Linking RM to Profit Optimisation Kate   Varini Senior Lecturer Profit Optimisation Training & Development Services
RM Definition <ul><li>Tell me when you want to come and I will tell you the price </li></ul><ul><li>Tell me what you are w...
High Fixed - Low Variable (Marginal) Units
Definitions <ul><li>I nventory is  d istressed when expected to remain unsold thus generating zero revenue </li></ul><ul><...
Opportunities <ul><li>Surveys show that consumer confidence is on the rise  </li></ul><ul><li>Leisure demand is rebounding...
Discounting Issues <ul><li>Distressed inventory causes…. </li></ul><ul><li>…… significant profit erosion. To alleviate thi...
<ul><li>A  26-sq.-metre  room / Modern furnishings / Work desk,  </li></ul><ul><li>A bath with ecologically friendly showe...
Optimisation of Long-Term Profitability…. <ul><li>Increase revenue  </li></ul><ul><ul><li>Increase price and/or volume </l...
Customer Profitability Analysis or Transaction Profitability Analysis?
Transaction Profitability What we know <ul><li>How they buy/book  </li></ul><ul><li>Length of stay, play </li></ul><ul><li...
<ul><li>How much value customers add </li></ul><ul><li>Do they cause displacement or ….. </li></ul><ul><li>proce minus cos...
Research - Step 1 <ul><li>Identify transaction types </li></ul><ul><li>Identify if patterns exist </li></ul><ul><ul><li>Sp...
Profit Optimisation: Objectives <ul><li>Raise willingness to pay </li></ul><ul><li>Save inventory for customers with highe...
Analysis <ul><li>Analyse the data and provide evidence to show transactions that are: </li></ul><ul><ul><li>Most profitabl...
Channel Strategy <ul><li>What type of strategy for different forecasted demand periods? </li></ul><ul><li>How should it be...
Direct Web <ul><li>The channel that promotes profitability? </li></ul><ul><ul><li>Only if the traffic generated/conversion...
Innovative  products – Control Costs <ul><li>High (Hotel) Cost inclusions </li></ul><ul><ul><li>Signature (Premium) breakf...
<ul><li>Analyse data on future business </li></ul><ul><ul><li>Understand the trends </li></ul></ul><ul><ul><li>Look for hi...
    Linking RM to Profit Optimisation Kate   Varini Skype : kvarini www.youtube.com : rmprofessional Linkedin : kvarini Tw...
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Profit Optimisation Strategies

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

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Profit Optimisation Strategies

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

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