accounts
    • Eliminate non-producing Special Corporate accounts
    MODERATE
    • Close out lower rates on peak days
    • Raise rates for smaller Special Corporate accounts
    • Raise prices on discount rates
    RISKIEST
    • Raise the Corporate Rate
    • Eliminate discount rates
  • 9. Revenue Cycle
    • Copyright. Eugene Win CRDE 2009
    CREATE DEMAND MAXIMIZE REVENUE SUPERIOR SERVICE EXPERIENCE
  • 10. Revenue Management MAXIMIZING REVENUE Capacity Management Discount Allocation Duration Control
    • Copyright. Eugene Win CRDE 2009
    How we Control and Limit the room supply How we sell our product How we protect sufficient space for longer stays
  • 11. Revenue Cycle
    • Copyright. Eugene Win CRDE 2009
    MAXIMIZING REVENUE PRICING How we price our product SELLING STRATEGY How we sell our product INVENTORY ALLOCATION What we put on the shelf
  • 12.
    • Revenue management is designed to measure revenue achievement.
    • Yield Statistic is the ratio of actual room revenue to potential room revenue.
    • Copyright. Eugene Win CRDE 2009
  • 13.
    • We will illustrate the new formulae by using a particular scenario:
    • Tower Hotel has 300 guest rooms with an average room rate of $35.00. It is currently operating at 70% average occupancy. The hotel has 200 standard double bedrooms, and 100 double deluxe rooms. At rack rate, the standard rooms sell at $40.00 at single occupancy and $50.00 at double occupancy, whilst the deluxe rooms sell at $50.00 at single occupancy and $60.00 at double occupancy.
    • Copyright. Eugene Win CRDE 2009
  • 14.
    • Formula 1: Potential Average Single Rate
    • The hotel has varied its single rate by room type, so we need to calculate the potential average single rate:
    • Room type- Number of rooms- Single Rack rate- Revenue at 100% occupancy
    • Standard 200 $40 $8,000
    • Deluxe 100 $50 $5,000
    • Total 300 $13,000
    • Potential Average Single Room Revenues at Rack Rate
    • Single Rate = Number of Rooms Sold as Singles
    • = 13,000/300
    • = $ 43.33
    • Copyright. Eugene Win CRDE 2009
  • 15.
    • Formula 2: Potential Average Double Rate
    • Since we also have varied rates by room type the potential average double rate must be calculated:
    • Room type- Number of rooms- Double Rack rate- Revenue at 100% occupancy
    • Standard 200 $50 $10,000
    • Deluxe 100 $60 $6,000
    • Total 300 $16,000
    • Potential Average Double Room Revenues at Rack Rate
    • Double Rate = Number of Rooms Sold as Doubles
    • = 16,000/300
    • = $ 53.33
    • Copyright. Eugene Win CRDE 2009
  • 16.
    • Formula 3: Multiple Occupancy Percentage
    • This is the proportion of a hotel’s rooms that are occupied by more than one person. This percentage indicates sales mix and helps balance room rates. If 168 rooms from the total of 210 rooms sold (70% of 300 rooms) are sold at double occupancy then the computation is as follows:
    • Multiple Occupancy 168
    • Percentage = 210
    • = 80%
    • Copyright. Eugene Win CRDE 2009
  • 17.
    • Formula 4: Rate Spread
    • The determination of a room rate spread among various room types can be essential to the use of yield decisions in targeting a hotel’s specific market. The mathematical difference between the hotel’s average single rate (Formula 1) and potential average double rate (Formula 2) is known as the rate spread. :
    • Rate Spread = Potential Average Double Rate – Potential Average Single Rate
    • = $ 53.33 - $ 43.33
    • = $ 10.00
    • Copyright. Eugene Win CRDE 2009
  • 18.
    • Formula 5: Potential Average Rate
    • This is a collective statistic that effectively combines the potential average rates, multiple occupancy percentage, and rate spread.
    • Potential = ( Multiple x Rate Spread ) + Potential Average
    • Average Rate Occ % Single Rate
    • = (0.8 x $10.00) + $ 43.33
    • = $ 51.33
    • Copyright. Eugene Win CRDE 2009
  • 19.
    • Formula 6: Room Rate Achievement Factor
    • The percentage of the rack rate a hotel actually receives is contained in the hotel’s achievement factor, also referred to as the rate potential percentage.
    • Achievement Factor = Actual Average Rate x 100
    • Potential Average Rate
    • = $35.00/$51.33 x %
    • = 68%
    • Copyright. Eugene Win CRDE 2009
  • 20.
    • Formula 7: Yield Statistics
    • This is perhaps the most important element in yield management. We have already seen how to express and calculate this statistic. Here we will use the following computation:
    • Yield Statistics = Occupancy % x Achievement factor
    • = 0.7 x 0.68
    • = 0.476
    • = 48%
    • Copyright. Eugene Win CRDE 2009
  • 21.
    • Formula 8: Identical Yield Statistics
    • This is the point where we can ask “What if …?” questions to determine how discounting will affect our revenue. If we were to decrease or increase our rate, what occupancy percentage would we need to achieve to produce the same yield? Let’s suppose that our hotel wants to decrease its rate by $2.00 to $33.00.
    • Identical Yield = Current x Current Rate
    • Statistics Occ % Proposed Rate
    • = 70% x ($35/$33)
    • = 0.742
    • = 74%
    • To achieve the same yield the hotel must have an occupancy of 74%.
    • Copyright. Eugene Win CRDE 2009
  • 22.
    • Copyright. Eugene Win CRDE 2009