10. Defining Revenue Management
Revenue Management is the business practice that enables a company to
‘sell the right product, to the right customer, at the right time, for the right
price’ with the objective of optimising product price and availability in order
to reach the maximum profit.
Robert Cross
12. Price and Duration
• Successful Revenue
Management is predicated
on effective control of
customer demand.
• In 1989 Sheryl Kimes defined
the two interrelated levers
that we can use to control
customer demand:
Price & Duration
13. Strategic Levers of Revenue Management
Internal
Uncertainty of
Duration Arrival External
Management
Internal
Uncertainty of
Duration
External
Strategic Levers Time between
of Customers
Revenue
Management
Optimal Price Mix
Demand based Physical
Development of
Pricing Rate Fences
Non Physical
Flexible Pricing
Sheryl Kimes 1989 Cornell
14. Price
Fixed Variable
Quadrant 1 Quadrant 2
Predictable
Convention Cruise
Cinema
centres Hotel Lines
Car
Arenas
Rental Airline
Duration
Attractions
Unpredictable
Restaurant Hospitals
Golf Care
Course Homes
Quadrant 3 Quadrant 4
16. Sometimes its easier
to do what you
always did…
• 2013 – a year to search harder for
revenue optimisation opportunities
• Measuring performance and goal
setting is key to understanding where
the business is going and uncovering
profit opportunity
17. RevPAR
Total Rooms Revenue 320,000 in July = £86.02
Total Available Rooms
120 rooms x 31 days in July
Measuring the Revenue Contribution of each room/unit
RevPAR - This measures the revenue generated per available room and takes into
consideration both occupancy and rate
Applies to all outlets selling rooms or units:
Bed and Breakfasts, Holiday Parks, Self Catering, Hotels
18. QUIZ questions 1-3 !
TrevPAR and GOPPAR
GOPPAR
TrevPAR (Total departmental operating
(Net Revenues +unit rentals + profit - all undistributed operating
other income) expenses )
Total Available Units Total Available Units
Why TrevPAR and GOPPAR ?
TrevPAR = Sum total of net revenues from all the operated departments plus rentals and
other income per available room – considers all revenues from all departments
GOPPAR = Gross Operating Profit per Available Room represents the total departmental
operating profit less all undistributed operating expenses - a good indicator of overall
operational performance - considers costs but does not evaluate rooms revenue
separately
28. Attractions and Activity Providers
Incorporate both revenue and
occupancy metrics to gain maximum
visibility on yield on a
monthly, seasonal, and annual basis.
• By product
• By outlet
• By retail sales per customer
• By food and beverage sales
Yield =
Profit
Total Visitors
29. KPIs to consider using
Average Check Value = RPOLH =
Total Revenue Total Revenue
------------------------------------ ------------------------------------
Number of Covers Labour hours used
A key metric to measure revenues Measured as sales revenue generated per
generated by the guests served labour hour used – but doesn’t account
for cost of labour
Capture Ratio = Occupancy =
Total outlet covers /sales Covers/Tickets Sold
------------------------------------ ------------------------------------
Number of visitor Available Seats/Tickets
Measures the performance of the outlet in Measures the performance of the outlet in
relation to the number of visitors relation to the number of seats
31. Progressive vs. Regressive Pricing strategies
PRICE Day of
Arrival
Progressive Price Strategy
TIME
Regressive Price Strategy
32. Customer centric booking models work against regressive pricing
strategies
Tingo refunds customers the difference in the rate between the booking
date and day of arrival (within the cancel period)
34. CHALLENGE
Menu Engineering and Differential Pricing
• Review menus and contribution margins regularly to ensure that the optimal
profits are being extracted.
