Hotels have a fixed inventory of rooms to sell and these rooms are perishable. The hotel rooms perish every day; any room that is unsold tonight is gone forever. There is also no question that different segments of business are willing to pay different rates under various circumstances. This is where revenue management plays an important role; to fill at least a minimum number of rooms without selling every room at discount prices; the idea is to sell enough rooms to cover fixed operating expenses. Once fixed expenses are covered, and there are now only fewer remaining rooms to sell, they could then sell the remaining rooms at higher rates to maximize revenue and profits. The term revenue management was shortly introduced after the airline company British airways tried a new practise called yield management through which they offered discounts to early bird booking because of which it created a demand for seats that would usually be empty. Hotels faced the same problem because even rooms are a perishable commodity. The founder and CEO of Marriott international, Bill Marriott realised that Marriott hotels were facing the same problem as the airlines but could not refer it to as yield management because it was pertaining to the airlines hence he introduced revenue management and the same was practised in Marriott international. Revenue management is about forecasting consumer behaviour at a micro level in order to improve the price and the availability of a product to generate maximum revenue. Revenue management focuses upon selling the right product to the right customer at the right time for the right price. Revenue managements apply basic economic principles of supply and demand for an increase in revenue.
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