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Revenue management for the hospitality industry

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Nguyễn Gia Hào

Academic year: 2023

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Revenue Management for the Hospitality Industry is a book that we were particularly privileged and challenged to create. Revenue Management for the Hospitality Industry is a detailed examination of the practical skills that revenue managers need to know to effectively manage their inventory and pricing.

Revenue Management Principles

As a result, readers will learn how to use those tools that professional income managers just need to know and understand. In Chapter 1 of this supporting section, readers learn about the history of revenue management and gain insight into the material included in the remaining chapters of the book.

Revenue Management for Hoteliers

In Chapter 2 the concept of price is explored and in Chapter 3 readers will learn how customers assess value when making their purchases. In Chapter 5, the role of the professional hospitality revenue manager within a business entity is examined in detail.

Revenue Management for Foodservice Operators

In it readers will learn how revenue managers combine the concepts of price and value to develop pricing strategies based on the customer's willingness to buy.

Revenue Management in Action

Readers will find that Revenue Management for the Hospitality Industry is particularly reader-friendly. Instructors who adopt Revenue Management for the Hospitality Industry can download the test bank for free.

REVENUE

MANAGEMENT PRINCIPLES

CHAPTER OUTLINE

CHAPTER HIGHLIGHTS

Explanation of why an excessive internal focus on profi ts or owner’s return on investment is detrimental to the long-term

Explanation of why businesses exist to create wealth for their customers and how effective RM helps them do that

Overview of the RM-related information contained in the remaining chapters of this book

It is the hope of the authors that, in consultation with open-minded readers, we can embark together on a meaningful exploration of the intriguing topic of revenue management in the hospitality industry. If you're reading this book, it's probably because you work in the hospitality industry now or want to be in the future.

Figure 1.1   Three Business Propositions Related to a Ten-Dollar Buyer/Seller  Transaction
Figure 1.1 Three Business Propositions Related to a Ten-Dollar Buyer/Seller Transaction

RM IN ACTION 1.1: ALL-YOU-CAN-EAT CAN BE TOO MUCH

So far you've learned that the goal of a successful hospitality business is to provide profit to its customers (not itself), and as a result increase those customers' wealth (not the wealth of the business owners). Ray Kroc (Founder of McDonald's) The goal of professional income management is to significantly increase company profits and owner ROI through advanced income management and strategic pricing techniques.

䉴 RM ON THE WEB 1.1

In Chapter 6 (Forecasting Demand), you will learn why it is so important for RMs working in the lodging industry to make accurate estimates of guest demand for their products. In Chapter 7 (Inventory and Price Management), you will learn how lodging industry RMs monitor the number of rooms available for sale and the prices to be charged for them.

RM IN ACTION 1.3: DIRTY WORDS?

In Chapter 8 (Distribution Channel Management), you will learn how RMs manage various sources of room bookings. In Chapter 9 (Evaluating Revenue Management Efforts in the Lodging Industry), you will learn how to evaluate a hotel's RM performance.

䉴 RM ON THE WEB 1.2

The Educational Institute, the nonprofit training organization that is part of the American Hotel and Lodging Association (AH&LA), provides educational materials and professional certifications in a variety of lodging specializations. Click Manager, then select Certified Hospitality Revenue Manager (CHRM) to view the requirements for EI's RM-oriented certification.

RM AT WORK 1.1

Using solid information and their own professional judgment, they can then make the right decisions about future prices for their rooms and the best distribution channels to sell them. Pace Report: A summary report that describes the amount of future demand for rooms or other services from a property and the rate at which that business is being acquired.

䉴 RM ON THE WEB 1.3

In Chapter 11 (Evaluating Revenue Management Efforts in the Hospitality Industry), you'll learn how F&B professionals monitor and evaluate the revenue-generating characteristics of their own operations. RMs should know how to answer such a question and in this chapter you will learn how.

RM IN ACTION 1.4: RESTAURATEURS MANAGE NEW CHANNELS TO MANAGE REVENUE

In this chapter, you will learn to identify the specific organizational characteristics that allow the application of revenue management principles. In this chapter, you will learn about the unique responsibilities and challenges of those RMs assigned multi-unit responsibilities.

