Hotel revenue management

Accepting reservation requests beyond hoteL capacity. Although not strictly an element of pricing, another component of a successful pricing program is determining how many reservation requests to accept beyond the hotel’s capacity. As the number of future cancellations and noshows are not known with certainty, this reflects the level of risk the hotel is willing to take to ensure that every room is occupied on a soldout night.

TỔ CHỨC KHAI THÁC HÀNG KHÔNG GVHD: Nguyễn Nam Thanh Thực hiện: Nhóm HOTEL REVENUE MANAGEMENT 1/ Introduction 2/ Peak period revenue opportunities 3/ Communication 4/ Market segmentation 5/ Opaque pricing 6/ Performance measurement INTRODUCTION Veritec Lodge A hotel with 300 rooms An annual occupancy percentage of 65% Table 13.1 Impacts of increasing occupancy percentage Increase Increase Incrementa occupancy in room l revenue percentage from nights gain (%) 65% to: 65.1% 109 0.15 65.5% 548 0.75 66% 1095 1.5 Table 13.2 : Impacts of increasin occupancy percentage Annual occupancy (%) Annual revenue ($ million) Incremental revenue gain (%) Annual net revenue ($000) Incremental gain in profits (%) 65 8.90 n.a 445 n.a 65.1 8.91 0.15 456 2.5 65.5 8.97 0.77 500 12.3 66 9.03 1.5 554 24.6 How can a hotel achieve these gains? opportunity areas Improved pricing and demand management during peak demand periods Communications: among hotel staff and with prospective customers Market segmentation Opaque pricing The product can be offered to Business traverler package Frequent traveler package • Note that the potential for revenue dilution is very small • The frequent traveler package is estimated to be dil utionary only if it attracts less than one incremental guest per night It is also possible that  the program will be  financially beneficial  if it induces some gue sts to  “buy up.” Aimed at attracting less pri ce  sensitive guests EZStay has incentivized travelers to try one of their properties rather than stay at a competitor property, but has done so in a way that minimizes the risk of revenue dilution -OPAQUE PRICING IS A WAY THAT COMPANIES SELL THEIR MERCHANDISE AT HIDDEN, LOWER PRICES - One type of price discrimination -The target product is one who will purchase a product or service primarily based on price and not based on the company’s amenities, reputation, etc…  The website will reveal the name of the hotel but doesn’t allow for refunds, changes or cancellations  Use these rates for dates that you not feel you will sell out, and using the opaque system, you will receive revenue for rooms that you would normally not sell  Quiet periods  Guests are demanding too much for what they pay, or whether resorts are raising people’s hopes  Guests hopes by offering lower rates and then not delivering the desired experience  Loyalty club members  May not have good feedbacks  Capacity control and pricing decisions are highly intertwined  Consider a somewhat simplified situation where you have only one room left to sell in a hotel for an upcoming Tuesday night  You receive a request for a one-night stay from someone who is willing to pay $120 for that night  If you turn down the request, you believe there is a 50 percent chance that you will receive a request for a four-night stay from someone else who is willing to pay $120 per night  But, if you turn down the request you believe there is a 50 percent chance that the room will go empty on Tuesday night  What should you do?  Does the hotel’s reservation system support what you want to do?  How you demonstrate that you made the right decision? The scenario in which you refuse the one-night stay reservation request in anticipation of receiving a four-night stay request, but that demand does not materialize and you end up with an empty room In short, you may have taken the action that in the long term would maximize the hotel’s profits, but not necessarily have done so in this particular instance absolutely essential Performance measurement tools become  Having suitable performance measures, quantifying the impacts of your pricing decisions and providing feedback to staff on the impacts of their pricing decisions are critical for estimating the level of success of a hotel’s pricing program and justifying investments to further enhance it  As the saying goes, “you get what you measure.” Choose the wrong performance measures and your hotel is likely to be led down paths that are not as financially productive Performance measures such as occupancy and average daily rate are only part of what’s important  Revenue per available room, or REVPAR, provides a way of combining both of those measures into a single performance measurement While that’s better, it’s still not enough as REVPAR also reflects the impact of factors external to price  It is important to define measures that estimate the impacts of pricing decisions In some cases you can use narrowly defined performance measures, such as those that focus on spoilage levels In other cases, more elaborate methods such as the method of comparable challenges may be needed This method enables making quantitative estimates of the