Principles of Revenue Management
•Download as PPTX, PDF•
11 likes•8,145 views
Introduction, Budgeting, Market Segmentation, Forecasting, Pricing, Revenue Management Tools
Recommended
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (19)
Similar to Principles of Revenue Management
Similar to Principles of Revenue Management (20)
Recently uploaded
Recently uploaded (20)
Principles of Revenue Management
- 1. Zak Ali – FHOSPA, CRME Director Global Revenue Development Principles of Revenue Management and Interactive Workshop
- 2. PROGRAM 10:30 – 11:35 – Introduction, Budgeting, Market Segmentation, Forecasting, Pricing 11:35 – 11:45 – Ara 11:45 – 12:30 – Revenue Management Araçları, Excel and RMS 12:30 – 13:00 – Soru ve Cevap Hotel Linkage Academy 2016 ® | Istanbul
- 3. INTRODUCTION TO REVENUE MANAGEMENT Hotel Linkage Academy 2016 ® | Istanbul
- 4. COMMON MISCONCEPTIONS Hotel Linkage Academy 2016 ® | Istanbul Full Hotel = Profitable Hotel? • Obsession with occupancy % • Opportunity Cost
- 5. THE COST OF GETTING IT WRONG Hotel Linkage Academy 2016 ® | Istanbul
- 6. HOTEL REVENUE MANAGEMENT Revenue Optimization Cycle Best Revenue Management Practice People Process Tools Key RM Components Revenue Management Cycle 6 Hotel Linkage Academy 2016 ® | Istanbul
- 7. THE ROLE OF REVENUE MANAGER Hotel Linkage Academy 2016 ® | Istanbul • Not just about • Proactive vs Reactive – More than looking at past data.
- 8. RMS CAN REPLACE MY REVENUE MANAGER Hotel Linkage Academy 2016 ® | Istanbul
- 9. WHAT A SYSTEM CAN NEVER KNOW…. Hotel Linkage Academy 2016 ® | Istanbul • Rihanna is much more popular than Britney Spears • The RM from the hotel next door has resigned and not replaced. • F1 has just announced that in 2016 the race will move from Singapore to KL • Volcanic ash in Indonesia is causing havoc to flights in the region.
- 10. BENEFITS OF RMS Hotel Linkage Academy 2016 ® | Istanbul
- 11. BENEFITS OF RMS Hotel Linkage Academy 2016 ® | Istanbul Fully Yieldable RMS Integrated pricing and inventory optimization by: Product availability True value of the demand Specific stay pattern
- 12. BENEFITS OF RMS Hotel Linkage Academy 2016 ® | Istanbul
- 13. HOTEL BUDGETING Hotel Linkage Academy 2016 ® | Istanbul
- 14. INFLUENCES OF DECISION MAKING Hotel Linkage Academy 2016 ® | Istanbul • Activity based costing • Product based profitability • Targets & Objectives Strategic & Operational Planning Financial plans & Budget Industry Forecast • Market Share • Local Trends • Channel Mix • Deviation Analysis • Promotion Effectiveness • Consolidation • Management Reports • Performance measurement • Product performance • Customer Analysis Information P l a n Report N e w s
- 15. HOW TO BUILD A BUDGET Hotel Linkage Academy 2016 ® | Istanbul
- 16. BUDGETING TOOLS Hotel Linkage Academy 2016 ® | Istanbul Spreadsheets Specialized budgeting Software Must be able to view; Balance Sheet Cash Flow Cost P & L Departmental Budget Business Segmentation
- 17. Hotel Linkage Academy 2016 ® | Istanbul
- 18. Hotel Linkage Academy 2016 ® | Istanbul
- 19. Hotel Linkage Academy 2016 ® | Istanbul
- 20. MARKET SEGMENTATION Hotel Linkage Academy 2016 ® | Istanbul
- 21. WHAT IS MARKET SEGMENTATION Hotel Linkage Academy 2016 ® | Istanbul • Targeted Sales and Marketing Activities • Increase Guest Retention Levels • Targeted Pricing • Increased Market Share of the Desired Segments Drivers for Segmentation Incorrect Segmentation Segmentation involves subdividing markets, channels or customers into groups with different needs. • Inaccurate Forecasting • Ineffective Pricing Strategies • Incorrect Sales and Marketing Activities • Strategy Impact
- 22. MARKET SEGMENTATION - DEFINE Hotel Linkage Academy 2016 ® | Istanbul Measurability Is your market segment measurable? Can you measure the visits of a certain segment to your city/area? Actionability Are your product offering and price interesting enough for that segment to buy from you? Can they actually book a room at your hotel? Accessibility Can you reach that segment? Substantiation Is this segment large enough to be viable?
