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RM lecture 2 (wo)

Lecture Revenue Management - Stenden Hotel Management School 2014-2015

Wouter Olland

on 25 August 2014

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Transcript of RM lecture 2 (wo)

The right product
to the right customer
is about selling:
Revenue Management...
at the right price
revenue management - lectures
Conditions for effective revenue management
Highly segmented market

Large fluctuations demand

Perishable goods

Limited and constant capacity

Marketing intelligence

Advanced system: forecasting & monitoring
understanding the
hospitality industry
What is the average profit margin in the hospitality industry?
0 % - 10%
10 % - 20%
20 % - 30%
30 % - 40%
What makes our industry special?
Prior knowledge
What you already should know...
What is the history of revenue management?
How to calculate yield %
What is the revenue per available room?
What are the conditions for implementing revenue management?
What market segments can you identify within hospitality industry?
On what characteristics can you segment the hospitality market?
What revenue management techniques can you apply in a period of low demand ?
How to make the best decision in order to maximise profit?
What rate categories can you think of?
Customer centric, Price elasticities
Price Fencing, Segmentation, Pricing
Inventory Management, Differentiation
Value Based Pricing, Cost Based Pricing
Willingness to pay, Forecasting,
Displacement Analysis, Pricing Conditions
Key topics: lecture 1
Module Planning
Mr. Harpinder Singh, room: 185
Mrs. Saskia Penninga, room: 1.104
Mrs. Joke Tasma: 192

Module coordinator:
Mr. Frans Swint, room:189
Ms. Phuong Dao, room:189
Revenue management expertise team
Test: “reflect”
Practice: “experiment”
Theory: “create idea”
Workshop: “experience”
RM in Planning:
focusing on optimal study results
Revenue Management
3 ECs (84 hours of studying)
Short Answer test

Min. 5.5
55% passing norm
Key Topics
As a Revenue Manager
A 4-star hotel (50 rooms) enters the market in Leeuwarden. Should S.U.H. lower its rates?

What other tactics can you think of?
Inventory Management
at the right time
channel selection
in the right place
The price and demand relation
Customers who would have bought for ‘a little less’ thus less revenue due to ‘unaccommodated’ demand
Customers who were prepared to pay more
This causes ‘dilution’ thus loss of revenue

Multiple prices lead to an increase of revenue

Revenue management:
sets multiple prices for various
market segments
150 400 1000 1200
What is an optimal price?
11 |
Total revenue = €56,500
Total revenue = €45.000
Segmenting your market, offering different prices, increases revenue

Revenue Management sets multiple prices for various market segments

Who wants to pay what price?
14 |
Customers can be segmented by
'Regular' segmentation methods (geographical, psychological, etc)

Why do they travel

When do they travel

When do they book

Where do they book
Segmentation should lead to differentiation
15 |

Meta search marketing, advanced technology, advanced customer knowledge, new ways of distribution, individualization, new services & prices, customization, social networking, internet, increased mobility, globalization, new systems, changing needs, new products, information technology...
Important trends affecting revenue management
The future of revenue management?
Revenue Management of increasing importance
Are you ready to take part?

Revenue management = Profit Management?
deregulation (1978)
from airlines...
increased competition:
new routes & lower fares
to hotels!
results decreasing: super saver fare
GDS, revenue management systems
...various disciplines & principles
economics, marketing, mathemetics
and more...
Based on segmentation,
Revenue Management decides on:
Various prices
selling items
highly regulated market
each customer has a different willingness to pay
transparency, products, rates, services
standard products, similar customers
little competition = one price only
and creating new products
price fencing is essential
to prevent customers buying the cheaper products
Complex decision making
hotel rooms as of 2 euro!
(Tune hotels) -----
“New” customer segments
How will all these changes impact your revenue management strategies?
Hospitality industry needs good
Revenue Managers!
Know your market!
Set the right prices
Choose distribution channel

How might revenue management impact your future job within the hospitality industry?

To what extent will new trends impact revenue of hotels and thus revenue management tactics?

How might increased customer knowledge impact revenue management practices?

What might be new ways for hotels to increase their revenues in an environment where customers are focusing heavily on price?
Go to Blackboard - Operations Design 2014-2015 - Revenue Management

Study the related theory
Execute the (small) assignment
Read the article
Come to the workshop - prepared
High fixed costs
Low variable costs
Roomprices under pressure
Hotelroom is Commodity good, demanding customers, increased competition
Opportunity to cover these costs
staff, building, maintenance, etc
You can't sell a Wednesdaynight on a Thursday
Perishable Inventory
Many customers have different reasons for travelling
Highly segmented market
There are many customers with their own
willingness to pay, different needs regarding the product,
different planning horizons, different reasons for purchasing
price elasticity of demand:
the absolute value of...
percentage change in the
quantity of a good demanded
percentage change in the
price of that good (product or service)
divided by
the simple explanation
Price elasticity of demand shows how much the
demand is influenced by the change in price
it provides them direction setting prices and to understand how this may influence demand


so if you want to optimise revenue then.....?
customer worth
customer value
Total revenue = 56,500
Multiple prices leads to
an increase of revenue!!
Value-based pricing
Customer centric
Implementing pricing conditions
building a pricing structure
without conditions
Technological development
price elasticities
why should revenue managers care?
Relation between Revenue Management & Segmentation
Differentiation is essential to sell different customers, different products at various prices based on customer value and customer worth