RM AT WORK 1.2

ESSENTIAL RM TERMS

APPLY WHAT YOU KNOW

When consumer demand for hotel rooms increases, average selling prices for those rooms typically increase as well. Given that hotels and restaurants are part of the hospitality industry, how to explain these fundamental differences in approach to strategic pricing.

KEY CONCEPT CASE STUDY

So Sam's department is doing well? Damario asked, referring to the hotel's food and beverage director. And don't forget that together they employ more than 80 percent of the resort's total staff,” says Sofi a.

CHAPTER OUTLINE What Is a Price?

37."1 The accountant prefers to define price as "the sum of money that something would bring if or when it were sold.2. RMs who want to fully understand pricing should heed his insightful statement: “The art of vision is seeing what others do not see.”6 What too many pricing managers fail to see is that price can only be truly understood by exploring two very different , but complementary, price-related perspectives of seller and buyer.

Figure 2.1   Common Pricing Terms Used in Hospitality and Hospitality-Related  Industries
Figure 2.1 Common Pricing Terms Used in Hospitality and Hospitality-Related Industries

RM IN ACTION 2.1: BUYERS BEHAVING RATIONALLY?

As a rule, buyers make a value judgment about the wisdom of a purchase based on their highly personal assessment of a seller's value proposition. Do you believe that a person's chronological age or other demographic characteristic can affect how a buyer perceives a seller's value proposition?

Figure 2.2   Buyer Assessment of a Seller’s Value Proposition
Figure 2.2 Buyer Assessment of a Seller’s Value Proposition

RM AT WORK 2.1

Collectively, these components are known as the "4 P's" of the marketing mix:10 Product: The product or service delivered to the buyer. Such sellers are free to enter the market and use the 4 P's of the marketing mix to design and promote their products.

Figure 2.3   The 4 P’s of the Marketing Mix
Figure 2.3 The 4 P’s of the Marketing Mix

RM IN ACTION 2.2: NO PIGEONS IN PIGEON FORGE

If it is true that everything is worth what a buyer will pay for it, then it also follows that when a sale is not made, the buyer simply did not believe the item was worth the seller's asking price; or that a lower cost alternative worth its asking price was also available.

RM ON THE WEB 2.1

It is extremely unlikely that the average RM in the hospitality industry will create a supply and demand curve to actually determine the specific prices they will charge. The first is the change in demand for a product that occurs when the price falls.

Figure 2.4 Marshallian  Scissors
Figure 2.4 Marshallian Scissors

RM IN ACTION 2.3: NEW YORK

Above the break-even point, revenue exceeds the sum of fixed and variable costs required to make a sale, so a profit is made. Minimum Selling Point (MSP): The level of revenue required to break even over a specified period of time.

Figure 2.6 Cost/Volume/Profi t Relationshipc02StrategicPricing.indd Page 56  9/15/10  7:34:43 AM user-f391
Figure 2.6 Cost/Volume/Profi t Relationshipc02StrategicPricing.indd Page 56 9/15/10 7:34:43 AM user-f391

RM AT WORK 2.2

RM IN ACTION 2.4: CONSUMER-BASED PRICING

Because "Price" is a crucial "P" in the 4 P's of the marketing mix, some hospitality marketing professionals feel that pricing is a task best assigned to those responsible for the firm's marketing efforts. . A serious examination and explanation of the power of strategic pricing in the hospitality industry is now well established.

RM ON THE WEB 2.3

A detailed examination of how buyers utilize personal value formulas when considering a purchase

A discussion of the roles of quality, service and price in a buyer’s value formula

A rationale for the use of data analysis and personal insight when implementing strategic pricing

In the previous chapter, you learned that strategic pricing is defined as "the use of data and insights to effectively match prices that a seller charges with their buyers' perception of value." In Chapter 1, you learned that in any successful business transaction, both the buyer and the seller make a profit. A price "in the middle" may seem to make sense, but it's also a strategy that tends to underprice many of the products and services you want to sell.

