Intro To Revenue Management Sdsu


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  • Tactics are good and effective but are subject to control of others (SFO + $23 inn)
  • Tactics are good and effective but are subject to control of others (SFO + $23 inn)
  • Intro To Revenue Management Sdsu

    1. 1. Intro to Revenue Management<br />Presented by Carl Winston<br />Director<br />L. Robert Payne School of Hospitality and Tourism Management<br />SDSU<br />
    2. 2. Why are we here today?<br />
    3. 3. Why are we here today?<br />Two perfect storms! <br />2001 terror and tech bubble<br />Web 2.0 and great recession<br />
    4. 4. Lodging is a Cyclical Business…<br />
    5. 5. Lodging Cycles<br />PKF Consulting<br />
    6. 6. Why is Lodging Cyclical?<br />Demand tends to reflect Regional and National changes in the economy (normally 2% to 4% growth annually)<br />Supply changes are hotels best friend and worst enemy<br />
    7. 7. What Do ATT & Microsoft have in common?<br />Definition of “Anti-trust laws”<br />“Opposing or intended to regulate business monopolies, such as trusts or cartels, especially in the interest of promoting competition”<br />What does that mean?<br />
    8. 8. Anti-trust…<br />We are not here to:<br />Figure out ways to raise prices<br />Gouge customers during peak times<br />Collude in any way<br />We are here to discuss the science and art of managing our revenue to improve the bottom line of your hotels and motels<br />
    9. 9. Overview of Today’s Session<br />Introduction<br />Role of next two sessions (12/10 and 12/17)<br />Brief history of revenue management <br />RM tactics<br />RM Strategy<br />3rd Parties<br />Role of Revenue Manager<br />3 Case studies <br />
    10. 10. Case Study # 1<br />
    11. 11. Textbook Says…<br />The act of skillfully, carefully, and tactfully managing, controlling, and directing capacity and sources of income, given the constraints of supply and demand<br />
    12. 12. Art or Science?<br />“I think we should”<br />Vs.<br />“We need to…”<br />
    13. 13. Another Way to Put This…<br />Demand creation is Marketing <br />Demand capture is Sales<br />Demand Mgmt is Revenue Mgmt<br />We are not here today to set prices!<br />
    14. 14. Say that again…<br />Fixed amount of rooms to sell <br />Rooms are “perishable”<br />Guests are willing to pay a different price for the same room <br />Guests can buy through a variety of “channels” that may or may not be “direct”<br />You want to master the science behind revenue management<br />
    15. 15. Major Historical Milestones…<br />Bartering<br />First method of trade<br />Merchants saved best goods for best customers<br />Worth determined by item’s scarcity (or)<br />Perceived value of materials and labor<br />Markets<br />Sprung up in villages to facilitate exchange<br />Merchants began to travel<br />Supply and demand dictated price<br />Inns quoted higher prices to later arriving guests<br />Last leg of lamb on the spit – most pricey!<br />
    16. 16. Major Milestones…<br />Hotel Chains<br />Automobile travel facilitated need<br />Kemmons Wilson founded Holiday Inns<br />Front desk asks guest about future travel plans<br />CRS<br />AAA<br />Air Travel<br />First commercial flights commissioned by postal service<br />1927 – Lindbergh solo flight gets people thinking<br />1958 – 1st Boeing 707 jets put into service<br />Jet age – interdependence among air, hotel, car rental<br />Airlines strictly regulated by federal government<br />1978 – Airline Deregulation<br />
    17. 17. Major Milestones…<br />The Internet<br />Domain names<br />Third parties<br />Commoditization of information<br />Instant data available to consumers and hotels alike…Web 2.0 put consumers in driver’s seat<br />STR<br />
    18. 18. Tactics…<br />
    19. 19. Revenue Mgmt. Tactics<br />Forecasting Demand:<br />Forecasts are not budgets…<br />90, 28, 10, 7, 3, 1-day forecasts – really?<br />Keep records of this year for future years<br />Measurement of reservation demand is critical:<br />Pace<br />Regrets (decide to not book)<br />Denials<br />Conversion rate<br />
    20. 20. Revenue Mgmt. Tactics<br />Forecasting:<br />“Unconstrained demand” means you can accommodate it all (slow times)<br />“Constrained demand” means you can begin to drive revenue:<br />Capacity allocation<br />Rate thresholds<br />Duration control<br />More later…<br />
    21. 21. Revenue Mgmt. Tactics<br />Forecasting: (other factors)<br />Guest TOTAL spend<br />Lifetime spend (loyalty program)<br />
