OPTIMIZING REVENUES Rooms Revenue and Yield Concepts Today’s Learning ROOMS REVENUE AND YIELD CONCEPTS DEVELOPING A PRICING AND POSITIONING STRATEGY SEGMENTATION AND MARKETING STRATEGIES FORECASTING EXAMPLES AND ACTIONS INCENTIVES TO RAISE REVENUE Hotel Revenue Management System The critical steps in any hotel revenue management system are: 1. Market segment identification 2. Differential pricing 3. Demand forecasting 4. Pricing of the different market segments 5. Allocation Price-Demand Curve Price-Demand Curve EXERCISE: The Network Question A 4* Beautiful Resort property, serving business travelers is down to its last two rooms for the coming Monday and Tuesday, but there are plenty rooms available for the rest of the week. Four customers want to make booking at the reservation desk. Which combination would be accepted to produce the highest revenue? CUSTOMER NIGHTS RATE COMMENTS A Monday $100 Full rate B Tuesday $100 Full rate C Monday & $150 total Two-day Tuesday package D Monday to $350 total Business Friday Weekly rate The Concept and Forecasting Forecast of occupancy: 100 with increasing accuracy when time 90 comes closer 80 70 Budget 60 50 40 Forecast 30 Actual 20 10 0 Lead time 60 45 30 15 (days) Moment in time where occupancy is low: What does the forecast say? What is the total revenue, actual sold, of the hotel for that day? What should be the price of the room? Who is the customer that calls during the time of the red arrow and what price band might they be in? Serious action needed to address possible missed opportunities Allocation of Rooms The allocation of inventory (hotel rooms) among different market segments. The ratio of discounted versus full priced rooms is not fixed during the reservation period; rather, it is “tweaked”appropriately as the date of stay approaches. Overbooking Overbooking is the practice of intentionally selling more rooms than are available in order to offset the effect of cancellations and no-shows. Studies estimate that although a hotel is fully booked, about 5-8% of the rooms are vacant on any given date. Poor overbooking decisions can prove to be very expensive for the hotel. Overbooking Implications Short term loss of room revenue Long-term decreased customer loyalty loss of hotel reputation, etc. American Airlines developed an optimization model that maximizes net revenues associated with overbooking decisions for the airline industry. Yield Management Strategies As demand exceeds supply Increase Rates to Maximize Profits As supply exceeds demand Decrease Rates to Maximize Occupancy Yield Statistics actual rooms revenue Yield = potential rooms revenue (Every room sold at full rack rate) Yield is the percentage of income that could be secured if 100% of available rooms were sold at full rack rate Yield Exercise The Beautiful Resort has 500 rooms available, it sells 200 rooms at $85 with a rack rate of $100. What’s the yield of The Beautiful Resort ? Yield = actual rooms revenue potential rooms revenue (Every room sold at full rack rate) Occupancy versus Yield number of rooms occupied Occupancy Rate = number of rooms available actual rooms revenue Yield = potential rooms revenue (Every room sold at full rack rate) EXERCISE: Occupancy versus Yield Beautiful Resort has 500 rooms available, it sells 275 rooms at $80 and 125 rooms at $120 rack rate. 1. What is the occupancy rate? 2. What is the yield? Exercise A rival hotel, Classic Resort, also has 500 rooms available, it sells 125 rooms at $80 and 275rooms at $120 rack rate 1. What is the occupancy rate? 2. What is the yield?