Figure 3.1  Four Alternative Value Formulas
Figure 3.1 Four Alternative Value Formulas

RM IN ACTION 3.1: THE GIFT THAT KEEPS ON GIVING

In fact, when all industries in the entire world economy are considered, the hospitality and travel industries benefit the most from Formula C value buyers. Every DOSM in the hospitality industry recognizes that this value formula describes the purchases of made by professional meeting planners and travel agents, as well as many others.

RM ON THE WEB 3.1

This is because in the case of a restaurant meal or hotel stay, the product will not actually be experienced until it is purchased (ie once the meal is consumed or the room is booked). This level of trust must be kept in mind by hospitality RMs when considering the highly complex relationships between quality, service and price in the hospitality industry.

RM AT WORK 3.1

Inventory is one of the four services because of the two problems it causes service providers. The prices you choose should take into account the quality of the tangible product you offer as well as the intangible services you provide.

Figure 3.3 provides a snapshot of the Four Is of Service. For RMs it is the characteristic of each  specifi c “I” that is of critical importance to understanding the delivery and pricing of services.
Figure 3.3 provides a snapshot of the Four Is of Service. For RMs it is the characteristic of each specifi c “I” that is of critical importance to understanding the delivery and pricing of services.

RM IN ACTION 3.3: COKE OR PEPSI?

Because you now know that the hospitality service provides intangible benefits, a change to the buyer's original view of the value formula can easily be created, as shown in Figure 3.4. Given the consistent and significant impact on value of variations in product (A) and service (B), it is unfortunate that so many RMs and other managers focus only on using the power of reduced pricing (C) to influenced changes in buyer perceptions. with value (D).

RM AT WORK 3.2

This can be challenging when RMs recognize that all rational customers will consistently demand lower prices. Some RMs consider strategic pricing to be an exact science and thus these RMs emphasize aspects of data collection and analysis.

RM IN ACTION 3.4: THE COFFEE WARS?

A careful re-reading of Cross's comment reveals that he recognizes the importance of using data management as well as RM's own insight into the strategic pricing process. They will make the most progress when they realize that they need to use data and their own insight in the process of strategic pricing.

RM ON THE WEB 3.2

Detailed explanation of differential pricing; the practice of charging different prices, to different customers, for the same

Detailed examination of the eight techniques RMs use to applying differential pricing

Review of the evolving terminology used to describe the activities and goals of RMs

150.00 per night for a room of the quality you offer and with the services you provide. Another important issue related to the hotel's fixed price strategy in this case is the large number of customers (identified in region "C" in Figure 4.1) who will not pay $150.00 per night for your rooms, despite the fact that are willing to pay a price slightly higher than your hotel's variable cost to provide a room.

Figure 4.1   Potential of Price Differentiation
Figure 4.1 Potential of Price Differentiation

RM IN ACTION 4.1: THE NRA “SHOW”

However, remember that differential pricing means offering different prices to different customers based on a customer's willingness to buy. When a differential pricing strategy is applied improperly, it can be easy to see why buyers would feel this way.

RM IN ACTION 4.2: KISS LADIES’ NIGHT GOODBYE?

Doing so cheats companies' best customers; those who value a product so much that they are willing to pay more for it. Hospitality companies go out of their way to make sure their best customers know how much their business is appreciated.

䉴 RM ON THE WEB 4.1

Rewards Program: A formalized system of awarding special prizes or other benefits to a company's best customers. When you arrive, click Gold Passport.com to review the rewards Hyatt gives to its very best customers.

RM AT WORK 4.1

The identification of such groups requires RMs to consider the unique buyer characteristics of their specific market segments. Possession of the coupon also serves to definitively identify the coupon holder as eligible for the discount.

Figure 4.3   Factors Impacting Differential Pricingc04DifferentialPricing.indd Page 106  9/22/10  10:58:02 AM user-f391
Figure 4.3 Factors Impacting Differential Pricingc04DifferentialPricing.indd Page 106 9/22/10 10:58:02 AM user-f391

䉴 RM ON THE WEB 4.2

Time-sensitive pricing is one of the most widely used differential pricing techniques because it affects so many businesses. The quantity of an item purchased is one of the most commonly accepted reasons for a seller's price differential.

