wihp: revenue management basic strategies
TRANSCRIPT
account managers trainingREVENUE MANAGEMENT
BASIC STRATEGIES#WIHPAcademy
marjorie theisen & simone puorto
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What is Revenue Management?
Revenue Management is the evolution of Yeld Management: a variable pricing strategy, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource.
Yeld Management was introduced by American Arilines at the end of the 70's.
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BASICS OF REVENUE MANAGEMENT
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What is Revenue Management?
D.I.N.A.M.O. Dynamic Inventory Optimization &Maintenance Optimizer
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BASICS OF REVENUE MANAGEMENT
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What is Revenue Management?
According to legend, Robert Crandall (CEO of A.A. in the 70’s) spoke to his friend John Marriott about Yeld Management.Marriott was impressed and started using the system in the famous hotel chain.Since “yield” was a specific airline term, Marriott renamed it “Revenue Management”.
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BASICS OF REVENUE MANAGEMENT
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What is Revenue Management?
Main RM leverage is “price discrimination” (customers consuming the same good/service at the same time but at different prices) and can be applied with success to any perishable resource (airplane seats, hotel rooms, concert tickets, etc.)
Thanks to the Airline Deregulation Act of 1978 (that basically removed government restriction in terms of air ticket rates and created a competitive market in airline business) this strategy became extremely important for airline companies to stay competitive.
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BASICS OF REVENUE MANAGEMENT
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Up in the Air
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BASICS OF REVENUE MANAGEMENT
1978 Airline Deregulation
Tickets Price Went Down (-40% compared to 1978)
Volume Went Up(+300% compared to 1978)
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THE 4 LEVERS
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BASICS OF REVENUE MANAGEMENT
RateDefined according to the market and profitability
InventoryAvoid over/under-selling by
giving inventory smartly
DemandMarketing actions generate
demand and thus price
DistributionDistribute through channels according to their customers
1. Rate 2. Inventory 3. Distribution 4. Demand
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Key Definitions
Fixed Cost:The costs that do not change with the increase or decrease of occupancy rate.
Fixed costs are mortgages, loans, taxes, employee salaries, rent, insurances, internet landline, electricity bills, etc. These costs do not increase with more rooms but do not decrease either. This cost can be calculated on the financial yearly statement
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
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Key Definitions
Variable Costs:The costs directly related to hotel occupancy. As occupancy increases, they increase; as hotel occupancy decreases, they decrease as well.
Variable costs are laundry, food and beverage, guest room amenities, telephone calls, externalized cleaning/waiter staff
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
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Key Definitions
RevPAR:Revenue per Available RoomCalculated by taking into account the total room revenue divided by the number of rooms you have available to sell during the same time period.ADR x Occupation Rate
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
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Key Definitions
N-RevPAR:Net Revenue per Available RoomCalculated by taking the room revenue, minus commissions, travel agent fees and other sales costs.
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
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Key Definitions
Bottom Rate: Rate under which it’s not profitable to sell.
<(Variable Costs + VAT + Distribution Costs)> ÷ Rooms
+ minimum profit margin (max: 20%)
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
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Demand Curve
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
€.000
€20.000
€40.000
€60.000
€80.000
€100.000
€120.000
€140.000
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Key Definitions
PICKUP:Pickup is the speed with which reservations are made over a certain period of time.
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
April May June July ...
April 85% 75% 60% 35% ...
May - 90% 65% 50% ...
June - - 85% 55% ...
July - - - 75% ...
... ... ... ... ... ...
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Key Definitions
Spillage:When a hotel sells it’s rooms too quickly and has to close availability. This usually happens when the rate strategy is not adapted to Pick-up or when a hotel gave too many rooms in allotments to Tour Operators or OTAs.
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
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Key Definitions
Spoilage:This is when a hotel has too many unsold rooms and has to sell them at a too low price. The danger with spoilage is that you can get re-bookings of guests thus losing revenue and rate.