- 23. BEHAVIORAL VARIABLES Hotel Linkage Academy 2016 ® | Istanbul What are some common behavioral variables tracked in a hotel? • Product Type • Additional Spend • Sold Nights • Rate • Frequency of Purchase • Distribution Channel • Day of Week • Length of Stay • Revenue
- 24. KEY CONSIDERATION OF SEGMENTATION Hotel Linkage Academy 2016 ® | Istanbul Customer Behavior / Lifestyle Price & Buying Behavior Contribution Channel and Cost
- 25. ACCURATE AND CONSISTENT TRACKING – BEST PRACTICE Hotel Linkage Academy 2016 ® | Istanbul How is segmentation data collected by your organization? Reservations Front Office Group & Convention Sales Night Auditor • PMS Setup Arrivals Check • Major/minor market codes Check-In Coding Procedures • Correct PMS Set-Up in-House and Arrivals Check • Standard training. Standard training
- 26. SEGMENTATION OPTIMIZATION CYCLE Hotel Linkage Academy 2016 ® | Istanbul Segmentation Optimization Cycle
- 27. MARKET SEGMENTATION CONCLUSION Hotel Linkage Academy 2016 ® | Istanbul Segment Transient Direct, Transient OTA, Corporate, Group, Wholesale, MICE Cost of Acquisition & Cost of Distribution Net Contribution Net RevPAR, GOP Optimization Pricing, Inventory, Channel Mgt, Conversion Planning - Strategy Contribution, Profit Mix Generation Advertising, OTA optimization, Sales Opportunities
- 28. FORECASTING Hotel Linkage Academy 2016 ® | Istanbul
- 29. THE REVENUE OPTIMIZATION CYCLE - FORECAST Revenue Optimization Cycle Historical Data Daily Extracts User Interaction User Set-Up 29 Hotel Linkage Academy 2016 ® | Istanbul
- 30. WHAT IS FORECASTING IN REVENUE MANAGEMENT? Hotel Linkage Academy 2016 ® | Istanbul Predicting demand based on quantitative methods and a combination of a decision makers experience, logic and intuition to supplement the forecasting quantitative analysis.
- 31. OBJECTIVE OF FORECASTING Measure demand Foresee falls in demand React to low demand Define commercial strategy Apply ratesControl costs Restrict sales Control commissions Financial planning Human Resources planning 31 Hotel Linkage Academy 2016 ® | Istanbul
- 32. WHAT FLOWS IN TO A FORECAST? Room Nights RevPAR Revenue Cancellations Lead time / booking pace by segment Transient rooms No shows (both guaranteed and non-guaranteed Arrivals Group Rooms Walk-ins Departures Early departures Extended stays Lengths of stay pattern Denials / Regrets Transient and group mix Demand generators “On the books” bookings Rate changes Group blind cut and group wash 32 Hotel Linkage Academy 2016 ® | Istanbul
- 33. FORECAST ACCURACY Hotel Linkage Academy 2016 ® | Istanbul Accurate forecasts are crucial to good revenue management. Research has found that a 10% increase in forecast accuracy in the industry increased revenue by 0.5 – 3% on high demand dates. Without accurate forecasts, the rate and availability recommendations produced may be highly inaccurate. Industry Standard – 5%
- 34. FORECASTING EXAMPLE 34 Hotel Linkage Academy 2016 ® | Istanbul
- 35. THE REVENUE OPTIMIZATION CYCLE - OPTIMIZE Revenue Optimization Cycle 35 Hotel Linkage Academy 2016 ® | Istanbul
- 36. PRICING Hotel Linkage Academy 2016 ® | Istanbul
- 37. QUICK QUIZ Hotel Linkage Academy 2016 ® | Istanbul The key to success pricing is to match the product or service with the customer’s…. • Brand consciousness • Income • Value Perceptions • Interests
- 38. PRICE VS VALUE Hotel Linkage Academy 2016 ® | Istanbul
- 39. PRICING EVOLUTION – FLAT LINE APPROACH High Demand Low Demand 39 Hotel Linkage Academy 2016 ® | Istanbul
- 40. PRICING EVOLUTION – REALIZATION OF FLUCTUATION 40 Hotel Linkage Academy 2016 ® | Istanbul
- 41. PRICING – AN OPTIMAL PRICE The Optimal price is the maximum consumers are willing to pay. Prices are influenced by multiple factors… But they are only perceived as ‘the right price for me or not’ 41 Hotel Linkage Academy 2016 ® | Istanbul
- 42. DERIVATIVE OF REVENUE CURE GRAPH Hotel Linkage Academy 2016 ® | Istanbul
- 43. PRICING - DEFINITION To determine the “optimal” price we must take into account: Value of Product Customer’s perceived value Positioning Competition Optimal Price The overall goal of Pricing in Hotel RM is: • Setting Prices in both non competitive and competitive environments • Demand as a function of price is learned over time via price elasticity. Overall Goal Consumers pay lower when the demand is weak • Supply outweighs demand Consumers pay higher prices when the demand is strong • Demand outweighs supply Hotel Linkage Academy 2016 ® | Istanbul
- 44. FUNDAMENTAL DEMAND MODEL OF RM Hotel Linkage Academy 2016 ® | Istanbul How Many Rooms Can I Sell At Each Rate? Data point 1. How many rooms sold when we charge a low rate (L,H) Data point 2. How many rooms sold when we charge a high rate (H,L) High Rooms (Q) Low Low Rate(P) High (L,H) Data Point 1 (H,L) Data Point 2
- 45. REVENUE POSSIBILITIES Hotel Linkage Academy 2016 ® | Istanbul Revenue = Rate * Rooms Sold
- 46. COMPETITIVE ANALYSIS Hotel Linkage Academy 2016 ® | Istanbul
- 47. DETERMINING THE COMPETITIVE SET Hotel Linkage Academy 2016 ® | Istanbul ”A competitive set is defined as a group of hotels by which a property can compare itself to the group’s aggregate performance. Before a hotel can construct a strategic plan it is important that they understand the market in which they operate in. If this critical first step is not completed, then the foundation upon which the future strategy is built may be fundamentally unsound.”
- 48. COMPLETING A SWOT ANALYSIS Hotel Linkage Academy 2016 ® | Istanbul SWOT is a strategic planning method used to evaluate the: Strengths weaknesses, Opportunities and threats involved in a business.
- 49. COMPLETING A VALUE ASSESSMENT – STEP 1 Hotel Linkage Academy 2016 ® | Istanbul A Value Assessment is a very useful tool, allowing the ranking of the comparative value of the hotel. 1st Step - determine the relative quality of each of the selected competitor s Location Quality of Service Food and Beverage Quality Breakfast offering Internet Price & Speed Leisure Facilities Average Transient Rate Guest Room Types Age and Design Loyalty Program Complimentary Services Brand Cleanliness Reviews Ranking on Review Sites and Average ranking on OTA sites. Factors to Compare
- 50. COMPLETING A VALUE ASSESSMENT Hotel Linkage Academy 2016 ® | Istanbul 2nd Step - Once rating criteria have been selected, each of the competitors will be rated against the hotel.
- 51. COMPLETING A VALUE ASSESSMENT Hotel Linkage Academy 2016 ® | Istanbul 3rd Step - Once the product offer is rated, each of the comparative values must be plotted on a matrix against the price offered
- 52. CONTACT HOTEL LINKAGE INFO@HOTELLINKAGE.COM 0850 885 00 28 Hotel Linkage Academy 2016 ® | Istanbul
Editor's Notes
- Each department is obsessed with occupancy Opportunity Cost – group booking of 50 rooms in 50 bed hotel, filling hotel but need to understand what will I loose if I take that booking, this is an opportunity cost, this not often measured but is exceptionally important for us to understand, so knowing what we will loose rather than thinking about what we gain will help us make better decisions.
