Presentation on theme: "1 Hotel Revenue Management “ In order to succeed in this hotel seller’s market, planners must first understand the role of Revenue Management” Featured."— Presentation transcript:
1 Hotel Revenue Management “ In order to succeed in this hotel seller’s market, planners must first understand the role of Revenue Management” Featured Panelists Sam Bhandarkar Jamal Aaron Hageb Randy Javer Kushan Abayasekera
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4 Hotel Revenue Management The role of Hotel Revenue Manager The role and goal of Revenue Management is to maximize total hotel profitability through the proper allocation and pricing of rooms and space inventory for the transient, group and catering demand segments. However, there is a secret formula used by the Revenue Manager to optimize the revenue earned from a fixed, perishable resource in selling the right resources to the right customer at the right time for the right price. Revenue Managers implements the basic principles of supply and demand economics in a tactical way to generate incremental revenues. There are three essential conditions for revenue management to be applicable. There is a fixed amount of resources available for sale. The resources sold are perishable. This means that there is a time limit to selling the resources, after which they cease to be of value. Different customers are willing to pay a different price for using the same amount of resource.
5 Super Secret Formula
6 Overview 1.What type data gathering revenue managers use to anticipate hotel occupancy and market demand to determine acceptance or decline of business 2.What does the hotel’s RSR (rooms to space ratio) mean 3.How involved hotel revenue managers have become in the sales process and the importance of revenue management 4.Will your RFP (request for proposal) get noticed by the hotel. 5.How can a hotel determine what that "right price" should be? 6.How to attract the right hotels to bid on your event program 7.Key tips for working with your salesperson 8.A word from our Sponsors 9.Q & A (time permitting) 10.Revenue Management Glossary
7 Hotel Revenue Management What type data gathering revenue managers use to anticipate hotel occupancy and market demand to determine acceptance or decline of business: Revenue Management strategies utilize GOPPAR, RevPOST, RevPAR, and RevPor metrics to attain certain revenue goals in relationship to the timing, availability, quantity, and marketplace demand of specific meeting space utilized by a group or overlapping groups. What is GOPPAR? GOPPAR : GOPPAR, or Gross Operating Profit Per Available Room, is defined as total gross operating profit (GOP) per available room per day, where GOP is equal to total revenue less the total departmental and operating expenses. What: GOPPAR provides a deeper indication of a hotel’s profitability by taking into consideration management control and efficiency. In addition, GOPPAR offers an overall more robust performance measure, especially when comparing the financial performances of hotels with different sizes or in different markets. Furthermore, GOPPAR has a significant correlation with a hotel’s bottom line and thus its underlying value. How: The GOPPAR of a future group or meeting may be determined by calculating the Guaranteed Group Revenue pro rated on a per Occupied Room basis (Group GOPPOR). Group GOPPOR is occasionally used by Revenue Managers and Hotel salespeople to choose between two or more overlapping groups or to establish the threshold rate for a future set of dates based on historical performance and market factors.
8 Hotel Revenue Management What is RevPOST? RevPOST : Revenue per Occupied Space Time (RevPOST) is a measure of the Revenue Efficiency of a Group or of a Hotel’s utilization of its Function Space. What: Unlike Rooms vs. Space Ratio, which is an internal hotel measures of a group’s usage of Hotel resources without respect to Revenues or Profitability, RevPOST may be used by Hotels, Meeting Planners, Revenue Managers, and financial analysts to compare the Revenue performance of different hotels in their markets. Why: RevPOST may be used by hotel salespeople and Revenue Managers to determine the Revenue Efficiency of different groups that overlap similar or identical dates, as well as to establish budgetary goals for preferred patterns offered by a Hotel to groups. RevPOST can also be applied to most global markets when expressed as RevPM2 (Revenue Per Meters Squared) or RevPKSF (Revenue per Square Foot X 1,000). As the size, scope, and frequency of conference and incentives continues to increase worldwide, RevPOST has grown in importance as a fundamental metric used to monitor the Revenue performance and booking efficiency of hotel salespeople.
