10 | operational focus
Revenue Management
Amsterdam, the Netherlands, November 23, 2009
Over the next months Xotels will be publishing a series of revenue
management articles on our Hotelier Blog. They are all chapters
from our revenue management book ‘Leadership in Revenue
Management’.
The Xotels revenue management articles are almost a manual to
hotel and hospitality revenue management. In each article we will
highlight a topic. This revenue management for dummies contains
best practices ideas and tips.
The main topics we will cover are:
•
Fundamentals of Revenue Management
•
Budgeting and Forecasting
•
Benchmarking
•
Pricing
At the end of this series of revenue management articles you
will have a complete revenue management guide or manual for
your hotel. The first topic we would like to discuss is the definition
of revenue management. Additionally we will be covering the
fundamentals of revenue management.
So what is the definition of Revenue Management again?
Selling the Right Room to the Right Client at the Right Moment at
the Right Price.
We would like to add the following to that definition:
On the Right Distribution Channel with the best commission
efficiency
Revenue management (RM) helps to predict consumer demand
to optimize inventory and price availability in order to maximize
revenue growth. Revenue Management means not selling a room
today at a low price to sell it tomorrow at a higher price. RM also
means selling a room at low price today if you do not expect higher
demand.
RM challenges the resources to gather information about the market
so that you can be proactive and not reactive. Use the information to
divide your market and adjust your products through distribution, to
the right customer at the right time and at the right price.
Revenue Management is not only maximizing in high period
demand, it helps stimulating demand in low periods while avoiding
pricing cannibalism. Revenue Management is long term strategic,
takes all revenue with their profitability into consideration, can sell
low rates even in high demand period
Why can we apply Revenue Management in Hotels?
• Fixed capacity
• Perishable The product is perishable
• High fixed costs, low variable costs
• The product can be priced differently
• The demand evolves
• The product can be sold in advance
• The Market can be segmented
Revenue Management started with the Airline Industry.
Today more industries use Revenue Management :
• Hotels
• Car rental, Train companies
• Theatres, Cinemas
• Now starts with Restaurants
• Ikea offers lower prices at time of the week when demand is low
Almost every industry would benefit some ways from Revenue
Management techniques.
But Revenue Management is more the just techniques to yield
rates. It is a philosophy and culture that has to be implemented
in your entire hotel. Are you ready to say No to business? General
management, Sales and Reservations need to agree on same vision
and objectives. Conflicts can happen! Weekly meetings are necessary
to share. Set short, medium and long term strategy together.
Decisions must be based on knowledge, not on feelings! The practice
of Revenue Management may go faster than technology: does
your PMS allow flexible pricing? Records statistics for knowledge
based decisions. Based on the previous articles on the definition,
fundamentals