Summary
Summary Revenue Management
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Summary for the exam of Revenue Management at Hotelschool the Hague. Including Notes, Lectures, Required Reading, Powerpoint.
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iRM - Revenue ManagementLearning Unit 1
Hotel revenue management is a systematic business decision process, designed to maximize
revenue by selling the right product to the right customer at the right pricing at the right time and
duration through the right channels.
Revenue management characteristics:
● Fixed capacity
● Time variable demand
● Perishable inventory
● High fixed, low variable costs
● Advance reservation
● Difference among customers
● Difference among your product
Hotel’s organization structures
RM is involved with every department in the hotel and impacts across the hotel’s organizational
structure.
Commercial Disciplines
, iRM - Revenue Management
4 Main functions of Revenue Management:
Formulating and
setting revenue
Revenue strategies
Strategy Business / Revenue
plan
Positioning
Mix management
Pricing
Channel Inventory Business
Distribution strategy
management Revenue analysis
Managem
Room allocations Analysis Market share
ent
Room & rate types Key indicators/
Tactical RM tools KPI’s
Forecasting
Business Channel
Evaluatio Measuring management
customer worth
n/
Measuring segment
Pricing worth
Displacement
analysis
Pricing strategy
How does a Revenue Manager spends the day:
Characteristics of future revenue managers:
1. Analytical skills
2. Leadership skills
3. Distribution skills
4. Communication skills
5. Rooms background
, iRM - Revenue Management
6. Reservations background
Revenue management/ Yield management
The practice of revenue maximization strategies and tactics meant to improve the profitability of
certain businesses.
● Multidisciplinary
- blends elements of marketing, operations, and financial management.
● The process is a dynamic and perpetual business cycle that requires all components to be
aligned and integrated:
● Discipline that enables hotels to become more profitable.
- Hotel’s awareness on their core competencies, who their guests are, how to market
them, and what it takes to meet or exceed their expectations.
- tactics to increase occupancy on low-demand periods and premium pricing to
improve income generation in high-demand periods.
- multi-tiered rate structures.
Businesses characteristics
Benefit the most from revenue management if:
● Work in fixed capacity environments.
- Hotels have a finite number of hotel rooms to sell. They can’t sell more than their total
capacity even when the demand is there. The same capacity exists when the demand
is low.
● Have perishable or time-sensitive products.
- Hotels have the privilege to occupy a given room for a given time. After the time
expires, the hotel has the opportunity to clean, refresh and replenish the room and
sell the privilege of staying there again to another occupant. Unsold rooms can’t be
stored in order to sell later.
● Face varied but predictable demand over time.
- Hotels face demand fluctuations and seasonal demand variances all the time.
Seasonality refers to a variation of demand based on the season of the year.
Fluctuations can be observed throughout the day, week, month and year but show
certain patterns (the beginnings and endings of seasons can be identified). The
demand can be forecasted which allows management to use appropriate pricing,
product packaging (bundle), and other strategies to exploit revenue maximization
opportunities.
● Have a high proportion of fixed costs and a low proportion of variable costs.
, iRM - Revenue Management
- Hotels are capital-intensive (high initial investments) which results in a high proportion
of fixed costs and a low proportion of variable costs in the operational costs.
- Fixed Costs
- Mixed Costs
- Variable Cost
Learning Unit 2
Market
A set of actual and potential buyers who share a need or want that can be satisfied through exchange
relationships.
● Mass marketing = focusing on an entire market with one basic marketing strategy utilizing
mass distribution and mass media. This approach is beneficial when opening a new hotel.
● Segment marketing = focusing in a specific market segment which allows a business to tailor
existing products and services to meet the particular needs of those customers. This
approach is beneficial by allowing a hotel to design future products and pricing to address the
exact needs of the target market.
Business-Mix
The overall mix of guest types that make up to the clientele staying at a hotel.
● Varies from hotel to hotel, based on the hotel’s location, classification and its identity.
Ownership structure of hospitality industry
● Hotel management agreement
● Franchise operator agreement
● Marketing hotel companies agreement
● Independent hotels (not affiliated with any chain)
Hotel operators
● They operate hotels in two manners:
- Hotel Management Agreement
- Hotel Franchise Agreement
● They very rarely own the hotels they operate
● Why do hotel owners use hotel operators for HMA (Hotel Management Agreement)?
- They operate the hotel on behalf of the owner
- They provide a brand image
- They provide expertise, standards of process
- They provide distribution systems / technology
- They guarantee the hotel owner a certain performance
● Why do hotel owners use hotel operators for HFA (Hotel Franchise Agreement)?
- The hotel owner is operating the hotel on its own
- They provide distribution systems
- It is much cheaper for a hotel owner versus
- Franchise fees are usually fixed fees + fees indexed on the revenue
Marketing hotel companies
● They don’t operate hotels!
● They call themselves networks of hotels: hotels are considered members of the networks.
● Very similar to franchise agreement – the standards required are usually lower versus a
franchise agreement
● The brand image or marketing powers of these companies is usually weaker vs hotel
operators 5.
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