9 Hotel Revenue Management What is RevPAR? RevPAR: Revenue Per Available Room, or RevPAR, is a metric commonly used to measure financial performance in the hospitality industry. RevPAR is a function of both room rates and occupancy, and is one of the most important gauges of performance among hotel operators. What: RevPAR is used by Hotel Management and analysts to determine the Market share and Year-Over-Year performance of a hotel. Total revenue per available room (Total RevPAR) is the product of (a) occupancy and (b) Total RevPOR. Rising RevPAR is an indication that either occupancy is improving, or room rates are rising -- or some combination of both. Of the two, rising room rates have a much more dramatic impact on the bottom line than corresponding increases in occupancy. It is not uncommon to see both figures rise together, though, as higher occupancy is usually concurrent with a stronger pricing environment. RevPAR evaluates the strength of only one type of revenue-generating stream, and it is important to note that many hotels derive a substantial portion of their total revenues from restaurants, spas, casinos, conferences, and other incremental revenue streams.
10 Hotel Revenue Management RevPAR: (continued….) How: How does this affect meeting planners? As a meeting planner, you will benefit by understanding your meeting's effect on a hotel's Rev PAR - depending upon whether you book it at Hotel A or if you book it at Hotel A's competitor - which will make you a better negotiator. RevPAR = AO%, where… * RevPAR is revenue per available room, * A is the ADR, the average price per room sold, * O% is the rate of occupancy, or percentage of rooms sold. RevPAST and RevPOST : Revenue Per Available Space-Time (RevPAST) and the associated Revenue Per Occupied Space Time (RevPOST) are ratios designed to measure the efficiency of Total Sales gained via the occupancy of a Hotel or Convention Center’s Meeting Space or Function Space. How: Revenue Management strategies can be designed to attain certain revenue goals in relationship to the timing, availability, quantity, and marketplace demand of specific meeting space utilized by a group or overlapping groups. For example, a baseline can be established by a hotel or other venue to determine the historical market performance of a particular meeting room or convention space and sales strategies (pricing, incentives, stipulations) can be implemented to maximize revenues captured by the Hotel or venue for each particular Meeting room or the overall hotel.
11 Hotel Revenue Management What is RevPOR? RevPOR : Revenue Per Occupied Room, or RevPOR, is one of the most important measures used by Hotels to evaluate the Revenue Contribution of a Group. RevPOR is most often viewed by Revenue Managers in comparison to budgeted targets, anticipated demand, and Year-Over-Year figures in order to determine the rates, concessions, and contract terms offered to Meeting Planners. What: RevPOR is used in conjunction with, or in place of, the more standard revenue per available room (RevPAR) statistic. RevPAR is calculated by taking the RevPOR value and multiplying it by the occupancy rate. RevPOR may also be expressed as "total RevPOR", which includes not only the room rate itself, but also any extra services such as group F&B, Audio-Visual rentals or commissions, room service, laundry services and in-room movie viewing, among others. RevPOR is used by analysts to determine the total revenue and profit potential of a company; occupancy rates will rise and fall with the general and local economy, but RevPOR is a metric that stands independent of how full the hotel is at any point in time. How: Revenue per available room (RevPAR) is the product of (a) occupancy and (b) ADR. Total revenue per occupied room (Total RevPOR) is calculated by dividing total resort revenue (including revenue from rooms, food and beverage, and other amenities) by total occupied rooms.