- If you charge to low a price then generally this would be the case, pricing should make managers loose sleep at night. To have a full hotel and then realize how much more could have been charged is a cost of getting price wrong. Just because hotel is full does not mean it is profitable.
- What is going to happen next year, based on demand, need to make decision now which will help that demand. Prepared to be able to answer questions about any periods, fact driven – not just relying on gut – effective RM must be able to use the facts (data) they have from the PMS, understand the trend’s, booking curves analyze this understand the facts and then communicate and drive meetings.
- System – Blue circle automated Outer layer – RM Human = Always uncertainty System = try's to reduce the uncertainty Are you telling the system = No shows are they Does system know = Special Events Impact of high booking, pickup, increased price - system RM will need to understand this.
- Let’s look at the benefits of the RMS system based on the 4 stages of the ROC. The RMS takes main different data points such as daily PMS data, historical data and comp pricing data. For the forecast the system combines the historical data, and the booking pace information with your PM config and event data to produce a day by day forecast by segment. Not having an up to date forecast can lead to incorrect pricing, yielding or wrong group displacement decisions which can have a negative impact on revenue.
- Now lets talk about Optimization, this step is actually hidden from the user – it’s where the magic happens, looking at the forecast, comp rates and more and optimize your hotel by deciding which rate should and should not be made available. It does that bad looking at the true value of the demand and individual stay patterns and length of stay.
- The outcome of an optimization are a control, these controls and BAR for retail business, LRV or hurdle that controls the rate product availability, Overbooking decisions to help to get you closer to sell out, and lastly group pricing and displacement analysis for your group business.
- Targeted Sales and Marketing Activities Understanding the net profitability of each segment, ensures that the focus of sales and marketing efforts will be on attracting the right business at the right time. Increase Guest Retention Levels If the sales and marketing activities are focused appropriately, this will help to give alignment between guest expectations and operational delivery, increasing the value proposition. Ultimately, this will help a business retain the valuable, repeat business. Targeted Pricing As each segment will respond to price propositions in a different way (in other words, they have varying degrees of price sensitivity), accurate segmentation will assist in the pricing process (minimizing the risk of over or under pricing through dilution or cannibalization). Increased Market Share of the Desired Segments Accurate market segmentation will allow a hotel to focus on growing the desired market segments (through matching expectations at an operational level), focus on secondary segments during need or distressed periods, and move away from the unprofitable or hard to reach segments (i.e. those with a high cost of acquisition). The ultimate aim of accurate segmentation is improved efficiencies, leading to enhanced profit opportunities. What Happens if Segmentation is Incorrect? There are many implications of inaccurate segmentation, many of which are frequently overlooked within the hotel industry. These include (but are not limited to): Inaccurate Forecasting When businesses do not know who is coming to the hotel (and the purpose), forecasting becomes more challenging. An accurate forecast is one that is completed day-by-day, by market segment. Understanding segment trends in terms of stay patterns and revenue implications is essential to compiling an accurate forecast. In addition, inaccurate segment forecasting will inevitably lead to increased operational challenges if the business fails to anticipate customer needs. Ineffective Pricing Strategies Inaccurate forecasting by segment will lead to ineffective pricing g strategies that fail to take advantage of the full range of segment pricing potential. Segments may be over priced or under priced – both having a significant impact on the revenue and operational efficiencies of the hotel. Incorrect Sales & Marketing Activities Acquiring new customers can be costly. It is therefore critical that the Sales & Marketing team focus its efforts on the segments that will best help the hotel achieve its long term goals. The activities of Revenue Management and Sales must be aligned, or the hotel may waste valuable resources attracting new business, which does not meet or exceed the price requirements as determined by the RM team. Strategy Impact The combination of points 1-3 will lead to a longer term strategy impact if the organization is not clearly focused and delivering the optimal segment mix.
- By using the four aspects of segmentation, any hotel can start working out market segments. One key to success here is: do not do too much, too fast. Remember that for each segment you establish, you will also have to work out marketing and pricing actions. look at historical reservations by price, source/channel, market code. Best way to determine segmentation is to see how customers purchased in past. Let us consider OTAs for a moment. While they perform as a single channel, they have quite simple segments. Trip Advisor has 4 segments, which are; Families, Couples, Solo and Business. Meanwhile, giant OTA Booking.com has only 5; Families, Couples, Groups of Friend, Solo and Business. Measurability The market segment has to be measurable. For example, if you're looking for business travelers, then you will need to have an idea of how many business travelers visit your city/area Actionability Are your product offering and price interesting enough for that segment to buy from you? Can they actually book a room at your hotel? Accessibility Can you reach that segment? Substantiation Is your segment large enough to be viable?