Figure 4.4 illustrates some of the distribution chan- chan-nels typically used by hotels to deliver reservations to their  central reservation system (CRS)  or directly to a hotel’s  property management systems (PMS).
Figure 4.4 illustrates some of the distribution chan- chan-nels typically used by hotels to deliver reservations to their central reservation system (CRS) or directly to a hotel’s property management systems (PMS).

RM IN ACTION 4.3: THE “LOWEST” PRICE?

Distribution channels in the hospitality industry can generally be classified as direct or indirect. When they do, differential pricing can be applied to these value-added distribution channels used by customers.

Figure 4.6    Net ADR Yields by Distribution Channel Source
Figure 4.6 Net ADR Yields by Distribution Channel Source

RM AT WORK 4.2

Full-service restaurants have traditionally offered prix fixe menus, which are complete meals consisting of, for example, an appetizer, soup or salad, a side dish, and dessert, all for one price. Package: The lodging industry term for a bundled set of products and services offered at one price.

Figure 4.8  Barcena Hotel and Resort
Figure 4.8 Barcena Hotel and Resort

䉴 RM ON THE WEB 4.3

Explanation of the hard and soft supply constraints faced by RMs in the hospitality industry

Examination of the legal and ethical aspects of revenue management

Presentation of the typical job responsibilities and reporting relationships of RMs

Today, revenue management in the lodging industry is a comprehensive approach that considers the total dollars spent on rooms as well as all other areas of the property. RMs in the hospitality industry face hard supply constraints because the number of rooms they have available for sale cannot be increased at any price in response to increased short-term demand.

Figure 5.1 summarizes some of the signifi cant differences, similarities, and common  practices that distinguish hospitality industry RMs from those in other businesses, such as,  in this example, the breakfast cereal industry.
Figure 5.1 summarizes some of the signifi cant differences, similarities, and common practices that distinguish hospitality industry RMs from those in other businesses, such as, in this example, the breakfast cereal industry.

RM IN ACTION 5.1: HOTELIERS DENY THE EXISTENCE OF ANY KIND OF CARTEL

Prohibits setting a price higher than the price at which similar products or services are sold. When declaring the state of emergency, no supplier can sell, lease or license necessary goods or services at an unreasonable price.

RM IN ACTION 5.2: GROWING STATE OVERSIGHT AND INFLUENCE

䊏 Company employees must be confident that the prices charged by their employers are fair if they are to be effective salespeople for the company.䊏 Business owners must be confident that the prices they receive for the products and services they sell are , honest, otherwise they will not continue their business.

RM IN ACTION 5.3: IS TURNABOUT FAIR PLAY?

The first question; “Are the actions I am taking ethical?” simply addresses the fact that RMs regularly face ethical dilemmas. The second question asked, "Are the profits resulting from my actions ethical?" is unfortunately one that is not discussed often enough.

RM AT WORK 5.1

The final question, "Are my prices perceived as fair by customers?" it is the most difficult cult of all. Because customers naturally want to pay low prices, they have a tendency to feel that almost any price is "too high." That is, their preference, like yours, would always be to pay a lower price for all the things they want or need to buy.

RM IN ACTION 5.4: SURCHARGE MAY MEAN NO CHARGE

So a seller who finds they only have one or two of a highly popular item in stock (eg, the season's hottest new video game release, or a single hotel room) should be wary. While the jobs of many hospitality professionals affect the management of their business's revenue, more and more individuals are being assigned the position of "RM" full-time. The past decade has seen major changes in the way hospitality professionals view revenue management.

Figure 5.4  A Baker’s Dozen Different Names for Revenue Managers
Figure 5.4 A Baker’s Dozen Different Names for Revenue Managers

䉴 RM ON THE WEB 5.1

This company has had great success helping hoteliers evaluate the effectiveness of their revenue management efforts, which is Step 5 of the revenue management process. Go to: www.strglobal.com to preview some of the performance information their RMs can provide.

䉴 RM ON THE WEB 5.2

It is important that you realize that the same principles and practices applied by RM in lodging and food services can be applied to many other of the specialized segments within the hospitality industry. The primary goal of earning the CHRM designation is to increase the professional standing of the hospitality revenue manager.