12 Hotel Revenue Management Any Questions?
13 Hotel Revenue Management What does the hotel’s RSR (rooms to space ratio) mean: Rooms vs. Space Ratio: A metric used to determine the space allocation that a hotel can profitably offer a group in relationship to the number of guestrooms occupied by the same Group. Because guestrooms are a Hotel’s foremost source of profits, and because meeting space is used to attract groups to a Hotel as the venue for a group’s event, Hotels must make smart decisions about how, when, and what space to assign to groups. What: A group that consumes significantly more meeting space than the number of guestrooms occupied is commonly viewed as displacing more profitable group opportunities that may materialize at a later date. Meeting Planners seeking to book such space-intensive groups are often confronted with substantial Meeting Room Rental charges as Hotels seek to recover displaced Rooms Profit via increased Meeting Room Rental in order to strike a balance between the profit goals of the Hotel and the displacement of Occupancy. How: Rooms vs. Space Ratios are calculated in relationship to the percentage of a Hotel’s total Meeting Space occupied by a group vs. the percentage of the Group Rooms allocation of the Hotel occupied by the Group during the same dates. Groups with extensive breakout or syndicate meeting needs, several days of advance set- up for production or exhibitions, and relatively small room blocks are viewed as being less attractive to a Hotel than more profitable groups which utilize less meeting space in relationship to their guestroom usage and overall revenue profile.
14 Hotel Revenue Management How involved hotel revenue managers have become in the sales process and the importance of revenue management: Again, the goal of Revenue Management is to maximize total hotel profitability through the proper allocation and pricing of rooms and space inventory for the transient, group and catering demand segments. "Sell the right product (rooms and space) to the right customer (transient, group or catering) at the right time (for each segment's booking window) for the right price.“ This is accomplished by aligning against four Key Functions: Group Strategy: Responsible for being the account advocate, responding to sales opportunities, evaluating displacement and determining complex group pricing. Inventory Management: Responsible for managing room and space authorizations, rates and restrictions. Market Strategy/Pricing: Responsible for defining sales strategy, identifying and communicating strategic opportunities, developing the business plan, and overall management of analysis, business evaluation and inventory management. Revenue Analysis: Responsible for forecasting, analysis and critique, competitive assessment, and revenue and profit opportunities.
15 Hotel Revenue Management Will your RFP (request for proposal) get noticed by the hotel: In the meetings industry Revenue Managers are faced with addressing the needs of "Three customers” (transient, group and catering) competing for “two inventories” (rooms and space). How do Hotels effectively manage the two inventories to maximize all opportunities? The process utilized to manage the three customers and the two limited inventories is an effective total hotel inventory management structure. An effective total hotel inventory management structure requires a strong demand forecasting process in conjunction with an effective Sales Strategy process, along with room and function space controls.
16 Hotel Revenue Management The process of evaluating opportunities for large, complex group business (typically for full-service hotels) involves the following major steps : Sales Executives perform a preliminary evaluation of complex opportunities considering a hotel's sales strategy Sales Executives communicate the customer requirements and opportunity details to Revenue Management Revenue Management evaluates complex opportunities against the sales strategy and goals of the hotel and performs a displacement analysis that considers transient, group, and catering displacement Revenue Management communicates availability and pricing options back to Sales Sometimes, especially for more complex opportunities, the process of evaluation can involve more back and forth dialogue between sales and revenue management as details of the event are uncovered and more availability and pricing options are uncovered.
17 Hotel Revenue Management Function Space Management Effective function space inventory management is critical to successful total hotel revenue management. Research confirms that function space is the most constrained inventory in many hotels, and function space inventory management decisions impact all future mix decisions, of both function space and sleeping rooms! The critical process of Function Space Management involves the following major steps: Ensure that the function space inventory blocked is the closest to customer requirements Ensure that the most accurate picture of remaining inventory is maintained through diary audits for accuracy and completeness The value of each function space by day and day part is identified and clearly communicated at all points of sale Restrictions for the minimum and maximum amount of space to be used for each day and day part is identified and clearly communicated at all points of sale Controls to balance between inventories are in place such as rooms to space ratios, and space release policies.
18 Hotel Revenue Management How can a hotel determine what that "right price" should be? Setting the "right price" is a challenging, never-ending process that is crucial to a hotel's success. Pricing should be rational and fair to customers. It should address differences in customer demand and segmentation across regions, hotel types and seasons and contribute to overall customer loyalty. It should target specific customers and offer them the best possible price/value relationship for their money. Establishing a pricing strategy is not an exact science, but an interpretive process that requires balancing internally oriented needs and information with externally oriented information. On the one hand, the hotel needs to consider its financial goals and historical pricing. On the other hand, it needs to analyze supply and demand, the relative strength of its product, competitor actions and customer response to its price setting. A hotel needs to develop a pricing strategy for both its transient and its group business. While the benchmark rate is the main price point for transient business, group rates are based on a different set of criteria and vary between groups.