- Behavior – a product of price. First look at pricing behavior (extended stay v. 3rd party internet v Opaque v Advanced Purchase v Packages); 2nd look at channels and distribution. Segment by price consumer is willing to pay or segment by cost per channel. Price – segmenting customers on buying behaviors can be useful because you can offer them different things: which means you segment by price. 1) Key Questions: Is this person traveling for business or pleasure? 2) Are they price sensitive? 3) What products are they buying? 4) Do they have ancillary spend? 5) Are they routine guests? **Chicken before the egg: does price impact the buying behavior of your customers (and general market) or do the buying behaviors of your customers (and general market) impact price? Does behavior control price or does price control behavior? There’s a situation where if you don’t align your price with market and consumer behavior your value perception will be off what the market perceives it as and you will have either an over or under priced hotel for the perceived value. Maintaining brand image is important when considering behavior and price. Distribution -- how are we getting people to hotels; what strategies can we do to approach these mix of channels? Need to evaluate you needs as a property: what distribution channels fills your property best? Remember what your needs are today does not mean it’s where you will stay forever: you need to develop a strategy of where to be today and how to get to where you want to go: Channel and Cost is result of distribution when looking at all channels; good acquisition is minimizing costs. Do you know your costs of acquisition and what are your costs of acquisition? Have they been increasing while profits haven’t been? Kalibri Labs is a key player in evaluating this; we have a partnership to allow us to ingest their data to optimize distribution analysis.
- Segmentation is constantly evolving not something set in stone People need to look at segmentation again when they don’t know what is in a segment anymore? Analyze current segmentation: is the mix profitable? Has your performance been increasing with the aligned marketing strategies? Is your owner happy? Ensure the incentive structure is aligned at the property to make sure people are rewarded as the property does better; you don’t want conflicting incentive structures Strategize performance goals: where do you want to be? What are your goals for profitability? Is the owner trying to get the hotel into a certain financial situation before trying to sell? Evaluate Distribution Strategy: what mix of business is appropriate to reach these goals? Do you have the pieces in place and the appropriate people staffed in the hotel to help you get to that performance goal? Are people at the hotel resistant to changes in current operations or mix of business shifts? Execute new segmentation: roll out your decided new segmentation and strategy around this segmentation. Spend time evaluating the variances as you may need to make minor tweaks to ensure you have sufficient
- To manage any hotel’s demand, managers must know which distribution channels can be activated to increase that demand. To understand how to activate these channels, one must know which segments they bring with them, and how flexible a property can be with prices and marketing. Managers need to understand how much they can, or should, invest in marketing, and to do this properly they must understand the cost of distribution. In conclusion, rethinking your segmentation and building proper data storage that inherits all the relevant information from every channel, should be a priority for every hotel now. Understanding the real cost of distribution will happen once you have proper data, and that will be the "holy grail" of increased revenue, and the bottom line, now and in the future.
- Hotels use excel to analyze data and understand demand.