impacts of pricing decisions by normalizing for market conditions existing at the time of the decision  By doing so, this method provides greater insight and accuracy than more standard approaches such as yearover-year comparisons or comparisons to competitive sets Conclusion As discussed in this chapter, pursuing profit maximization through enhanced pricing capabilities requires a combination of advanced pricing analytics and adopting appropriate internal business processes Although the financial benefits of improved pricing may be as great, if not greater, than those resulting from changes in operations or purchasing supplies (Marn et al., 2004), the benefits are not nearly as obvious; implementing performance metrics and establishing feedback mechanisms designed to measure, illuminate and communicate these benefits are essential to establishing an effective pricing program Otherwise, a hotel’s scarce resources of staff time, as well as money for investing in business improvements, are likely to be prioritized for other areas [...]... from an annual revenue or occupancy perspective, the impacts seem minor • Annual occupancy rate would increase by approximately 2/10 of 1 percent • Annual revenue would increase by approxi mately ¼ of a percent The impact of the incremental revenue on the hotel s profitability is much larger If the hotel s profits were 5 percent of gross revenue and if 80 percent of the incremental room revenue from... them While this is reasonable, it is also costly Hoteliers frequently fail to realize that this forces potential guests to stay at competitor properties, rather than allowing them to stay at their most preferred location If the hotel does have empty rooms on the soldout night, then not only did the hotel give up revenue it could have received, but the hotel also ends up falling short on customer satisfaction... implementation of LOS controls, some hotels have claimed revenue increases of 810 percent or even more when compared to increasing rates on peak nights (Aeronomics, 1992) Accepting reservation requests beyond hoteL capacity Although not strictly an element of pricing, another component of a successful pricing program is determining how many reservation requests to accept beyond the hotel s capacity As the number... nights goes to the bottom line The hotel s annual profits might increase by more than 4 percent! NOW THAT probably would attract the a ttention of many hotel executives When more aggressive booking policies are adopted, a hotel also needs to adopt policies and procedures that enable staff to deal effectively with guests with reservations wanting to check in when the hotel does not have rooms available... reservations wanting to check in when the hotel does not have rooms available And that’s why we frequently refer to the revenue that comes from decreasing spoilage as invisible revenue No one may pay attention to its absence, but when the additional revenue has the potential to increase the hotel s profits by several percentage points, everyone appreciates its presence Does this mean that more expensive... available rooms or as an absolute number Many hoteliers take a conservative approach to managing spoilage That is, they are cautious about the number of bookings taken in excess of the hotel s capacity They are willing to let a few rooms go empty on a soldout night in order to avoid the situation where guests with reservations show up to checkin, but the hotel does not have rooms to accommodate them...Performance measurement Pricing and revenue management 3 objectives Stop demand  Using forecasts of future room supply  Demand at alternative price levels Steer An effective pricing program Stimulate Stimulate additional demand by promotional prices Table 13.3 Comparison of impacts from LOS controls versus increasing price In this scenario, not all of the hotel rooms are occupied on Wednesday night,... received, but the hotel also ends up falling short on customer satisfaction The following example illustrates why this foregone revenue can be significant and worth pursuing In addition, the example provides some insight into why we call this invisible revenue Consider a hotel with 250 rooms, a 70 percent annual occupancy rate, an ADR of $150 and 30 sold out nights during the year Further, assume a... future cancellations and no-shows are not known with certainty, this reflects the level of risk the hotel is willing to take to ensure that every room is occupied on a soldout night Unoccupied rooms on a sold-out night are termed spoiled rooms These are rooms that could have been sold but are not, because the hotel decided to stop taking reservations, effectively turning away demand in advance of the check-in... force the customer to first listen to the wonderful options that come with more expensive rooms Hotels with the most successful pricing programs have also recognized the value of obtaining input from multiple departments MARKET SEGMENTATION Market segmentation  EZStay is a regional, limited service, midrange hotel chain in the USA  Primary customer segments include budget-minded salespersons, corporate