19 Hotel Revenue Management Any Questions?
20 Hotel Revenue Management How to attract the right hotels to bid on your event program: Knowing your meeting objectives is the key! Be clear with your senior management and other decision makers Be clear with the hotel/resort or convention center Working with your sales manager on 4 major areas can ensure that Revenue Management augments the process and does not stall it: Date Flexibility Space Flexibility Meeting Pattern Contracted Food & Beverage
21 Hotel Revenue Management Tips for working with your sales manager: Space flexibility: Be creative! Work with the sales manager, function space coordinator, CS manager, exhibit hall manager, decorating company, etc. Use the whole team! Space is $$ Ask for alternatives that worked for other groups in the past. Consider alternate patterns or dates….. Always ask for “the hole” or a shift that might be valuable for the hotel to sell Ask WHY your preferred dates didn’t work? (rooms, space, rate?) This will help you with your planning and decisions at future meetings Book further out to get the dates or meeting space you want
22 Hotel Revenue Management Book more than one year or offer more than one meeting within the same hotel company. What’s in it for you? Leverage, consistency and a partnership! Stay flexible even AFTER the contract is signed. Why not? If you need additional space, concessions or other considerations, let the hotel know that you will be flexible when another group is trying to book dates on the front or back end of your program. Shifts or space changes to help the hotel book another piece of business can be valuable to YOU! Partner with your hotel salesperson or team of people just like you, hotels will remember and even pay for “favors” Get behind the curtain: what is the hotel’s RSR (rooms to space ratio)? What are their targets? Where are their high vs. low profit centers? Can they offer free coffee instead of free suites to help your budget? Be realistic and honest Determine your key MOBS (Meeting Objectives) Be clear with your senior management and other decision makers Be clear with the hotel/resort or convention center
23 Hotel Revenue Management Any Questions?
24 Hotel Revenue Management Key take-aways: 1.It is not about rates & dates but about enhancing the sales – planner relationship. 2.Make sure your salesperson focuses on your meetings objectives If not find a new hotel brand to work with 3.Remember the tips to make your RFP get noticed by the hotel. 4.Work with your salesperson as effective as possible.
25 Hotel Revenue Management And now a Word from our Sponsors as we thank them for their support!
26 Hotel Revenue Management Final round of questions before we sign off! Further questions can be sent to:
27 Hotel Revenue Management Thank you for participating in our PCMA Emerging Professionals Committee Capital Webinar Classroom titled “Hotel Revenue Management” Save the date for the rest of this years PCMA Capital Classroom programs: Hotel/Client Contracting 201 – Beginners / Thursday, August 25 “Industry Ethics: Gifts, Trips, Parties and Give Aways!” / Thursday, November 10th Effective Business Writing / Wednesday, November 30, 2011 This PowerPoint can be downloaded at: Click on the PCMA Capital Chapter logo
28 Hotel Revenue Management Revenue Management Glossary: 4 P's Product, Price, Place, Promotion... terms used in Marketing to describe the fundamentals of an integrated approach to Revenue Management. Attrition Refers to a reduction, either voluntarily or involuntarily, or a group’s contracted room block. Voluntary Attrition (or Attrition Allowance) is normally tied to an agreed percentage of reduction in a guestroom block contractually permitted by a specific date or series of dates prior to group operation. Voluntary Attrition is usually allowed by the Hotel with no financial penalties. Involuntary Attrition refers to attrition in excess of any agreed amounts due to a failure of the forecasted number of rooms to materialize, early departures, or failure to account for group guestrooms that may have been used at the Hotel but are not recorded as part of the group block. Involuntary Attrition usually means that a payment equal to the difference between the Minimum Guaranteed Room Block (net of Allowed Attrition) and the Actual Group Rooms Usage will be paid to the Hotel by the Group. Average Rate or Average Daily Rate (ADR) Average rate is a measure of the weighted average price or rate for a given perishable asset based on the number of units sold at the different price levels. An example in the hotel industry occurs when rooms with two queen-sized beds are sold at different prices (for example, rack rate, corporate discount, tour promoter package, group rate, etc.). In this case, average rate acts as a pricing efficiency measure.