• Experiment with differential pricing in different demand periods
• Evaluate your Challenges and Workhorses and re-engineer them to make them
either more popular (Challenge) or more profitable (Workhorse)
35. QUIZ questions 4 &5 !
10 Steps to effective Menu Marketing
Steps to increase GOP Steps to increase GOP
• Item Placement • Symbols and Icons
– First two and last in section – Can increase sales by as much as
• Boxing 15%
– 1 out of every 8-10 items • Keep descriptions short
– Limit to 10-15% of menu space – Only 1/3 is actually read
• Page Panels • Showcase Food Types
– 3 page panel, focus on centre – Prime Angus beef not entrees
– 2 page Panel, top right hand side • Clean Menus
• Pricing Font and Presentation – Dirty menu, dirty kitchen
– Keep the font slightly smaller No £ • Menu Insert
• Keep fonts large enough to read – Highlight specials uniquely
37. Check Room Details
Availability Review
Booking Details
Goal setting and Conversions
• Set up goals in Analytics
• Review drop off at each stage of the booking or goal process
• Identify the value of each visitor at each stage and evaluate what to invest to
optimise the process
38. Industry standard conversion levels
• From visitor to the site to a booking
initiated : 45%
• From a booking initiated to a
completed reservation: 5%
• From visitor to the site to a
completed reservation: 2%
• Source HEBs/Adobe Omniture Case study
41. …and here’s how one hotel is adopting the same reward and reassurance process
42. Reinvest incremental revenues gained
• PPC campaigns reach the customer closer to the purchase point of the
booking process than natural search referrals
• In a direct booking strategy, reinvesting a proportion of what would have
been paid in commissions is a reasonable strategy
• Use in conjunction with in-page analytics to optimise the user
experience
£50000 500 Cost Commission Net Gain
Revenue bookings £2500 £10000 £7500
43. Other web tips
• Add up the conversion stages – limit the number and the distractions
• Divide content clearly into site content and booking engine content
• Speed up the booking process,
• Limit the rates, offers, special request and details
• Make it easy for customers to get the information they need
• Strip out redundant functionality
46. Thank you
Ally Dombey
Director
• Follow us: @revenuebydesign
• Blog: revenuebydesign.wordpress.com
• Email: ally@revenuebydesign.co.uk Thanks to Lynne Kovan for the
use of images of Cornwall
•
www.lynnekovan.com
Web: www.revenuebydesign.co.uk
Editor's Notes
In 1989 Sheryl Kimes of Cornell University proposed a broader definition of revenue management that moved away from the tactical and mathematical definitions to a broader managerial context to allow for a more strategic approach to revenue management, and to expand use of revenue management principles into different service sectors to enable them to benefit from revenue management strategies.Kimes proposes that effective control of customer demand lies at the heart of a successful revenue management strategy, with two strategic levers to manage this – Pricing and Duration of Customer use. Prices can be fixed, or variable, and duration can be predictable or unpredictable. Hotels are increasingly using variable pricing and a specific or predictable duration. Duration Management – Perishable inventory means that we need to reduce the risk of No Shows or late arrivals. Internal (not involving customers) and External (involving customers) approaches can be used. Uncertainty of ArrivalInternal ApproachesOverbooking – by obtaining accurate no show, denials and cancellation recordsExternal Approaches – Use of policies to shift the responsibility of arrival to the customer, with associated penalties such as use of deposit policies, and pre-paid bookings with non cancellable and non refundable bookingsUncertainty of DurationManaging duration enables better decision making of which reservations to accept and better management of operational resourcesInternal Approaches:Accurate forecasting of early and late arrivals and departuresAccurate forecasting by Day of Arrival, Length of Stay and Rate Category,External Approaches:Customer focused management of uncertainty of duration focuses on use of early and late departure fees, and use of depositsTime Between CustomersReducing time between customers means better utilisation of time base inventory units –this is more prevalent in restaurants where time restrictions are frequently added to covers, or with Airlines where low cost airlines such as EasyJet and Ryannair have reduced turnaround time at airports thereby enabling greater aircraft utilisation.PriceOptimal price mixThis requires a thorough understanding of the contribution of market segments and individual customers to overall profitability; the rate blend available in the market at any point in time is the primary driver of the success of revenue strategy at the point of sale.Development of Rate FencesRate fences provide the framework for delivery of a flexible pricing strategy. Physical Rate Fences:These include tangible features such as room type, view, inclusion of value adds or amenitiesNon Physical Rate Fences:These can be used to shift demand to support shoulder