Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 1 Revenue Management

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 2 Role of the Revenue Manager Importance of revenue management Different than “room rate management” Factors to consider when answering the question: “How much are your rooms?”

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 3 Revenue Management Negotiated Rate: A special room rate offered for a fixed period of time to a specific hotel client. Black-out Date: Any day(s) in which the hotel will not honor a negotiated rate. Negotiated Rate Agreement: A document that details the specific contractual obligations of a hotel and client when the hotel has offered, and the client has agreed to, a negotiated rate.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 4 Revenue Management Length of Stay (LOS): The number of nights a hotel’s individual guests use their rooms. Room Nights Sold = LOS Rooms Sold

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 5 Room Rate Management Central Reservation System (CRS): An entity, operated by a franchisor, that offers potential guests the opportunity to make reservations at its affiliated (branded) hotels by telephone, fax, and/or the Internet.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 6 Room Rate Management Responsibilities are shared by: –Revenue manager –FOM –DOSM

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 7 Room Rate Management Rate Resistance: Refusal to make a reservation because the rate quoted is perceived to be too high. Displace (Revenue): To substitute one source of revenue for another.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 8 Room Rate Economics Supply: The total amount of a good or service available for sale. Demand: The total amount of a good or service consumers want to buy at a specific price. Room Rate Economics: The process by which revenue managers price rooms while considering how consumers may react to the pricing strategies that are used.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 9 Room Rate Economics Law of Demand: The concept of economics that recognizes, when supply is held constant, an increase in demand results in an increase in selling price. Conversely, with supply held constant, a decrease in demand leads to a decreased selling price.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 10 Room Rate Economics Law of Supply: The concept of economics that recognizes, when demand is held constant, an increase in supply leads to a decreased selling price. Conversely, with demand held constant, a decrease in supply leads to an increased selling price.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 11 Room Rate Economics Rate Type: A single (unique) rate for a specific type of room that is programmed into a hotel’s PMS. Rack rates can vary by: –Bed type –Amenities –Location –Size

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 12 Room Rate Economics Seasonal rates Special event rates Corporate rates Government rates Group rates Package rates

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 13 Room Rate Economics American plan Modified-American plan All-Inclusive plan European plan

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 14 Room Rate Economics Day rates Half-day rates Fade (flex) rates

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 15 Room Rate Economics Traditional pricing strategies: –Hubbart room rate strategy ROI: Short for “return on investment”; the percentage rate of return achieved on the money invested in a hotel property. FF&E: Short for the “furniture, fixtures, and equipment” used by a hotel to service its guests.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 16 Room Rate Economics Traditional pricing strategies: –$1 per $1,000 rule Cost Per Key: The average purchase price of a hotel’s guest room expressed in thousands of dollars. –Bottom-up Selling: A tactic to first sell the hotel’s least expensive rooms. –Top-down Selling: A tactic to first sell the hotel’s most expensive rooms.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 17 Room Rate Economics Web-influenced pricing strategies –Competitive pricing –Follow-the-leader pricing –Prestige pricing –Discount pricing

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 18 Room Rate Economics Call-around: A telephone “shopping” technique in which a hotel staff member calls competitive hotels to inquire about room rates and availability. The information is used by the calling hotel to help determine room rates.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 19 Room Rate Economics Rate Integrity (Parity): The degree to which a hotel’s room rates are comparable regardless of the distribution channel on which they are found. Distribution Channel: A source of potential room reservations.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 20 Revenue Management Tools Room types Market Code: Guest types differentiated by sales source. Typical market codes include transient and group. Track Code: Guest types differentiated by traveler demographics.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 21 Revenue Management Essentials Managing occupancy: –CTA: “Closed to Arrival;” in this situation, the hotel declines reservations for guests wanting to arrive on this specific date. –Over-booking: A situation in which the hotel has more guest reservations for rooms than it has rooms available to lodge those guests. Sometimes referred to as “oversold.” –Walk(ed): A situation in which a guest with a reservation is relocated from the reserved hotel to another hotel because no room was available at the reserved hotel.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 22 Revenue Management Essentials Managing ADR: –Lowering rates does not always increase demand. –In some situations, room discounting may be an effective managerial strategy.

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 23 Revenue Management Essentials Measures of Effectiveness –Occupancy Index = Occupancy Rate of a Selected Hotel Occupancy Rate of That Hotel’s Comp Set

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 24 Revenue Management Essentials Measures of Effectiveness –ADR Index = ADR of Selected Hotel ADR of That Hotel’s Comp Set

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 25 Revenue Management Essentials Measures of Effectiveness –RevPar Index = RevPar of a Selected Hotel RevPar of That Hotel’s Comp Set

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 26 Revenue Management Essentials Measures of Effectiveness –GoPar = Revenue – Management-Controllable Expenses Available Rooms for That Period

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 27 Yield Management Philosophy Implementation Techniques

Woods et al., Professional Front Office Management © 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. 28 Yield Management Most revenue managers would agree that: –Occupancy and ADR indices should be close –Rate integrity is essential –Revenue management is a daily activity –It is necessary to gamble at times