29 Hotel Revenue Management Blind Cut A term used in the Hotel industry that refers to an arbitrary and undisclosed reduction of a Group’s contracted room block as a reaction to increased market demand at higher rates or a lack of confidence in the group’s ability to fully materialize. The reduction is "blind" because it is undisclosed to the Group and/or its meeting planner. Buckets The term "buckets" is often used by revenue management specialists to describe the different rate classes that are used in variable pricing, in the context of a model that is aimed at maximizing revenue across the various buckets. Northwest Airlines uses this term, for example, in its own revenue management activities. See "Segmentation." Capacity In a revenue management context, capacity is a crucial aspect of the perishable good or service. The limited capacity available at a given point in time --say, airline seats on the first flight out of Minneapolis on Monday morning to Los Angeles -- is what prompts a revenue managers to carefully think through how to maximize revenue yield. With limited capacity, the revenue manager uses variable pricing policy to steer demand so as to even it out and maximize load factors across a fleet of airplanes. In the process, the goal is to maximize revenue yield. Load factor is an airline industry term that describes what percentage of the seats is filled on an airplane. Think of it as a "raw" efficiency measure -- one that is unadjusted for its impacts on revenue yield.
30 Hotel Revenue Management Comparative Set Forecasting A technique that allows hotels to predict their fair share in RevPAR for future months. When this technique is used, a hotel company that attempts to make an accurate forecasting of their competitor’s performance will have the opportunity to model the outcomes of their own revenue management policy choices in the light of the competitive nature of the marketplace. CRM Customer Relationship Management. The CRM aspect of Marketing is tied to Revenue Management via its tagging of previous Customer Pricing and purchasing behavior as a method of determining future customer buying behavior. At major hotel companies, every previously booked group of virtually every major client organization is included in their proprietary databases, and this information is used to target promotions, build rate controls, and structure or limit concessions provided by hotels during future negotiations. Demand Curve The functional relationship between price at different levels and quantity (or demand) that describes consumer behavior in a marketplace. Sophisticated models based on previous baseline market behavior, economic trends, marketplace supply expansion/contraction, and other factors are created for Hotels to implement pricing and stay controls in regional markets.
31 Hotel Revenue Management Denial A denial occurs when a reservations agent tells a customer that they cannot book at a given rate (a hotel room, airline ticket, etc.), when the capacity still exists to fulfill that demand. Denials are characteristic of the Yield Approach and the Revenue Approach in managing the reservation making process to maximize revenues. EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortization. A standard hotel financial metric used by managers and owners of hotels to determine a hotel’s Rate of Return or ROI. Food & Beverage Minimum An aspect of hotel contracts since its introduction in the early 1990’s, F&B Minimums are a contractual guarantee of the revenue value of a group’s F&B program during its occupancy of a Hotel. F&B Minimums are a means of Revenue Control exerted by the Hotel in return for its allocation of resources (guestrooms, meeting space) to a Group. F&B Minimums are usually variable by dates and marketplace demand for a Hotel’s services. Hotels may internally budget to achieve group F&B targets that are expressed as F&B per Occupied Room (F&BPOR) or F&B RevPOST. History Data concerning a group’s previous purchasing activity with other hotels for a specific meeting. Prior to contracting, hotels often ask Meeting Planners for the identities of other hotels and the operating dates during which they have previously operated a meeting. Meeting Planners often willingly supply this information, which is in turn used by hotels to determine the rates tolerance, scope, and other aspects of its offer to the group! Oddly, Meeting Planners rarely ask hotels to supply them with similar historic information such as the identities of other groups that operated at the hotel during the same or similar dates in the past so that planners can gain references on the hotel from previous users.