䉴 RM ON THE WEB 5.3

The Educational Institute of the American Hotel and Lodging Association (E.I.) has developed a certification in revenue management. The title of the client can change from guest, to diner, to client, to participant, but the RM plays a supporting role for the DOSM in this scenario.

䉴 RM ON THE WEB 5.4

䊏 Director of Sales and Marketing (DOSM): Organizations using this structure emphasize the RM's role in demand forecasting and the sales process. 䊏 Rooms Manager: Exclusive to the lodging industry, in this scenario, the RM reports to the manager of rooms, the individual traditionally responsible for managing a hotel's front office and housekeeping departments.

RM IN ACTION 5.5: WHO REPORTS TO WHO?

Sales and Marketing Personnel: Pricing and revenue management activities are closely related to sales and marketing activities. In almost all cases, members of the sales and marketing departments will be part of the revenue management team, and their specific goals will greatly influence the actions of your team.

RM AT WORK 5.2

What would be the total amount of room revenue after variable costs that the hotel will achieve if it wins the group room contract. What would the income of the post-variable room be if the hotel does not win the contract?

MANAGEMENT FOR HOTELIERS

Explanation of why collecting and analyzing data about customer demand for lodging products and services are essential when

Presentation of the tools RMs use to track historical, current and future demand for their rooms inventory

Examination of how demand forecasts affect decisions on hotel room and services pricing

In fact, the only way to maximize long-term revenue generation is to develop loyal customers who prefer to buy from you even when cheaper alternatives are available to them. The reasons why this is true are many, but the importance is summed up nicely in the title of New York Times bestselling author Jeffery Gitomer's book, Customer Satisfaction Is Worthless; Customer Loyalty Is Priceless: How to Make Customers Love You, Keep Them Coming Back, and Telling Everyone They Know.1 The best RMs naturally prefer loyal customers to customers who are only looking to buy from a salesperson who offers the lowest prices.

RM AT WORK 6.1

Accurate demand forecasts allow RMs to make better decisions about how to modify and manage the prices of their products and services. To create accurate and ultimately useful demand forecasts, RMs look at three sources of data: historical, current, and future.

Note that this average is called fasting because the first 14 days of the month will always consist of the same days (days 1–14 of each month). To illustrate, consider the RM of the Lafayette-Lincoln Lodge, a small hotel property that wants to calculate a fixed average of revenue generation for the first 14 days of the month.

Figure 6.4 illustrates the proper method used to calculate the hotel’s actual average or  mean ADR.
Figure 6.4 illustrates the proper method used to calculate the hotel’s actual average or mean ADR.

RM ON THE WEB 6.1

The use of the rolling average, although more complex and time-consuming than a fixed average, can be extremely useful in recording the historical data that will help you make effective predictions about sales levels, rooms sold or any other data you can expect in the future. When designing your revenue management program, you may choose to calculate fixed averages for some data and time periods and use rolling averages for others.

The Total Held column represents the sum of the Reserved plus the Blocked rooms (i.e., the number of rooms not available for public sale). The Total Held column represents the sum of the Reserved and Blocked cells (i.e., the number of rooms not available for sale).

Figure 6.8   McAllister Plaza: 14-Day Occupancy Detail
Figure 6.8 McAllister Plaza: 14-Day Occupancy Detail

RM AT WORK 6.2

As a result, in most cases, information about them will be collected in a group room tempo report, updated regularly, and maintained in the property's sales and marketing files. In hotels hosting extremely large meetings and conferences, group room rate reports may indicate rooms that are blocked for dates up to ten (or even more) years in the future.

Figure 6.10   Days Into the Future Reservations are Accepted by Selected  Hotel Chains
Figure 6.10 Days Into the Future Reservations are Accepted by Selected Hotel Chains

Hình ảnh

Figure 1.1   Three Business Propositions Related to a Ten-Dollar Buyer/Seller  Transaction
Figure 2.1   Common Pricing Terms Used in Hospitality and Hospitality-Related  Industries
Figure 2.3   The 4 P’s of the Marketing Mix
Figure 2.5  Supply and Demand Curvesc02StrategicPricing.indd Page 50  9/15/10  7:34:39 AM user-f391
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