periods, such as length of stay restrictions, closed to arrivals, membership or loyalty rewards, pre paid rates, cancellations, and deposit chargesFlexible Pricing We know that effective revenue management is based on customer willingness to pay different prices according to their needs. As s result a differential pricing strategy need to reflect rate integrity – a clear price differential between products on offer with the ability for customer to recognise why the differential exists, and an understanding of price elasticity in the market to avoid pricing based materially on competitive pressures.By reducing the uncertainly of arrival we can reduce the Optimal price mix – this involves filling the restaurant, hotel attraction with the optimal customer segments – those that are likely to provide the greatest revenues and are best suited in terms of segment to your product
Industries traditionally associated with Revenue Management tend to use variable pricing and a specified or predictable duration. These include Air car renta. Hotels and Cruise lines. Theatre cinemas arenas and convention centres tend t use fixed pricing for a predictable duration – although this is changing, Restaurants and to some extent golf courses use a fixed price with unpredictable duration.Care homes and hospitals will price according to care needs and the duration on the whole tends to be unpredictable.No fixed line between each quadrantA useful tool to assess where you are right now and where you could move to should you implement revenue management practices.Successful yield management approaches are generally conducted from quadrant 2
Capture ratio – guests in hotel related to guests that come to the outlet Total outlet covers = How do we define a cover? If someone sits at table not consuming- zeroIf here for =lunch and back from dinner – two coversCapture ratio is use to see if there is relation between number of guests in house and production form the departmente.g. breakfast –not standard inclusion – not 100% of all guests – but can predict from capture ratio how many people will take breakfast – either on rate or as walk insIF selling at £37 and decrease to £35 can we increase the capture ratio?IF we increase price to £39 do we negatively affect capture ratio
Tingo – use as example for avoiding last minute deals
Price Point Justification. Move your prices into your descriptions to avoid price-shopping by customers. Using the same typeface (or slightly smaller) and removing the dollar sign can further help the customer focus on the product, not the price.2. Item Placement. People most often remember and buy the first two items or the last menu item in each menu category. Place your menu items with the highest gross profit in these spots on the menu.3. Boxing. Impact 10 to 15 percent of the space on your menu by boxing menu items. As a general rule box one out of every 8 to 10 items. Boxes draw attention and usually get orders, so its best to use them on high-profit items. Too many boxes creates clutter and defeats their 'attention getting' purpose.4. Page Positioning. On three-panel (page) menus, people most often look at the center panel first, and then move counter clockwise. On two-panel (page) menus people most often look at the top right-hand side first. Consider putting your high profit items such as specials or specialty drinks in these spots.5. Hospitality Symbols and Icons. Stars, bullets, or other food symbol icons can make your menu unique and draw attention to menu items that you would prefer to sell. Graphics can set items apart and increase sales on those items as much as 15 percent. (Be careful with the ubiquitous Heart symbol that usually denotes 'heart-healthy' as people have learned to translate that into 'tastes awful'.)6. Hold the Hyperbole. Keep food descriptions short because only one third of your menu is actually read. Use wherever possible 'word pictures' rather than lengthy descriptions. And do not fear white space - it allows the eyes to pause and rest.7. Showcasing. Highlight types of foods by including menu headings such as "Fresh Pasta" or "Our Specialties" rather than using generic terms such as Entrees.8. Know your customers. If your customers are mostly over 50, keep the typeface (font) large enough to read in dim lighting and the design uncluttered. If you're a family style restaurant, make your menus appealing to children by including colorful artwork, unusual fonts, and lots of boxed items. A white tablecloth setting calls for a more understated, simple yet tasteful design including a good quality paper stock.9. Menu Inserts. Brand your restaurant by offering a specials menu insert that creates a sense of "You can only get this here". Menu inserts also give your servers something to talk about and keep your menu fresh. Additionally, you can use them to promote high profit specials or new items that could eventually move onto the regular menu.10. Keep your menus clean. Customers often associate a dirty menu with a dirty kitchen. They may not walk out this time, but they are less likely to return if your menu isn't clean and sharp. So keep your menus clean by using protective menu covers that can be washed or replaced.