How does revenue management differentiate a hotel room?
Different willingness to pay, looking for different products
Workshop preparation
Your future?
Why does revenue management exist?
What do you already know?
How to maximise your revenue?
Why are you attending this lecture?
What are important trends?
Revenue Management and your future
Reputation Management
How is the role of social media influencing customer value?
How do customers value my product?
How is sustainability influencing customer value?
Period 2
Period 1
Based on supply and demand,
revenue management decides on availability of a product & a price
(price elasticities!)
When do we offer what price & product?
Right customer
Right product
Right price
Right time
Right place
Segment your market
Differentiate your product
Find optimal balance between P & Q
Influence availability
Choose distribution channel
Setting the right price is important,
together with offering the right product, e.g.
the product the customer desires
Depending on the price, demand (customers)
will be influenced thus different (amount of) products
(service) will be sold
KPI's: yield, revpar, revpor
customer profile
when did they book (bookingpace)
guest behaviour
Identification goals & objectives
Develop strategies & tactics
Execute the strategies & tactics
Analyze, evaluate and adjust strategies & tactics
Step 1: Customer knowledge
Step 2: Market segmentation & Selection
Step 3: Internal assessment
Step 4: Competitive Analysis
Step 5: Demand Forecasting
Step 6: Channel Analysis & Selection
Step 7: Dynamic Value-Based Pricing
Step 8: Channel & Inventory Management
Revenue Manager
Analytical, Financial
Communicative, Interpersonal
Knowledge of Market
Strategic thinking
Customer focus
Experience: reservations, sales...
Revenue Management system
Reservation system
Price fencing
Pricing rules & conditions
Price elasticities
Inventory controls
Availability control
tools & tactics
historical data
future data
Distribution Management, I.D.S., G.D.S., Various internet sites, Price (rate) parity, Cross-channel behavior, Customer Ownership, Conversion percentage, Revenue Management in practice & processes, Trends in Revenue Management & Distribution Management, the Future of Revenue Management & Your career
Key topics: lecture 2
How does it work?
Revenue Management in Practice
8-step approach
How will revenue management develop further in the near future? How should RM link to all other departments?

Do hotels have the right systems and analytical tools in place to be able to handle all the data?

Where will our customers book in the future? Can we control the costs & operational challenges?

What data is required to be able to make a proper forecasting and increasing a hotel's revenue?
different planning horizons
Distribution Management
different willingness to pay & customer value
different customer worth
different guests
displacement analysis
process of controlling the number of units and availability of products and services
costs of distribution channels
demand within each channel
total customer worth

(primary revenue + ancillary revenue - acquisition costs) x propensity Y
per channel
price on each channel
rate parity
pay per click fee
cross channel behaviour
customer ownership
same price on each channel
search engine optimisation
conversion percentage
total profit
total customer value

(primary revenue + ancillary revenue - acquisition costs) x propensity Y
generating demand
customer value
new market segments
focus on rate parity
customer ownership
types of I.D.S.
information sharing
Proprietary site
Merchant Model
Retail operation
Auction site
Referral site
Niche site
Web Portal
future of travel agents
advanced information
product & service transparency
control of channels
impact on price
impact on customer value
how to influence costs / customer worth
competitive intelligence
types of G.D.S.
Price (rate) parity: same price for the same type of inventory across various channels - if not, where will customers book?
Customer ownership: who is responsible for the provided service? Who gets the insight into data?
You need demand first (sales) and you need to control your reservations in a reservation system (management info). You also need to analyse and forecast!
Then you need to set a Price, decide on (unit) Availability and for each price you need to set Pricing conditions (price fencing, duration, purchasing rules) (remember PUP!)
Managing your inventory across various Distribution channels
electronic, non electronic
direct, non-direct......
workshop 1
questions lecture 1
questions lecture 2
Which customer will you accept when one room left?
Could you have made more revenue by having accepted different guest (business mix)?
What is the most optimal business mix anyway?
Cross-channel behavior: accessing more than one channel before making the purchase. How to increase conversion %? How to attract customers to your proprietary site?
Cost-based pricing
what do customers value?
what is a customer worth to us?
workshop 2
What is the role of distribution management?
Analysing & forecasting!
Total Profit Management
"Rate shopping"
Auction site
Referral site
3,4.5,6 & 8
Online travel landscape
Meta Search
4,6,7,8 & 9
Full transcript