32 Hotel Revenue Management Load Factor The percentage of seating or cargo capacity that is utilized, typically on an air carrier or freight carrier. Net Profit Margin Net profit (or loss) before interest and taxes as a percent of operating revenues. Also known as Net Operating Income (NOI). Occupancy Rate Occupancy Rate in the hotel industry is a measure of the observed occupancy percentage of a hotel property on any given night. Occupancy rate is often used as a measure of performance, especially when the managerial perspective is the Percentage Sold Approach. However, today most firms that utilize modern revenue management practices recognize that this is only a secondary measure compared to revenue yield, which maximizes revenue -- even when some rooms go unsold on a given night. Opportunity Cost Opportunity Costs occur when a revenue manager sells a room in a hotel at a lower price level and subsequently experiences materialized demand for the same room at a higher rate. Opportunity costs occur either in a real or actual way, or in an expected sense: with stochastic demand, the revenue manager is never quite sure of the actual opportunity costs for a given room, because demand is uncertain to materialize. However, it is possible to compute expected opportunity costs on an ongoing basis from historical marketplace demand data, and then use that information to refine pricing policy and the time of rate closeouts.
33 Hotel Revenue Management Overbooking Overbooking occurs whenever the number of seats on an airline or rooms in a hotel that are sold for a given flight or night, respectively, exceeds the number of seats or rooms available. Overbooking occurs because revenue managers face stochastic demand patterns, and in order to fill their seats or rooms at some point in the future, they take a risk that some customers, who represent demand today and have reserved space, will not materialize as actual demand on the date of delivery. Override An override occurs when a revenue manager rejects the recommendations of a computer-based revenue management demand forecasting and price-setting system, and chooses other prices. Overrides occur when the decision maker perceives the local demand patterns to be at odds with those utilized by the model. In other cases, however, overrides occur due to a lack of trust in the model and the technological approach towards decision making, resulting in a loss of decision-making power on the part of the revenue manager. Overrides are often requested by hotel salespeople who are frequently at an information or empowerment disadvantage vs. their own Revenue Manager. Percentage Sold Approach The Percentage Sold Approach emphasizes volume sold across all product classes in the product mix, and is therefore inconsistent with selling to maximize revenue. With this approach, very often more of the discounted classes in the product mix are sold. The Percentage Sold Approach was the traditional approach to the Group Market used by Hotels until the application of Revenue Management techniques in the Group Sales operations of most major hotel companies during the period
34 Hotel Revenue Management Perishable Asset A perishable asset is one that, if not sold today, represents a lost opportunity for revenue for the firm. Examples include: an empty airline seat on a flight from Minneapolis to Denver on October 12, 2003; an unbooked hotel room at the rack rate at the local Holiday Inn; a half-empty freight truck driving on a delivery from Chicago to Memphis; an unsold ticket to the Chicago Bulls vs. Washington Wizards basketball game on a specific date in Predictive Analytics The practice of mathematically analyzing vast amounts of customer purchasing data, comparative set performance, economic trends, and customer performance data to determine the optimal pricing, stay control, and contractual terms to offer customers. Early models of predictive analytics are already in usage in the insurance industry and applications are under development for use in the hotel industry. Price Discrimination Price discrimination is the practice of setting variable pricing policy, and selling the same product or service to different customers at different prices. The use of sophisticated CRM and Predictive Analytic software has enabled price discrimination tactics to be effective in many industries. Pricing Mix Pricing mix is the combination of price types typically selected by the revenue manager for a given product at a given point in time. Pricing mix often includes the following kinds of rates: rack rate (standard, without discount, like an unrestricted full fare on an airline), corporate negotiated rates, advance purchase discount rates, contracted group rates, incentive and affinity program bargain rates, and so on
35 Hotel Revenue Management Rack Rate Rack rate is the equivalent of "list price" in the pricing of perishable goods and services. In the airline industry, for example, rack rate is the price of a full fare unrestricted ticket. Rack rates are also typically the highest rates charged by the seller. Rate Control A rate control is a revenue management policy aimed at ensuring that a given asset is sold at the highest possible rate, with respect to what the revenue manager knows about stochastic demand. Revenue Approach The Revenue Approach, in contrast to the Percentage Sold Approach and the Yield Approach, is directed at selling the "right" amount of product, at different price levels, to pull the greatest amount of value out from under the different price points of the product demand curve. Both the percentage sold and average price of sales may be less than under the other two approaches, however, the total revenue should be higher. Since this approach actually combines elements of the Yield Approach and the Pricing Approach, but is focused on revenue, this practice has come to be called revenue management. Hotels increasingly take this approach when they deny space to groups booking 2-3 years prior to operation during peak season dates unless the groups fit an ideal Pattern of rooms and space occupancy.