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
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Forecast
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
BASIC FORECAST
Date Booked Rooms Available Rooms Occupancy ADR RevPar Revenue Special Event Double Triple Suite01/04/15 12 50 24% €123 €30 €1.476 €129 €149 €12702/04/15 30 50 60% €123 €74 €3.691 €129 €149 €12703/04/15 25 50 50% €162 €81 €4.055 €179 €179 €16904/04/15 44 50 88% €172 €151 €7.560 €179 €179 €18605/04/15 50 50 100% €172 €172 €8.598 Easter €149 €149 €21206/04/15 51 50 102% €125 €128 €6.386 Easter €129 €149 €12707/04/15 26 50 52% €116 €60 €3.018 €129 €149 €12708/04/15 36 50 72% €123 €88 €4.411 €129 €149 €12709/04/15 43 50 86% €107 €92 €4.604 €129 €149 €12710/04/15 23 50 46% €111 €51 €2.546 €179 €179 €15211/04/15 43 50 86% €146 €126 €6.280 €179 €179 €15212/04/15 22 50 44% €119 €52 €2.617 €149 €149 €12713/04/15 16 50 32% €122 €39 €1.950 €129 €149 €12714/04/15 47 50 94% €112 €105 €5.274 €129 €149 €12715/04/15 50 50 100% €104 €104 €5.179 €129 €149 €12716/04/15 50 50 100% €112 €112 €5.588 €129 €149 €12717/04/15 53 50 106% €122 €129 €6.464 Expo €179 €179 €15218/04/15 53 50 106% €119 €126 €6.286 Expo €179 €179 €15219/04/15 44 50 88% €117 €103 €5.163 €149 €149 €15220/04/15 50 50 100% €106 €106 €5.324 €129 €149 €12721/04/15 51 50 102% €111 €113 €5.646 Depeche Mode Concert €129 €149 €12722/04/15 26 50 52% €113 €59 €2.946 €129 €149 €17823/04/15 36 50 72% €161 €116 €5.792 €129 €149 €17824/04/15 43 50 86% €165 €142 €7.109 €179 €179 €17825/04/15 23 50 46% €139 €64 €3.194 €179 €179 €15226/04/15 43 50 86% €136 €117 €5.862 €149 €149 €15227/04/15 22 50 44% €114 €50 €2.503 €129 €149 €12728/04/15 16 50 32% €106 €34 €1.695 €129 €149 €12729/04/15 23 50 46% €129 €59 €2.967 €129 €149 €13530/04/15 43 50 86% €150 €129 €6.462 €129 €149 €195
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Study the Distributors Booking Window
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
120 Days
90 Days
60 Days
Less than 30 Days Arrival
Groups M.I.C.E Tour Operators OTAs and Direct
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Study the Distributors Booking Window
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
90 Days
60 Days
Less than 30 Days Arrival
USA China Italy & Europe
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Business or Leisure?
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
Business Traveller Leisure TravellerNot price-sensitive Very price-sensitive
Book flat corporate rates Book the best deal
Date-sensitive Not date-sensitive
Location-sensitive Can chance destination if he finds better value for money
Travels all year (except weekends and holidays)
Mostly travels during week-ends and holidays
Limited demand Theorically unlimited demand
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Same Room, Same Day, Different Rate
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
102% PRICE DIFFERENCE!
• € 99,00 - OTA• € 95,00 - FACEBOOK: • € 90,00 - WALK-IN (morning)• € 89,00 – TRIPADVISOR• € 75,00 – RETURNING GUEST • € 65,00 - GROUPON • € 49,00 - WALK-IN (late
evening)
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hotel
guest
wholesaler
tour operator
agent
119€
reseller reseller
115€ 99 € 99 €
OTA website
85 € 89 €
RATE PARITY
1. Rate 2. Inventory 3. Distribution 4. Demand
BASICS OF REVENUE MANAGEMENT
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hotel
guest
119€
115€ 99 € 99 € 85 € 89 €
RATE PARITY
website
1. Rate 2. Inventory 3. Distribution 4. Demand
BASICS OF REVENUE MANAGEMENT
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Reputation
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
+Reputation = +Revenue
According to a Cornell University Study if a hotel increases its reputation by 1% it can increase RevPAR by 1.42%
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Reputation
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
+Reputation = +Bookings
87% of travellers reads review sites to plan their holidays
TripAdvisor has 260 millions visitors/month=220 millions potential customer
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Marketing generates the demand
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BASICS OF REVENUE MANAGEMENT
1. Rate 2. Inventory 3. Distribution 4. Demand
- Advertising- Bloggers- PR- Social Media- Billboard effect- Renovations and upgrades- Staff training and more
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THE 4 LEVERS
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BASICS OF REVENUE MANAGEMENT
RateDefined according to the market and profitability
InventoryAvoid over/under-selling by
giving inventory smartly
DemandMarketing actions generate
demand and thus price
DistributionDistribute through channels according to their customers
5 REMINDERS FOR REVENUE MGMT
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1. Use all 4 levers, not just 1The four levers are: Rates, Inventory, Distribution and Demand. 2. RevPAR is the Key, not ADRADR is good for your ego, but will not pay your bills!
3. Study data, don’t worship itThe easiest way to increase rates is to increase service and guest satisfaction; because you can’t move the hotel nor renovate it over-night.
THE 4 PILLARS OF HOTEL MARKETING
4. Take a look aroundYou may not be interested in the upcoming GaudiExhibition but your guests are!
5. Unsold rooms means you did it wrongDon’t get obsessed with the cost of occupied room and remember that the cost of a unsold room is always higher!
Basic and Effective Rate Strategy
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Early Bird (up to 60 days prior arrival): -20% Not Refundable Early Booking (from 59 to 30 days prior arrival): -15% Not Refundable Book Now Pay Now! (from 29 to 7 days prior arrival): -10% Not Refundable
THE 4 PILLARS OF HOTEL MARKETING
Last Minute (from 6 to 2 days prior arrival): -5 % Not Refundable BAR – No Discount / Flexible(free of charge cancellations up to 48
hours prior arrival. No show or late cancellations: One night penalty)
3 Night PKG -10% / Flexible 5 Night PKG -15% / Flexible
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