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Profit Optimisation Strategies
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Profit Optimisation Strategies


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Presentation slides to introduce you to the complexity of assessing customer profitability

Presentation slides to introduce you to the complexity of assessing customer profitability

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  • 1.    Linking RM to Profit Optimisation Kate Varini Senior Lecturer Profit Optimisation Training & Development Services
  • 2. RM Definition
    • Tell me when you want to come and I will tell you the price
    • Tell me what you are willing to pay, and I will tell you when you can come
    • Tell me who you are, and I will tell you the price
    A focus on what maximization of opportunities  in different demand periods
  • 3. High Fixed - Low Variable (Marginal) Units
  • 4. Definitions
    • I nventory is d istressed when expected to remain unsold thus generating zero revenue
    • R evenue D ilution is caused by customers buying inventory at a price (much) lower than their forecasted willingness to pay
    • P rofit E rosion occurs when profits from busy times have to be utilised to cover fixed costs in low demand periods
  • 5. Opportunities
    • Surveys show that consumer confidence is on the rise
    • Leisure demand is rebounding and is mostly comprised of price aware, value driven consumers who spend more time looking
    • Only 16% of customers already know what they want
    • Social Media is becoming important
    • Online Travel Agencies can promote profit if used intelligently
  • 6. Discounting Issues
    • Distressed inventory causes….
    • …… significant profit erosion. To alleviate this…
    • Promotions are put on the market causing …..
    • … (significant?) revenue dilution…causing …..
    • … .frames of reference to change…….and then prices go back to normal and……..
    • Customers question fairness and ultimately….
    • … . the lack of marked difference between products (no star and 5 star products)
  • 7.
    • A 26-sq.-metre room / Modern furnishings / Work desk,
    • A bath with ecologically friendly shower, fast-fill tub and hot towel rail.
    • Complimentary amenities: mini-bar, local phone calls
    • Wired and wireless Internet access and bath robes .
    • Windows that open
    • Eames chair and Jacobson lamp
    • Iron and ironing boards available
    • 25 inch flat screen TV
    • Video on demand / iPod docking station
    • Dual line telephones with Voicemail and Speakerphone
    • Individual air conditioning and heat control
    • Express checkout / Morning newspapers
    • Rollaways upon request /  Hairdryer / 24-hour room service
    • Cable/satellite TV channels / Satellite Radio
    • High-speed Internet access / Safe / Bathroom toiletries
  • 8. Optimisation of Long-Term Profitability….
    • Increase revenue
      • Increase price and/or volume
    • Decrease costs
      • Technology / channel strategies / product development
    • Get into the consumers evoked set
      • SEO / channel strategies / Price
      • Online reviews to upsell
    • Add value
  • 9. Customer Profitability Analysis or Transaction Profitability Analysis?
  • 10. Transaction Profitability What we know
    • How they buy/book
    • Length of stay, play
    • Number in party
    • Price / Product
      • Inclusions
    • Booking costs (commissions, fees etc.)
    • Total spend
    • Method of payment
  • 11.
    • How much value customers add
    • Do they cause displacement or …..
    • proce minus cost of production
    • Auxilliary – What else do they contribute?
    • High demand Vs. low demand
      • Which transactions consume more and contribute less?
      • Which transactions consume less and contribute more?
    Transaction Profitability What we don’t know
  • 12. Research - Step 1
    • Identify transaction types
    • Identify if patterns exist
      • Spending
      • Booking behaviour
      • Consumption of resources
      • Contribution to
        • Short/longterm profitability
        • Brand image
        • … anything else?
  • 13. Profit Optimisation: Objectives
    • Raise willingness to pay
    • Save inventory for customers with higher contribution
    • Use price signalling to help customers know when to purchase
  • 14. Analysis
    • Analyse the data and provide evidence to show transactions that are:
      • Most profitable
      • Least profitable
    • Take into account opportunity cost & contribution from
      • room rate
      • auxilliary spend
      • …………………………………… ..Other?
  • 15. Channel Strategy
    • What type of strategy for different forecasted demand periods?
    • How should it be monitored
    • When should the strategy be put in place
    • How can relationships with partners be managed?
  • 16. Direct Web
    • The channel that promotes profitability?
      • Only if the traffic generated/conversion exceeds the cost of maintaining an attractive website
    • Which type of business should not invest in an interactive ecommerce website?
  • 17. Innovative products – Control Costs
    • High (Hotel) Cost inclusions
      • Signature (Premium) breakfast
      • Personalised transfer
      • Fitness
      • Premium service
      • Room service
      • Unlimited Food & Drink
      • Amenities
      • Linen change every day
      • Upgrade to Executive
      • Room Service
    • Low (Hotel) Cost Inclusions
      • Assigned room
      • Electric Bike (sunk cost)
      • Internet, Minibar
      • Garage
      • Room size/view
      • 24 hour stay
      • Change checkin times for diff booking types
      • Early bird booking
      • Cxx policies, pay in advance, non refundable etc.
      • Limited food & drink
      • Luggage storage
      • Upgrade to superior
  • 18.
    • Analyse data on future business
      • Understand the trends
      • Look for high LRV early on to determine strongest days
      • Pricing/ Channel strategy should be determined by LRV floors
      • In low demand periods, encourage no-shows especially from channels with high commission
    • When charging high prices, improve price-value perception
    • When offering inclusions ensure costs can be controlled
    To Do List
  • 19.    Linking RM to Profit Optimisation Kate Varini Skype : kvarini : rmprofessional Linkedin : kvarini Twitter : kvarini [email_address] [email_address]