principles of revenue management
TRANSCRIPT
Zak Ali – FHOSPA, CRMEDirector Global Revenue Development
Principles of Revenue Management and Interactive
Workshop
PROGRAM10:30 – 11:35 – Introduction, Budgeting, Market Segmentation,
Forecasting, Pricing
11:35 – 11:45 – Ara
11:45 – 12:30 – Revenue Management Araçları, Excel and RMS
12:30 – 13:00 – Soru ve Cevap
Hotel Linkage Academy 2016 ® | Istanbul
INTRODUCTION TO REVENUE MANAGEMENT
Hotel Linkage Academy 2016 ® | Istanbul
COMMON MISCONCEPTIONS
Hotel Linkage Academy 2016 ® | Istanbul
Full Hotel = Profitable Hotel?
• Obsession with occupancy %
• Opportunity Cost
THE COST OF GETTING IT WRONG
Hotel Linkage Academy 2016 ® | Istanbul
HOTEL REVENUE MANAGEMENT
Optimize
Monitor
Control
Forecast
Revenue Optimization
CycleBest
Revenue Management Practice
People
Process
Tools
Key RM Components Revenue Management Cycle
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Hotel Linkage Academy 2016 ® | Istanbul
THE ROLE OF REVENUE MANAGER
Hotel Linkage Academy 2016 ® | Istanbul
• Not just about
• Proactive vs Reactive – More than looking at past data.
RMS CAN REPLACE MY REVENUE MANAGER
Hotel Linkage Academy 2016 ® | Istanbul
WHAT A SYSTEM CAN NEVER KNOW….
Hotel Linkage Academy 2016 ® | Istanbul
• Rihanna is much more popular than Britney Spears
• The RM from the hotel next door has resigned and not replaced.
• F1 has just announced that in 2016 the race will move from Singapore to KL
• Volcanic ash in Indonesia is causing havoc to flights in the region.
BENEFITS OF RMS
Hotel Linkage Academy 2016 ® | Istanbul
BENEFITS OF RMS
Hotel Linkage Academy 2016 ® | Istanbul
Fully Yieldable RMS
Integrated pricing and inventory optimization by:
Product availability True value of the
demand Specific stay
pattern
BENEFITS OF RMS
Hotel Linkage Academy 2016 ® | Istanbul
HOTEL BUDGETING
Hotel Linkage Academy 2016 ® | Istanbul
INFLUENCES OF DECISION MAKING
Hotel Linkage Academy 2016 ® | Istanbul
• Activity based costing• Product based
profitability• Targets & Objectives
Strategic & Operational Planning
Financial plans & BudgetIndustry Forecast
• Market Share• Local Trends• Channel Mix
• Deviation Analysis• Promotion Effectiveness
• Consolidation• Management Reports
• Performance measurement
• Product performance• Customer Analysis
Information
Plan
Report
News
HOW TO BUILD A BUDGET
Hotel Linkage Academy 2016 ® | Istanbul
BUDGETING TOOLS
Hotel Linkage Academy 2016 ® | Istanbul
Spreadsheets Specialized budgeting Software
Must be able to view;
Balance Sheet Cash Flow Cost P & L Departmental Budget Business Segmentation
Hotel Linkage Academy 2016 ® | Istanbul
Hotel Linkage Academy 2016 ® | Istanbul
Hotel Linkage Academy 2016 ® | Istanbul
MARKET SEGMENTATIO
NHotel Linkage Academy 2016 ® | Istanbul
WHAT IS MARKET SEGMENTATION
Hotel Linkage Academy 2016 ® | Istanbul
• Targeted Sales and Marketing Activities
• Increase Guest Retention Levels
• Targeted Pricing• Increased Market
Share of the Desired Segments
Drivers for Segmentation
Incorrect Segmentation
Segmentation involves subdividing markets, channels or customers into groups with different needs.