- Why do we make a Demand Forecast? Measure demand Foresee falls in demand React to low demand Define commercial strategy Apply rates Restrict sales Control costs Control commissions Financial planning Human Resources planning
- Recipe for success in forecasting: Regardless of whether you are forecasting for the first time, continuing a legacy forecasting approach, or using an automated revenue management system, the rules for success are similar: 1. Recent history. If you have historical results, put them into your forecasting spreadsheet. If you have no history, then start immediately to keep daily records of occupancy, rate and revenue by segment. Try for a minimum of three years, but keep all the results so when periodic events like floods or the Olympic Games occur you have historical benchmarks. This provides a basis for day of week and seasonal profiles of your property. 2. Use small bites. Although it is more time consuming, you must usually forecast at the market segment and sub-segment levels so you know right where the business is coming from and can check for reasonableness. Also, although you only forecast weekly, all your forecasts should be done by day because each day represents a new situation to optimize. 3. Market reference. As you move from the known (history) to the unknown (forecast) assess appropriate market data points like Smith Travel results and trends for your comp set and local market. Include an estimate of the actual impact these forces will have on percent changes in your occupancy, rate and revenues. 4. Competition. Assess new entrants, renovated properties and closures, and estimate their impact on your revenues. 5. Booking pace. Always keep your eye on your booking pace in each segment so you can adjust either your forecast or your marketing strategies. 6. Channels. Stay abreast of third-party channels and their sales opportunities. Even if you do not participate you need to know what your market place and competitors may do that will impact your results. 7. Unconstrained Demand. A quick way to think about the unconstrained demand for your hotel is to imagine that you could accept each and every reservation for a busy day in the future without any concern for the number of rooms that you actually have available. If you were able to accept all reservation requests (at rates that you were prepared to sell), how much demand would this represent? Whatever the answer might be, you can think of it as an approximation of the unconstrained demand 8. Sanity check. Finally, when you are finished with your forecast, just before issuing it, perform a sanity check. Ask yourself if it would take a personal best or record breaking performance to achieve any of these numbers. 9. Granularity - Day-of-Week Patterns Here you can examine the way that each of the segments or groups of segments performs through the week, Booking-Pace Patterns -One of the key elements of forecasting is knowing when to expect bookings to materialize. It may be a well-known fact that very little corporate transient business books a year in advance; however, what may not be known is the typical percentage of corporate business that books between 28 and 21 days prior to arrival. This fact alone is important, because appreciating when business actu-ally starts to book will assist in determining how far in advance of the day of arrival restrictions should be placed. Length-of-Stay Patterns - under-standing the typical length-of-stay patterns for different types of guests is key to being able to deploy appropriate restrictions. Again, granularity can become an issue here; however, even knowing the typical length of stay for transient guests as a whole by day of arrival can assist greatly in the forecasting, optimization, and control processes. Cancellations and No-Show Patterns Overbooking is discussed in the optimization section; however, the ability to overbook appropriately will largely depend on the ability to forecast the likely cancellation and no-show patterns from the available data.
- Once a Segmentation structure is build you then shift focus on building a Pricing Structure.
- The derivate gives us the changes that are going on in the curve, the derivate of the revnue curve graph is interesting because it tells us visually where the optimal point is, you can see at the £200 point line or close to that we cross the 0 line which is where the X axis crosses the Y axis at 0 so that tells us that around that point we are at the top of the revnue curve and we are not getting more positive or negative.,
- A SWOT is best completed in two stages. Stage one requires looking inwardly, and reviewing the strengths, opportunities, weaknesses and threats of the business. Stage two requires looking externally at competitors. When completing the hotel’s SWOT analysis, it is important to ensure that the thinking is like that of the customers. Try to ensure that this includes a range of viewpoints, including teams from several departments and both frequent and occasional guests. When this has been completed and the key areas identified, these can then be transferred to a chart that will compare the businesses SWOTs to their competitors. If the competitors vary by market segment, it may be a wise idea to complete a SWOT analysis by major market segment (e.g. one for Corporate, one for Leisure and one for Group). It is important to remember that different segments will have different needs from their hotel, and will place a different emphasis or value on the rated components. When considering the weaknesses of the competition, it is important to think about the views of their customers. This can be done by using online travel review sites.
- A Value Assessment is a very useful tool, allowing the ranking of the comparative value of the hotel (considering the combination of quality and price) against the competitors, thus establishing the value proposition.
- Step 2 - Once rating criteria have been selected, each of the competitors will be rated against the hotel. The Hotel always has a neutral rating of 0, and the competitors will be ranked comparatively against that, from -5 to +5. If it is considered that the competitor is equal to the hotel, they will receive a 0 on that section. In areas where they exceed the offering, the score will be positive, and in areas where they fall short of the offer, they will receive a negative score.
- As objectively as possible it is necessary to determine the extent to which competitor hotels fall short or exceed the base hotel. How to read the matrix: Top Left Quadrant: Higher Price, Lower Quality Top Right Quadrant: Higher Price, Higher Quality Lower Left Quadrant: Lower Price, Lower Quality Lower Right Quadrant: Lower Price, Higher Quality