36 Hotel Revenue Management Segmentation Segmentation is the process of associating different pricing levels in the marketing mix with consumers of different demographics. Segmentation in revenue management implies that individual customers have different levels of utility at a given point in time, and hence, are likely to express different levels of willingness-to-pay for a good or a service. See "Buckets." Stay Control A Stay Control is a policy tool applied in Reservations. Revenue Managers -- at least in hotel and rental car settings -- tend to prefer bookings with a longer duration than with a shorter duration. So a weekly rental reservation may be preferred to a two- day rental reservation for a given class of product in the car rental business. Example: try to rent a SUV for a weekend in the Canadian Rockies at the height of the summer tourism season. It can't be done -- even with lots of advance notice! Two-week rental arrangements are rarely a problem though. Reason: rental car company stay controls aim to maximize revenue yield. Stochastic Demand Stochastic Demand occurs when it is possible only to estimate the demand that will materialize in the marketplace in the future in terms of the descriptors of a statistical distribution: mean demand, variance in demand, and some kind of characteristic distribution (for example, the normal distribution). Stochastic Demand is used when more specific or relevant demand indicators (citywide convention activity, NYC Marathon, summer in Paris) are unavailable. Unconstrained Demand Unconstrained demand is the level of demand that occurs for a given perishable asset without reference to the price levels that the seller will ultimately select to constrain it. Unconstrained demand answers the question: "What is the most that we could sell at a uniformly low price?"
37 Hotel Revenue Management Variable Pricing is the practice of selling the same product at different price levels to different consumers. When you take an airplane trip sometime, quiz the people sitting around you about what they paid for their tickets. Many airlines operate flights with 20+ pricing buckets, an indication of their reliance on revenue management for profitability. For the same reason, hotels also routinely offer 8-20 different prices to customers for reservations during the same dates for rooms of identical or very similar quality Walk A walk, euphemistically also called a "Referral," occurs when an overbooking that occurred relative to stochastic demand in the past by the revenue manager results in the overbooked customer actually arriving at the gate to take the flight, or arriving at the hotel to stay the night. If there is no capacity at all -- as is often the case with hotel rooms where capacity is strictly limited -- the hotel manager "walks" (or makes alternative arrangements for) the customer to another hotel for which there exists a "walk reciprocity policy." Under conditions of heavy demand, hotel operators benefit from this kind of collusion. Willingness-to-pay on the part of a consumer of a product or service is an economic expression of the consumer's specific level of utility. In general, the consumer's willingness to pay, at the limit, should be indicative of the value they attribute to the product Yield Approach focuses on sales of the higher priced product classes. One expects the volume or percentage sold of the product to be less, however, it is entirely possible that the actual revenue achieved will be higher. One thing is certain: the yield approach typically maximizes the average price of sales. It has been observed that the application of sophisticated Revenue Management techniques at a Hotel quickly adds 7-10% in revenue vs. the Hotel’s prior performance during comparable periods.