• Inaccurate Forecasting
• Ineffective Pricing Strategies
• Incorrect Sales and Marketing Activities
• Strategy Impact
MARKET SEGMENTATION - DEFINE
Hotel Linkage Academy 2016 ® | Istanbul
MeasurabilityIs your market segment measurable? Can you measure the visits of a certain segment to your city/area?ActionabilityAre your product offering and price interesting enough for that segment to buy from you? Can they actually book a room at your hotel?AccessibilityCan you reach that segment?SubstantiationIs this segment large enough to be viable?
BEHAVIORAL VARIABLES
Hotel Linkage Academy 2016 ® | Istanbul
What are some common behavioral variables tracked in a hotel?
• Product Type• Additional Spend• Sold Nights• Rate• Frequency of Purchase• Distribution Channel• Day of Week• Length of Stay• Revenue
KEY CONSIDERATION OF SEGMENTATION
Hotel Linkage Academy 2016 ® | Istanbul
Customer Behavior / Lifestyle
Price & Buying
Behavior
Contribution Channel and Cost
ACCURATE AND CONSISTENT TRACKING – BEST PRACTICE
Hotel Linkage Academy 2016 ® | Istanbul
How is segmentation data collected by your organization?
Reservations Front OfficeGroup & Convention Sales Night Auditor
• PMS Setup Arrivals Check• Major/minor market codes Check-In Coding Procedures• Correct PMS Set-Up in-House and Arrivals Check• Standard training. Standard training
SEGMENTATION OPTIMIZATION CYCLE
Hotel Linkage Academy 2016 ® | Istanbul
Establish New Market
Opportunities
Implement New
Segment and
Review Annually Identify Hotel Goals &
Distribution Strategy
Analyze Historica
l
Current Data
Segmentation
Optimization Cycle
MARKET SEGMENTATION CONCLUSION
Hotel Linkage Academy 2016 ® | Istanbul
Segment Transient Direct, Transient OTA, Corporate, Group, Wholesale,
MICE
Cost of Acquisition & Cost of Distribution
Net ContributionNet RevPAR, GOP
OptimizationPricing, Inventory, Channel Mgt, Conversion
Planning - StrategyContribution, Profit Mix
GenerationAdvertising, OTA optimization, Sales Opportunities
FORECASTING
Hotel Linkage Academy 2016 ® | Istanbul
THE REVENUE OPTIMIZATION CYCLE - FORECAST
Optimize
MonitorControl
Forecast
Revenue Optimization Cycle
Historical Data
Daily Extracts
User Interaction
User Set-Up
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Hotel Linkage Academy 2016 ® | Istanbul
WHAT IS FORECASTING IN REVENUE MANAGEMENT?
Hotel Linkage Academy 2016 ® | Istanbul
Predicting demand based on quantitative methods and a combination of a decision makers experience, logic and intuition to supplement the forecasting quantitative analysis.
OBJECTIVE OF FORECASTING
Measure demand Foresee
falls in demand
React to low demand
Define commercial
strategy Apply rates Control
costs Restrict sales
Control commission
s
Financial planning
Human Resources planning
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Hotel Linkage Academy 2016 ® | Istanbul
WHAT FLOWS IN TO A FORECAST?
Room Nights RevPARRevenue CancellationsLead time / booking pace by segment
Transient rooms
No shows (both guaranteed and non-guaranteed
Arrivals
Group Rooms Walk-insDepartures Early departuresExtended stays Lengths of stay patternDenials / Regrets Transient and group mixDemand generators “On the books” bookingsRate changes Group blind cut and group
wash
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Hotel Linkage Academy 2016 ® | Istanbul
FORECAST ACCURACY
Hotel Linkage Academy 2016 ® | Istanbul
Accurate forecasts are crucial to good revenue management. Research has found that a 10% increase in forecast accuracy in the industry increased revenue by 0.5 – 3% on high demand dates.
Without accurate forecasts, the rate and availability recommendations produced may be highly inaccurate.