    22. 22. Revenue Mgmt. Tactics<br />Competitive intelligence<br />STR<br />Call arounds<br />Drive arounds<br />Walk arounds<br />Ask the guests<br />
    23. 23. Booking Pace<br />
    24. 24. Revenue Mgmt. Tactics<br />Pricing Models:<br />Guest perception of value<br />Inventory your inventory<br />Room types are not just bed types<br />See “Dynamic Pricing”<br />
    25. 25. Revenue Mgmt. Tactics<br />Pricing Models:<br />How many rates do you have?<br />How many room types?<br />Does it vary by time of year?<br />Time of week?<br />Time of day?<br />
    26. 26. Revenue Mgmt. Tactics<br />Pricing Models:<br />Rate Fences…(advance, last minute, non-refundable)<br />Customer loyalty programs versus revenue management?<br />Duration controls (first-come, first-servedis not the only way to go)<br />Minimum stay<br />Stay through<br />Close to arrival<br />
    27. 27. Dynamic Pricing<br />
    28. 28. Dynamic Pricing<br />
    29. 29. Dynamic Pricing<br />
    30. 30. Revenue Mgmt. Tactics<br />Capacity Management:<br />Overbooking<br />Is 98% a good occupancy percentage?<br />Is overbooking worth it?<br />Can a hotel rent out-of-order rooms? <br />
    31. 31. Revenue Mgmt. Tactics<br />Displacement Analysis:<br />What is it?<br />Key issues:<br />What revenue is lost?<br />What profits would be lost?<br />Lifetime value of the group/client<br />Case Study: “Small Group”<br />Case Study: Accept or Deny?”<br />
    32. 32. Revenue Mgmt. Tactics<br />Displacement Analysis<br />
    33. 33. On to Strategy…<br />
    34. 34. Strategic Revenue Mgmt.<br />Differentiation: <br />If you find the right market for your hotel and sell to it, you drive revenue…<br />Rate becomes less important…<br />
    35. 35. Strategic Revenue Mgmt.<br />Differentiation: <br />Unique features<br />Type of service<br />Leverage your location<br />Brand<br />Market segments served<br />Name? (The $23 Inn)<br />
    36. 36. Strategic Revenue Mgmt.<br />Revenue management and CRM:<br />Who are you best customers?<br />Why are they your best customers?<br />How do you keep them?<br />How do you find more like them?<br />
    37. 37. Strategic Revenue Mgmt.<br />Revenue management and guest loyalty issues:<br />Pricing fidelity<br />True “value” of a guest over time<br />Black out dates<br />Booking on a “first come, first served” basis or?<br />
    38. 38. Strategic Revenue Mgmt.<br />Other factors:<br />Market position<br />Bed mix and more<br />Know who you are and what you are not…<br />
    39. 39. Strategic Revenue Mgmt.<br />Role of pricing in achieving REVPAR:<br />No matter what, your price must offer value to the guest…<br />
    40. 40. Strategic Revenue Mgmt.<br />HSMAI Survey on value:<br />Property type/location<br />Amenities<br />Price<br />Guests will pay a premium to feel safer<br />Guest put a premium on “true” service<br />
    41. 41. Strategic Revenue Mgmt.<br />Strategic packaging:<br />When do you want to package? (slow times?)<br />Who are you targeting? Why?<br />How will you promote the package?<br />Internal packages<br />External packages<br />
    42. 42. Strategic Revenue Mgmt.<br />Distribution Channel Management:<br />We sometimes forget that there are more multiple “channels” to manage:<br />3rd party<br />CRS/GDS<br />Website<br />Telephone<br />In the lobby<br />
    43. 43. Strategic Revenue Mgmt.<br />Distribution Channel Management:<br />Different channels have different gross and net rates<br />Different guests<br />Need to manage inventory in each channel…<br />Open & Closed to arrival<br />Minimum LOS<br />
    44. 44. Strategic Revenue Mgmt.<br />Distribution Channel Management:<br />You want:<br />Highest producers<br />Most cost-effective<br />Easiest to control<br />
    45. 45. 3rd Party Pitfalls<br />“Monkey see, monkey do” pricing<br /> (do not just look at competitors pricing and adjust…)<br />You need to:<br />Forecast your demand<br />Then, evaluate competitors strategy<br />Determine which consumer (and channel) makes sense to pursue. (Who are they? How and When do they buy? Who are they loyal to?)<br />
    46. 46. Let’s look more closely at 3rd Parties<br />Retail model ( They collect money from and get paid a commission <br />Merchant model ( They are “merchant of record” paying you a “net rate”<br />Opaque model ( Some part of the transaction is hidden from guest<br />Auction model (LuxuryLink or Priceline) <br />Referral model (TravelZoo) Hotel defines the offer and pays an advertising or referral fee<br />
    47. 47. What are the issues in choosing 3rd party partners?<br />Costs vary wildly<br />Who is the guest? <br />Your brand and other guests profile<br />Stay patterns<br />Cannibalism<br />Ease to use<br />Marketing exposure<br />Seasonality<br />ETC.<br />Net, net rates!<br />
    48. 48. Table Discussion:<br />Third Parties: Friend or Foe?<br />
    49. 49. Who are your best customers?<br />Loyal customers versus “one time wonders”<br />How are you “proving” your value to them?<br />Besides pricing, what else do frequent travelers crave and value?<br />If you use 3rd parties, will that guest really become loyal to your hotel?<br />The one’s with the most $ value to you!<br />
    50. 50. Change of Gears…<br />
    51. 51. What Does a Revenue Manager Do?<br />Manage group blocks<br />Managing and monitoring Internet systems to ensure rate integrity and parity<br />Managing the hotel’s web portal<br />Maintaining relationships with third-party market managers<br />Analyzing financial statements and market data<br />Preparing accurate occupancy and revenue forecasts<br />Developing tactics and strategies to manage group and transient market needs<br />
    52. 52. What INTERPERSONAL Skills Do Revenue Managers Need to Have?<br />Lead business review meetings<br />Develop and deliver effective presentations<br />Establish credibility with the management team<br />Work closely with the DOS and FOM, where appropriate<br />Articulate complex strategies and other topics in oral and written form<br />
    53. 53. Glossary of Revenue Management<br />(See handout)<br />
    54. 54. Glossary of Revenue Management<br />Transient Booking<br />Branding<br />Group Rate<br />Market Based Pricing<br />ADR<br />Market Segmentation<br />Margins<br />RevPAR<br />C.V.P.<br />Competitive Set<br /><ul><li>BOOKING PACE
    55. 55. Merchant Model
    56. 56. Opaque Model
    57. 57. LOAD FACTOR
    58. 58. Anti-Trust legislation
    59. 59. Break Even
    60. 60. b2b, b2c, c2c
    61. 61. Menu Mix Management
    62. 62. Menu Item Penetration
    63. 63. Protection Level</li></li></ul><li>Glossary of Revenue Management<br /><ul><li>Revenue Management
    64. 64. Variable costs
    65. 65. Fixed Costs
    66. 66. margins – gross and contribution
    67. 67. Market intelligence
    68. 68. Occupancy
    69. 69. Overbooking
    70. 70. Price Differentiation
    71. 71. vfr
    72. 72. smerfe
    73. 73. pERISHABLE INVENTORY</li></ul>Up-selling<br />Per-capita<br />Seasonality of Business<br />BUNDLING<br />Constrained Optimization <br />Demand Forecasting<br />Channel of Distribution<br />Channel Management <br />Rack Rate<br />
    74. 74. Glossary of Revenue Management<br />Average Check<br />Turnover <br />Yield<br />Property Management System<br />Capacity<br />CRS <br />Supply and Demand<br />Inelasticity of Demand<br />Smith Travel Research<br />AUCTION SITE<br />CANNIBALIZATION<br /><ul><li>OPAQUE CHANNEL
    75. 75. RATE INTEGRITY
    77. 77. FLASH REPORT
    78. 78. marginal cost
    79. 79. META SITE
    80. 80. crm
    82. 82. BEST RATE GUARANTEE PROGRAM</li></li></ul><li>Almost finished…<br />
    83. 83. The Top Ten Revenue Management Mistakes Hotels Make<br />10. Seeing revenue management as a job done only by the revenue manager.<br />9. Allowing Internet discounting agencies to sell guestrooms at prices of their choosing, then complaining about the erosion of rate integrity.<br />8. Claiming to differentiate the hotel based on service excellence, then promoting discounts, “value package” offererings, free frequent-guest points, and other freebies.<br />
    84. 84. The Top Ten Revenue Management Mistakes Hotels Make<br />7. Thinking that the hotel’s weekday strategy and weekend strategy can be the same.<br />6. Expecting that the “flag” (brand) will fill the hotel without the hotel’s management team lifting a finger.<br />5. Counting revenue dollars as equal, regardless of the distribution channel they came through.<br />
    85. 85. The Top Ten Revenue Management Mistakes Hotels Make<br />4. Thinking that short-term goals must always have priority over long-term goals.<br />3. Thinking that artificial intelligence – the revenue management software – is superior to human intelligence.<br />2. Believing that the right price to charge for a room night is established solely on the hotel’s costs and ROI expectations.<br />
    86. 86. The Top Ten Revenue Management Mistakes Hotels Make<br />1. Believing that discounting is an effective way to increase revenue.<br />
    87. 87. Thank You and Q&A<br />Carl Winston<br />619-594-4964<br /><br />