38 Hotel Revenue Management Featured Speaker Bio’s: Sam Bhandarkar, CMP, CASE Senior Sales Executive Washington Marriott Wardman Park Hotel Sam Bhandarkar is a fifteen year veteran of the meetings and events industry. In his current role as a property sales executive at the Wardman Park, Sam serves Marriott’s Affinity Markets (Multi-cultural, Religious, Fraternal, Sports, and LGBT) for group convention business with programs of 301+ rooms on peak. Prior to his role in Marriott’s Global Sales Organization, Sam served in F&B and Event Operations capacities, most recently as the hotel’s Director of Event Services. Sam brings a unique understanding of his customers’ perspectives and needs to the sales process, having spent the balance of his 15+ year career as a planner of major corporate and entertainment-based meetings and events. Sam holds a B.A. in International Studies from American University’s School of International Service and earned both the CMP and CASE designations through PCMA continuing education programs. He currently resides in Friendship Heights with his wife, Tara, and their ten year-old rescue dog, Raleigh.
39 Hotel Revenue Management Jamal Aaron Hageb Senior Meetings Manager Meetings & Travel Department American Bar Association Jamal is a Senior Meetings Manager for the American Bar Association (ABA). In this position, he is responsible for researching, sourcing, negotiating and contracting over 80+ off-site ABA programs a year, as well as overseeing in- house meeting and front desk operations for the Washington, D.C. branch of ABA. Jamal has been with ABA a little over two years, and prior to ABA, he worked for the American Educational Research Association as Meetings & Exhibits Manager for 3 years, and 7 years as Senior Meeting Planner with the American Psychiatric Association. A member of PCMA, Jamal is currently Education Co-Chair for the Emerging Professionals Capital Chapter Committee and serves on the customer advisory board for Palm Springs Desert Resort Communities CVA. He can also be found in the Puerto Rico CVB ad-campaign Although he received a bachelor's degree in Business Management at George Washington University, he made a conscious choice to pursue a career in the meetings industry and is an enthusiastic fan of the New York Yankees, Washington RedSkins and a die-hard New York Rangers and Knicks fan!
40 Hotel Revenue Management Randy C. Javer Director of Group Strategy Washington, DC Marriott Revenue Management Office Randy has been with Marriott International for almost 15 years and lived in several cities throughout the country while working in different disciplines. Her career started in the Boston area while at the front desk and she remained in the Front Office in New York City and Chicago as well. In 2004 her Sales Career started when she moved to Denver and was in Marriott's Rocky Mountain Sales Office selling for 26 hotels within Colorado and New Mexico. After leaving Sales, Revenue Management seemed like a great career move (while staying in the great city of Denver!) and she transitioned to an Inventory Management role and eventually Group Strategy. Randy moved again with Marriott back to the East Coast in 2008 as the Director of Group Strategy for the Suburban Maryland Hotels. After a year and a half, Randy transitioned roles and is in her current role of Director of Group Strategy in the Washington DC Revenue Management Office for Marriott Hotels.
41 Hotel Revenue Management Kushan Abayasekera Director of Yield Management Walt Disney World Swan and Dolphin Resort Kushan has been involved in the hospitality industry for over 15 years with Starwood Hotels and Resorts. He spent his early career as a director of operations before moving into Revenue Management. As a Director of Revenue Management he has overseen numerous Starwood branded properties such as Sheraton, Westin, Four points, and W hotels in different parts of the country, Minneapolis, MN, Hilton Head, SC, New Orleans, LA, and Charlotte, NC, before moving to the current role in Orlando, FL. While in Hilton Head Kushan worked with the corporate team in revamping the Starwood Preferred Guest program. Kushan moved to Orlando in 2007 and serves as Director of Yield Management for the Walt Disney World Swan and Dolphin resort.
42 Hotel Revenue Management References: Introduction to Revenue Management for the Hospitality Industry: Principles and Practices for the Real World, An by Kimberly A. Tranter, Trevor Stuart-Hill and Juston Parker The Theory and Practice of Revenue Management (International Series in Operations Research & Management Science) by Kalyan T. Talluri and Garrett J. van Ryzin Revenue Management for the Hospitality Industry by David K. Hayes and Allisha Miller Convention Industry Council, Convention Industry Council Manual, 7th Edition Professional Convention Management Association, Professional Meeting Management, Comprehensive Strategies for Meetings, Conventions and Events, Fifth Edition