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 (Booking.com) They collect money from and get paid a commission <br />Merchant model (Hotels.com) They are “merchant of record” paying you a “net rate”<br />Opaque model (Priceline.com) 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
    76. 76. PRICE TRANSPARENCY
    77. 77. FLASH REPORT
    78. 78. marginal cost
    79. 79. META SITE
    80. 80. crm
    81. 81. SHOULDER, VALLEY, AND pEAK SEASONS
    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 />carl.winston@sdsu.edu<br />

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