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