Industry Standard – 5%
FORECASTING EXAMPLE
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Hotel Linkage Academy 2016 ® | Istanbul
THE REVENUE OPTIMIZATION CYCLE - OPTIMIZE
Optimize
Monitor
Control
Forecast
Revenue Optimization
Cycle
35
Hotel Linkage Academy 2016 ® | Istanbul
PRICING
Hotel Linkage Academy 2016 ® | Istanbul
QUICK QUIZ
Hotel Linkage Academy 2016 ® | Istanbul
The key to success pricing is to match the product or service with the customer’s….
• Brand consciousness• Income• Value Perceptions• Interests
PRICE VS VALUE
Hotel Linkage Academy 2016 ® | Istanbul
PRICING EVOLUTION – FLAT LINE APPROACH
High Demand
Low Demand
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Hotel Linkage Academy 2016 ® | Istanbul
PRICING EVOLUTION – REALIZATION OF FLUCTUATION
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Hotel Linkage Academy 2016 ® | Istanbul
PRICING – AN OPTIMAL PRICEThe Optimal price is the maximum consumers are willing to pay. Prices are influenced by multiple factors…But they are only perceived as ‘the right price for me or not’
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Hotel Linkage Academy 2016 ® | Istanbul
DERIVATIVE OF REVENUE CURE GRAPH
Hotel Linkage Academy 2016 ® | Istanbul
PRICING - DEFINITION
To determine the “optimal” price we must take into account:Value of ProductCustomer’s perceived
valuePositioningCompetition
Optimal PriceThe overall goal of Pricing in Hotel RM is:• Setting Prices in both non
competitive and competitive environments
• Demand as a function of price is learned over time via price elasticity.
Overall Goal
Consumers pay lower when the demand is weak• Supply outweighs demand Consumers pay higher prices when the demand is strong• Demand outweighs supply
Hotel Linkage Academy 2016 ® | Istanbul
FUNDAMENTAL DEMAND MODEL OF RM
Hotel Linkage Academy 2016 ® | Istanbul
How Many Rooms Can I Sell At Each Rate? Data point 1. How many rooms sold when we charge a low rate (L,H) Data point 2. How many rooms sold when we charge a high rate (H,L)
High
Rooms (Q)
Low
Low Rate(P) High
(L,H) Data Point 1
(H,L) Data Point 2
REVENUE POSSIBILITIES
Hotel Linkage Academy 2016 ® | Istanbul
Revenue = Rate * Rooms Sold
COMPETITIVE ANALYSIS
Hotel Linkage Academy 2016 ® | Istanbul
DETERMINING THE COMPETITIVE SET
Hotel Linkage Academy 2016 ® | Istanbul
”A competitive set is defined as a group of hotels by which a property can compare itself to the group’s aggregate
performance. Before a hotel can construct a strategic plan it is important that
they understand the market in which they operate in.If this critical first step is not completed, then the foundation upon which the future strategy is built may be fundamentally
unsound.”
COMPLETING A SWOT ANALYSIS
Hotel Linkage Academy 2016 ® | Istanbul
SWOT is a strategic planning method used to evaluate the: Strengthsweaknesses, Opportunities andthreats involved in a business.
COMPLETING A VALUE ASSESSMENT – STEP 1
Hotel Linkage Academy 2016 ® | Istanbul
A Value Assessment is a very useful tool, allowing the ranking of the comparative value of the hotel.
1st Step - determine the relative quality of each of the selected competitors
LocationQuality of ServiceFood and Beverage QualityBreakfast offeringInternet Price & SpeedLeisure FacilitiesAverage Transient RateGuest Room Types
Age and DesignLoyalty ProgramComplimentary ServicesBrandCleanlinessReviewsRanking on Review Sites and Average ranking on OTA sites.
Factors to Compare
COMPLETING A VALUE ASSESSMENT
Hotel Linkage Academy 2016 ® | Istanbul
2nd Step - Once rating criteria have been selected, each of the competitors will be rated against the hotel.
COMPLETING A VALUE ASSESSMENT
Hotel Linkage Academy 2016 ® | Istanbul
3rd Step - Once the product offer is rated, each of the comparative values must be plotted on a matrix against the price offered
Primary Competito
rs