Summary of the book 'Revenue Management for the Hospitality Industry' in preparation for the exam of the minor Revenue & Real Estate Management at Hotel Management School Maastricht. The summary contains chapters 1 until (including) chapter 13.
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Summary Revenue Management for the Hospitality Industry
Revenue Management for the Hospitality Industry
TABLE OF CONTENT
PART I – Revenue Management Principles.........................................................................................................4
Chapter 1 – Introducton to Revenue Management.......................................................................................4
The Proft Fallacy........................................................................................................................................4
The Return on Investment Fallacy..............................................................................................................5
The purpose of Revenue Management......................................................................................................6
The Purpose and Design of the Book..........................................................................................................6
Chapter 2 – Strategic Pricing...........................................................................................................................9
What Is A Price?..........................................................................................................................................9
The Importance of Price in the 4 P’s of the Marketng Mix......................................................................10
The Role of Supply and Demand in Pricing...............................................................................................11
The Role of Costs in Pricing.......................................................................................................................12
Implementng Strategic Pricing.................................................................................................................13
Chapter 3 – Value.........................................................................................................................................13
The Role of Value in Pricing......................................................................................................................13
The Relatonship Between Quality and Price............................................................................................15
The Relatonship Between Service and Price............................................................................................16
The Link Between Quality, Service and Price............................................................................................16
The Art and Science of Strategic Pricing...................................................................................................17
Chapter 4 – Diferental Pricing.....................................................................................................................17
Ten Principles of Managing Revenue........................................................................................................17
Diferental Pricing....................................................................................................................................18
Limits to Diferental Pricing......................................................................................................................19
Applying Diferental Pricing.....................................................................................................................20
Revenue Management or Revenue Optmiiaton?...................................................................................22
Chapter 5 – The Revenue Manager’s Role....................................................................................................23
The Revenue Manager in the Hospitality Industry....................................................................................23
Legal Aspects of Revenue Management...................................................................................................24
Ethical Aspects of Revenue Management.................................................................................................24
The Revenue Manager Positon................................................................................................................26
The Revenue Management Team.............................................................................................................27
,Summary Revenue Management for the Hospitality Industry
PART II – Revenue Management for Hoteliers.................................................................................................28
Chapter 6 – Forecastng Demand.................................................................................................................28
The Importance of Demand Forecastng...................................................................................................28
Historical Data..........................................................................................................................................28
Current Data.............................................................................................................................................29
Future Data...............................................................................................................................................31
Demand Forecasts and Strategic Pricing...................................................................................................33
Chapter 7 – Inventory and Price Management.............................................................................................35
(Rooms ) Inventory Management.............................................................................................................35
Characteriiing Rooms for Optmum Inventory Management...................................................................35
Designatng nique Room Codes..............................................................................................................36
Classifying Guests by Market Segment.....................................................................................................36
Overbooking as an Inventory Management Strategy...............................................................................38
Price Management...................................................................................................................................39
Stay Restrictons.......................................................................................................................................40
Principles of Inventory and Price Management........................................................................................40
Chapter 8 – Distributon Channel Management...........................................................................................41
Managing Distributon Channels...............................................................................................................41
Non-electronic Distributon Channels.......................................................................................................42
Electronic Distributon Channels...............................................................................................................44
Principles of Distributon Channel Management......................................................................................48
Chapter 9 – Evaluaton of Revenue Management Eforts in Lodging................................................................49
9.1 The Lodging Revenue Paradox............................................................................................................49
9.2 STAR Reports......................................................................................................................................49
9.3 Compettve Set Analysis.....................................................................................................................50
9.4 Market Share Analysis........................................................................................................................50
Part III – Revenue Management For Foodservice Operators............................................................................51
Chapter 10 – Revenue Management for F&B Services.................................................................................51
10.1 Traditonal Foodservice Pricing Methods..........................................................................................51
10.2 The Case Against Cost-Based Foodservice Pricing............................................................................51
10.3 Applying Diferental Pricing in Foodservice......................................................................................51
10.4 Factors Afectng Value Perceptons in Foodservice.........................................................................52
Chapter 11 – Evaluaton of Revenue Management Eforts in F&B Services..................................................53
11.1 Food and Beverage menu analysis....................................................................................................53
,Summary Revenue Management for the Hospitality Industry
11.2 Examinaton of Revenue Sources......................................................................................................53
11.3 Measurement of Revenue Change....................................................................................................54
11.4 Assessing Revenue Increases............................................................................................................54
11.5 Assessing Revenue Decreases...........................................................................................................54
11.6 Evaluaton of Revenue-generatng EEciency....................................................................................54
11.7 The Revenue Evaluaton Process in Foodservice...............................................................................55
Part IV – Revenue Management in Acton........................................................................................................56
Chapter 12 – Specialiied Applicatons of Revenue Management.................................................................56
Characteristcs of Organiiatons Applying Revenue Management...........................................................56
Service Industries Applying Revenue Optmiiaton Strategies..................................................................57
Specialiied Revenue Management Dutes................................................................................................57
Revenue Management and Destnaton Marketng..................................................................................58
Chapter 13 – Building Beter Businesses......................................................................................................59
Keys to Building Beter Business...............................................................................................................59
Beter Business Issues in Moderate Strong Markets.................................................................................60
Beter Business Issues in Weak or Distressed Markets.............................................................................61
, Summary Revenue Management for the Hospitality Industry
PART I – Revenue Management Principles
Chapter 1 – Introduction to Revenue Management
Revenue is the total amount of sales achieved in a specifc tme period. Calculatonn
Number of units sold x nit price = Revenue
Revenue management is stll a relatvely new feld of expertse. It has been established mainly in the lodging
industry now and not yet in the foodservice segment.
Efectve revenue managersn
nderstand the importance of revenue management;
nderstand the many complex factors that infuence revenue management strategy and tactcs;
Become beter at making revenue management decisions than their compettors.
How much to charge for hospitality products? This is the main queston revenue management is based on.
Before, it was assumed that the prices of hospitality prices should be based on the product’s costs.
However, now, revenue managers know that costs and price are related but that the later is not dependent
on the former nor it should be.
Hospitality business is an organiiaton providing food, beverages, lodging, travel or entertainment services
to people away from their homes.
The purpose of the hospitality businessn
To achieve profts;
To generate returns on investment for the business’s owners.
B T THEY ARE FLAWED..
The Profit Fallacy
“Organizatinn that primarily ficun in generatng prift will inevitably gi iut if buninenn becaune they will
line iut ti irganizatinn that kniw eniugh ti nit ficun in priftabilityy
The critcal nature of profts should not lead those in business to focus their eforts on maximiiing their
companies’ proft levels. The focus must be elsewhere. Where? First understand priftn.
Accountancy’s proft formulan Proft + Costs = Sales
Basic algebran Total Revenue - Total expenses = Proft
Revenue = Sales = Income
Expenses = costs We know there are diferent types of costs/expenses; fxed costs, variable costs,
controllable costs, non-controllable costs.
In order to be a good revenue manager you need to understand proft cimpletely and differently!
Profit is the net value achieved by a seller and a buyer in a business transacton. So; both buyer and seller
make a gain. Figure 1.1 page 6
Money is not the item being traded. Money is used as the item to be exchanged.
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