wihp: revenue management basic strategies

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account managers training REVENUE MANAGEMENT BASIC STRATEGIES #WIHPAcademy marjorie theisen & simone puorto

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Page 1: WIHP: Revenue Management Basic Strategies

account managers trainingREVENUE MANAGEMENT

BASIC STRATEGIES#WIHPAcademy

marjorie theisen & simone puorto

Martin Soler
I suggest everyone read this article before making the presentation: http://blogs.hbr.org/2012/10/structure-your-presentation-li/
Page 2: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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.

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

Page 3: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

What is Revenue Management?

D.I.N.A.M.O. Dynamic Inventory Optimization &Maintenance Optimizer

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

Page 4: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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”.

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

Page 5: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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.

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

Page 6: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Up in the Air

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1978 Airline Deregulation

Tickets Price Went Down (-40% compared to 1978)

Volume Went Up(+300% compared to 1978)

Page 7: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

THE 4 LEVERS

WIHPHOTELS.COM

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

Page 8: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1. Rate 2. Inventory 3. Distribution 4. Demand

Page 9: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1. Rate 2. Inventory 3. Distribution 4. Demand

Page 10: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1. Rate 2. Inventory 3. Distribution 4. Demand

Page 11: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Key Definitions

N-RevPAR:Net Revenue per Available RoomCalculated by taking the room revenue, minus commissions, travel agent fees and other sales costs.

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1. Rate 2. Inventory 3. Distribution 4. Demand

Page 12: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Key Definitions

Bottom Rate: Rate under which it’s not profitable to sell.

<(Variable Costs + VAT + Distribution Costs)> ÷ Rooms

+ minimum profit margin (max: 20%)

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1. Rate 2. Inventory 3. Distribution 4. Demand

Page 13: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Demand Curve

WIHPHOTELS.COM

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

Page 14: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Key Definitions

PICKUP:Pickup is the speed with which reservations are made over a certain period of time.

WIHPHOTELS.COM

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% ...

... ... ... ... ... ...

Page 15: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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.

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1. Rate 2. Inventory 3. Distribution 4. Demand

Page 16: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

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.

WIHPHOTELS.COM

BASICS OF REVENUE MANAGEMENT

1. Rate 2. Inventory 3. Distribution 4. Demand

Page 17: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Forecast

WIHPHOTELS.COM

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

Page 18: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Study the Distributors Booking Window

WIHPHOTELS.COM

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

Page 19: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Study the Distributors Booking Window

WIHPHOTELS.COM

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

Page 20: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Business or Leisure?

WIHPHOTELS.COM

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

Page 21: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Same Room, Same Day, Different Rate

WIHPHOTELS.COM

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)

Page 22: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY WIHPHOTELS.COM

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

Page 23: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY WIHPHOTELS.COM

hotel

guest

119€

115€ 99 € 99 € 85 € 89 €

RATE PARITY

website

1. Rate 2. Inventory 3. Distribution 4. Demand

BASICS OF REVENUE MANAGEMENT

Page 24: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Reputation

WIHPHOTELS.COM

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%

Page 25: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Reputation

WIHPHOTELS.COM

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

Page 26: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

Marketing generates the demand

WIHPHOTELS.COM

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

Page 27: WIHP: Revenue Management Basic Strategies

#WIHPACADEMY

THE 4 LEVERS

WIHPHOTELS.COM

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

Page 28: WIHP: Revenue Management Basic Strategies

5 REMINDERS FOR REVENUE MGMT

WIHPHOTELS.COM #WIHPACADEMY

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!

Page 29: WIHP: Revenue Management Basic Strategies

Basic and Effective Rate Strategy

WIHPHOTELS.COM #WIHPACADEMY

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 

Page 30: WIHP: Revenue Management Basic Strategies

Q&A

Martin Soler
I suggest everyone read this article before making the presentation: http://blogs.hbr.org/2012/10/structure-your-presentation-li/