By Hilary Freeman, Revenue Management Consultant. The second part of this Availpro conference introduces you to the basics of Revenue Management and shows you some simple techniques for putting it into practice. The aim is to show participants how to analyse their business, assess future demand patterns and use competitive intelligence techniques to select the best possible pricing strategy in order to generate maximum revenue.

1. Hilary Freeman

2. Definition
“Selling the right product to the right kind of
customer, at the right time, at the right price, so as
to maximise revenue or yield”
Sheryl Kimes, Professor of Operations Management
at Cornell University School of Hotel Administration
Also “through the right channel”

3.  A unit of measurement providing a consistent
indication of business performance
 Traditional measurement by occupancy % and
average rate (ADR) can be misleading
 Growth in one area is often matched by
reduction in the other – how do you assess
the trade off?

4.  Assuming a hotel with 250 bedrooms
◦ Occupancy 50% - ADR £128
◦ Occupancy 80% - ADR £80
◦ In both cases the yield is £64
◦ Also known as Rev Par

5.  In both cases, the revenue earned is £16,000
 ADR is revenue divided by the number of
rooms sold
 RevPar is revenue divided by the total number
of rooms available
 RevPar = Revenue per available room
 ADR multiplied by occupancy %

6.  Gives a true comparison of performance year
on year
 Enables true comparison with competitor
hotels of a different size and business mix
 Provides a consistent measure of business
performance
 RevPar is the preferred unit of measurement
in Revenue Management

7. • When a physically identical product can be sold to
different market segments for different prices
through different channels under different booking
conditions
• In order to increase revenue from a fixed level of
capacity
• Increased revenue = increased profits

8.  A group of customers with a pattern of
buying behaviour
◦ Price sensitivity
◦ Lead time of booking
◦ Willingness to pre-pay
◦ Need for flexibility, to cancel or modify without
penalty
◦ Length of stay
◦ Different perception of “value”

9.  Different market segments may book through
the same channels or different ones
• Direct with the hotel
• Through hotel website
• Via a travel agent/GDS (business or high street)
• Via a 3rd party website (Expedia, Booking.com,
Lastminute, etc)
• Via a tour operator
 Cost of sale varies by channel
 Rate parity for all public rates

10.  Lead time
 Prepayment
 Limited or no flexibility – no cancellation or
modification permitted
 Length of stay requirements, minimum or
maximum
 Specific nights included
 Package rates, to include other elements
 Enable discounted rates to be “fenced”

11.  Analyse existing demand patterns
 Predict future demand patterns
 Match the right volume of rooms at each rate
level so as to maximise yield
 Minimise peaks and troughs to avoid
“wasting” inventory ie leaving rooms empty
which could have been sold

12. Forecast or
Budget
Adjust Plan
Review Sell/Distribute

13. Know your business
◦ Use historical data to identify demand patterns and
trends
◦ Seasonal
◦ By day of week
◦ Lead time
◦ No-show/cancellation rates
◦ Unsatisfied demand, turnaways

14.  Booking pace
◦ Pick up reports, daily weekly, monthly
◦ By market segment
 Statistical/historical data on market segments
– room nights, ADR
 Data relative to past business performance,
factors which may have contributed

15. Know your market
 Economic conditions
 Seasonal variations
 Local sources of business, corporate offices,
conference centres, entertainment venues,
tourist attractions
 Local events

16. Know your competition
 Identify your competitors
 Benchmark your product
 Establish rate hierarchy
 Monitor their activities – pricing, promotions,
policies
 Changes in supply

17.  Plan your preferred market mix based on
expected demand levels by segment
◦ How many rooms can you expect to sell to higher
rated market segments, and when?
◦ How many rooms can you afford/do you need to
sell to lower rated segments?
◦ What rate parameters/structure should you be
working within?
◦ When will unconstrained demand lead to peaks and
troughs?

18.  Monitor booking pace and occupancy growth
- as bookings are received, update forecast
and decide where changes need to be made
 Monitor competition for pricing changes
 Monitor local demand levels
 Adjust strategy using all tools, not just
pricing
 Record all changes

19.  Pricing
 Discount allocation
 Duration control
 Capacity management
 Supply control
 May be applied differently when demand is
stronger or weaker

20.  There is no “right” price for your product
 It will have a different value for different
customers at different times
 Your competitors’ activities may influence the
customers’ perception of your value
 Know the difference between “great value”
and “cheap rooms”

21.  Ensure discounts are “fenced” with booking
conditions to avoid dilution
 Know when to stop selling discounted rates
to avoid displacement
 Use multi night offers to attract business on
hard to fill shoulder nights

22.  Avoid peaks and troughs – empty rooms
equal lost revenue, especially if avoidable
 Use restrictions to avoid selling out on one
night and having to turn away through
bookings
 Offer discounts/added value for multi night
stays which include hard to sell dates

23.  Overbooking
◦ Identify probability of late cancellations and no-
shows
◦ Manage overbooking, don’t let it happen by
accident!

24.  When demand is strong, sell to room type
◦ Ensure you get premium prices for superior rooms
 When demand is soft, oversell lower room
categories and upgrade

25.  Time/resources available
 What rate management controls are available
in your PMS, and in your 3rd party partners?
 Which distribution channels do you use, and
would you like to use?
 What degree of connectivity can you achieve
between your PMS and distribution channels?
 Ideal is 2 way interface between PMS/hotel
website/GDS/3rd party partners/IDS

26. Any questions?