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Introduction to Revenue Management
When you stayed in that luxury hotel during your last vacation, did you check what your neighbor paid for her room? If she were a business visitor, she could have paid well above $300 for the same room that you paid $180. It is also possible that she paid $120 provided she planned well in advance and managed to get that “better” deal which was elusive to you. So why do hotels charge different customers different rates for the same type of room?
Such differences are the result of an increasingly common strategy to maximize revenue (and profits) in the Hotel industry — a practice referred to as Revenue or Yield Management. Revenue Management (RM) is a scientific technique that combines Operations Research, Statistics and Customer Relationship Management (CRM) and categorizes customers into price bands, based on various services.
Statistical analysis of past data helps in forecasting demand and establishing the appropriate price bands. Applied correctly, Revenue Management helps hotels expand market size and increase revenues. Some industry practitioners also refer to RM as the art of selling the right room to the right customer at the right time and for the right price.
To understand the need for an RM system, let us take the following two examples. At the peak of the SARS epidemic in Canada, a resort experienced a 25% drop in number of visitors. Amazingly, this resort managed to limit decline in revenue to a bare 3%. During economic depression, a travel management company reduced its marketing budget by half, but still managed a revenue increase of 6%. How were these successes possible? The answer to both of these questions lies with the implementation of Revenue Management strategy.
Why Revenue Management?
Segmented Market: Hotels typically segment their market (customer base) into a set of categories based on the price each category is willing to pay. Typical categories include the business traveler and the
When you stayed in that luxury hotel during your last vacation, did you check what your neighbor paid for her room? If she were a business visitor, she could have paid well above $300 for the same room that you paid $180. It is also possible that she paid $120 provided she planned well in advance and managed to get that “better” deal which was elusive to you. So why do hotels charge different customers different rates for the same type of room?
Such differences are the result of an increasingly common strategy to maximize revenue (and profits) in the Hotel industry — a practice referred to as Revenue or Yield Management. Revenue Management (RM) is a scientific technique that combines Operations Research, Statistics and Customer Relationship Management (CRM) and categorizes customers into price bands, based on various services.
Statistical analysis of past data helps in forecasting demand and establishing the appropriate price bands. Applied correctly, Revenue Management helps hotels expand market size and increase revenues. Some industry practitioners also refer to RM as the art of selling the right room to the right customer at the right time and for the right price.
To understand the need for an RM system, let us take the following two examples. At the peak of the SARS epidemic in Canada, a resort experienced a 25% drop in number of visitors. Amazingly, this resort managed to limit decline in revenue to a bare 3%. During economic depression, a travel management company reduced its marketing budget by half, but still managed a revenue increase of 6%. How were these successes possible? The answer to both of these questions lies with the implementation of Revenue Management strategy.
Why Revenue Management?
Segmented Market: Hotels typically segment their market (customer base) into a set of categories based on the price each category is willing to pay. Typical categories include the business traveler and the