sha541 glossary en us v2

  SHA541:  Price  and  Inventory  Controls   School  of  Hotel  Administration,  Cornell  University    G lossary       Break-even     The  point  at  which  revenues  equal  costs   Closed to arrival (CTA)     A  type  of  availability  control  that  does  not  allow  new  reservations  to  be  taken  for  guests   arriving  on  this  date  The  only  guests  that  are  using  inventory  will  be  those  arriving  on   earlier  dates  and  staying  over  on  the  said  date   Cold period     A  period  (a  season,  month,  day,  or  time  of  day)  when  operating  performance  (demand)   is  low  From  the  perspective  of  hotel  revenue  management,  cold  periods  are  times   when  discounted  rates  and  incentives  can  be  used  to  try  to  increase  occupancy  and   improve  RevPAR   Demand-based pricing     A  pricing  strategy  that  sets  higher  prices  for  periods  of  high  demand  and  lower  prices  for   periods  of  low  demand   Elastic demand     A  result  of  higher  competition,  standardized  services  or  luxury  good  nature  When   demand  is  elastic,  consumers  are  more  responsive  to  price  changes   Expected marginal revenue (EMR)     The  estimate  of  marginal  value  given  that  demand  is  uncertain  EMR  is  the  revenue   multiplied  by  the  probability  that  we  sell  the  unit  (probability  that  demand  is  greater   than  or  equal  too  our  supply)  Revenue  ×  Probability  of  selling  =  EMR     © 2015 eCornell All rights reserved All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners     SHA541:  Price  and  Inventory  Controls   School  of  Hotel  Administration,  Cornell  University   Fixed capacity     Inventory  available–number  of  hotel  rooms,  seats  on  plane,  etc.–owing  to  the  nature  of   these  businesses,  the  number  of  units  that  can  be  sold  is  a  fixed  number;  when  they  are   all  sold,  there  is  no  more  capacity   Fixed pricing     A  pricing  strategy  that  does  not  vary  prices  according  to  demand,  product   characteristics,  or  segmentation  of  markets   Forecast     In  revenue  management,  an  estimate  of  the  number  of  rooms/seats/rental  cars  that  will   be  sold  for  use  on  some  future  date  Accurate  forecasting  makes  it  possible  to  employ   the  strategies  of  revenue  management  appropriately,  according  to  the  expected  level  of   demand   Hot period     A  period  (a  season,  month,  day,  or  time  of  day)  when  operating  performance  (demand)   is  strong  From  the  perspective  of  revenue  management,  a  hot  period  is  when  rates  can   be  set  higher  and  length-­‐of-­‐stay  controls  can  be  used  to  improve  RevPAR   Inelastic demand     A  result  of  low  competition,  highly  differentiated  services,  or  consumer  staples  When   demand  is  inelastic,  consumers  are  unresponsive  to  changes  in  the  price  of  a  product  or   service   Length-of-stay controls     All  controls–internal  and  external–that  regulate  duration  of  use   Marginal value       The  incremental  value  of  one  additional  unit–the  value  of  having  one  more  (or  less)   room  Also  referred  to  as  Shadow  price  in  the  simultaneous  decision  making  (SDM)   framework       © 2015 eCornell All rights reserved All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners     SHA541:  Price  and  Inventory  Controls   School  of  Hotel  Administration,  Cornell  University   Overbooking     The  practice  of  accepting  reservations  beyond  capacity  in  order  to  compensate  for   cancellations  and  no-­‐shows  Overbooking  is  an  essential  element  of  revenue   management   Perishable inventory     Inventory,  that  if  not  used  within  a  timeframe,  is  lost  revenue  opportunity   Price discrimination     An  approach  to  pricing  that  introduces  variations  in  price  not  associated  with   differences  in  the  quality  of  the  product  or  service  nor  with  the  cost  of  production   Rate fence     A  tactic  used  to  segment  customers  into  market  groups  based  on  their  willingness  to   pay,  their  purchasing  behavior,  or  their  needs  In  revenue  management,  the  following   rate  fences  may  be  used  as  part  of  a  variable-­‐pricing  strategy:  physical  rate  fences   (location,  view,  amenities),  product-­‐line  rate  fences  (top  of  the  line  vs  bargain),   controlled-­‐availability  rate  fences  (coupons,  those  who  ask),  and  buyer-­‐characteristics   rate  fences  (seniors,  kids,  group  membership)   Reference price     The  price  customers  think  a  service  (or  product)  should  cost  Reference  prices  may  be   based  on  the  price  last  paid,  the  price  most  frequently  paid,  the  price  other  customers   say  they  paid  for  similar  offerings,  or  on  market  prices  and  posted  prices   RevPAR     Revenue  per  available  room-­‐night  This  hotel-­‐specific  variation  of  RevPATI  can  be   calculated  in  two  ways:  a)  by  dividing  the  total  nightly  room  revenue  by  the  number  of   rooms  available  or  b)  by  multiplying  the  average  room  rate  by  the  actual  percentage  of   occupancy  on  a  given  night  This  measure  is  used  in  revenue  management  to  analyze  a   business's  ability  to  utilize  its  revenue  capacity     © 2015 eCornell All rights reserved All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners     SHA541:  Price  and  Inventory  Controls   School  of  Hotel  Administration,  Cornell  University   RevPATI     Revenue  per  available  time-­‐based  inventory  unit  RevPAR  and  RevPASH  are  industry-­‐ specific  variations  on  this  all-­‐inclusive  measure,  which  is  calculated  differently  in   different  contexts  and  is  used  in  all  applications  of  revenue  management  to  analyze  a   business's  ability  to  maximize  its  revenue  capacity   Segmentable markets     Markets  composed  of  heterogeneous  customers  –  customers  that  can  be  separated  into   various  classes,  differentiated  by  how  much  they  are  willing  to  pay  for  a  product  or   service,  by  age,  by  frequency  of  purchase,  or  by  affiliation  with  potentially  profitable   groups   Simultaneous decision-making (SDM)     A  modeling  approach  for  settings  where  prior  decisions  affect  the  outcomes  of  current   decisions,  and  therefore  decisions  are  best  made  simultaneously  rather  than   sequentially   Time-variable demand     Uncertain  demand  that  varies  temporally  by  time  of  year,  day-­‐of-­‐week,  time  of  day,  etc   Unconstrained demand     A  measure  of  the  demand  for  a  particular  service  or  product  that  is  the  sum  of  all   consumers  who  have  purchased  or  would  purchase  that  product  at  a  particular  time   "Unconstrained"  refers  to  the  elimination  (in  theory)  of  the  constraint  of  availability   Warm period       A  period  (a  season,  month,  day,  or  time  of  day)  when  demand  is  neither  high  nor  low     © 2015 eCornell All rights reserved All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners