Revenue Management Basics for Small and
Independent Hotels
Copyright Š2014 Stichting Hotelschool Den Haag, The Netherlands All rights reserved. No part of this course and publications may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Hotelschool The Hague.
Content Section 1 Introduction to Revenue Management ................................................................. 1 Lecture 1 Lecture 2 Lecture 3 Lecture 4 Lecture 5 Lecture 6 Lecture 7
Section 2 Lecture 8 Lecture 9 Lecture 10 Lecture 11 Lecture 12 Lecture 13
Section 3 Lecture 14 Lecture 15 Lecture 16 Lecture 17 Lecture 18 Lecture 19 Lecture 20 Lecture 21
Overview of the course .......................................................................................................................1 Why Revenue Management?..............................................................................................................2 The History and Development of Revenue Management ..................................................................3 The Fundamentals of Hotel Revenue Management ...........................................................................4 Measuring Hotel Performance: Basic Indicators ................................................................................5 Measuring Hotel Performance: Income Statement ............................................................................6 Measuring Hotel Performance: Costs and the Break-Even Point .......................................................7
A Good Revenue Management Strategy .............................................................. 8 Revenue Management Challenges for Small and Independent Hotels ..............................................8 Knowing your hotel, your ideal guest and how to attract them.........................................................9 Technology & Information Requirements ........................................................................................10 Knowing your Competitors ...............................................................................................................11 Creating a Revenue Plan ...................................................................................................................12 Social Media and Relationship Management ...................................................................................13
Revenue Management Tools and Techniques .................................................... 14 Rate Management ............................................................................................................................14 Distribution & Channel Management ...............................................................................................15 Forecasting ........................................................................................................................................16 Displacement Analysis ......................................................................................................................17 Price Fencing .....................................................................................................................................18 Managing No-Shows and Overbookings ...........................................................................................19 Measuring and Managing Channel Efficiency ...................................................................................20 Total Hotel Revenue Management ...................................................................................................21
Section 3 Revenue Management Tools and Techniques
Section 1 Introduction to Revenue Management Lecture 1
Overview of the course
Welcome to the Revenue Management Basics for Small and Independent Hotels. The purpose of this course is to help you: the enthusiastic small and independent hotel operator to refresh and improve your Revenue Management knowledge and skills and to enable you to implement this in a practical way that will directly benefit your own establishment. The course consists out of 21 lectures, which are spread across 3 sections. It will start with the basics of Revenue Management (RM) and give useful advice and methods on how to approach possible challenges for your own hotel. Video tutorials, examples, application exercises, lecture slides and section quizzes will be used in the course to help you master various concepts, skills and techniques. This course guide will be used to navigate across the sections and steer us as we progress through the material. Each of the lectures that follow will specify the learning objectives, key concepts, associated media and other materials used and the reading where applicable. Icons used in this guide indicates the following media or other materials:
Course Guide Objectives and Key Terms Videos Section slides Expert Interviews Exercises or Reading Quizzes
Yours in Hospitality, Maryna Jooste Hotelschool The Hague
This course was made possible with the support of the Foundation Innovation Alliance (Stichting Innovatie Alliantie) and Hotelschool The Hague in The Netherlands.
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Section 3 Revenue Management Tools and Techniques
Lecture 2
Why Revenue Management?
Objectives: 1. Illustrate the need for Revenue Management in creating value for a hotel
Key Concepts:
Maximum Revenue Combination of bookings Time differences in requests Different revenues from different guests Maximum Profit
Media and Materials:
Video Lecture 2 Section Slides
2
Section 3 Revenue Management Tools and Techniques
Lecture 3
The History and Development of Revenue Management
Objectives: 1. Exploring the history and development of Hotel Revenue Management (RM)
Key Concepts:
History of RM Hotel RM Technological advances in RM Total Hotel Revenue Management
Media and Materials:
Video Lecture 3 Section Slides
3
Section 3 Revenue Management Tools and Techniques
Lecture 4
The Fundamentals of Hotel Revenue Management
Objectives: 1. Explore the nature of hotel services and products that makes RM possible 2. Defining Revenue Management 3. Understanding Revenue Management in the context of the Marketing Mix
Key Concepts:
Time variable demand Fixed capacity Fixed costs Variable costs Advance purchase Perishability Guest differences Hotel RM definition Macro and Micro Environments Marketing mix: place, product, price, promotion Revenue Management System
Media and Materials:
Video Lecture 4 Section Slides Reading
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Section 3 Revenue Management Tools and Techniques
Lecture 5
Measuring Hotel Performance: Basic Indicators
Objectives: 1. Calculating and interpreting basic hotel performance indicators
Key Concepts: Occupancy ADR RevPAR
Media and Materials:
Video Lecture 5 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 6
Measuring Hotel Performance: Income Statement
Objectives: 1. Analyzing the Hotel Income Statement 2. Calculate and interpret profitability ratios 3. Calculate and interpret cost ratios
Key Concepts:
Operating Departments Support Departments Undistributed operation expenses Fixed Charges Direct and Indirect costs Operating Efficiency, Profit Margin, GOPPAR Labour costs, Cost of Sales, Overheads
Media and Materials:
Video Lecture 6 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 7
Measuring Hotel Performance: Costs and the Break-Even Point
Objectives: 1. Understand the nature of costs of a hotel 2. Understand the relationships between costs, volume, revenues and profits and the relevance to RM 3. Calculating break-even point and revenue for a specific profit goal
Key Concepts: Variable, mixed and fixed costs Contribution margin Break-even point
Media and Materials:
Video Lecture 7 Section Slides Exercises Section Quiz
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Section 3 Revenue Management Tools and Techniques
Section 2 A Good Revenue Management Strategy Lecture 8
Revenue Management Challenges for Small and Independent Hotels
Objectives: 1. Understanding the difficulties that small and independent hotels have in establishing a strong Revenue Management system and culture
Key Concepts:
Multi-tasking environment Human capital requirements RM system requirements Technology limitations
Media and Materials:
Video Lecture 8 Section Slides Expert Interview
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Section 3 Revenue Management Tools and Techniques
Lecture 9
Knowing your hotel, your ideal guest and how to attract them
Objectives: 1. 2. 3. 4.
Define your own hotels’ service and products as a value offering Understand the needs and want of your guests and how to address them Understand how the market is segmented in which your hotel operates Targeting and reaching your ideal guest
Key Concepts:
Guests’ needs and wants Value offering Segmentation Targeting Promotion and communication
Media and Materials:
Video Lecture 9 Section Slides Expert Interview
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Section 3 Revenue Management Tools and Techniques
Lecture 10
Technology & Information Requirements
Objectives: 1. 2. 3. 4.
Understanding the information management systems required for RM Data capturing requirements for RM Self-steered and simple techniques for performing the basic functions of RM Third party information solutions for small and independent hotels
Key Concepts:
Booking data Demand tracking Market demand information Competitor performance information Third party consultants
Media and Materials:
Video Lecture 10 Section Slides Reading
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Section 3 Revenue Management Tools and Techniques
Lecture 11
Knowing your Competitors
Objectives: 1. 2. 3. 4. 5. 6.
Collecting data about your market and competitors Benchmarking your main competitors Positioning your hotel in comparison to your competitors Calculating the primary Revenue Management indexes Using competitor analysis data for example a STAR report Evaluate your hotel’s RM performance in relation to your competitors
Key Concepts:
Benchmarking Positioning Market penetration Index Average Rate Index Revenue Generating Index STAR reports Competitive position
Media and Materials:
Video Lecture 11 Section Slides Expert Interview
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Section 3 Revenue Management Tools and Techniques
Lecture 12
Creating a Revenue Plan
Objectives: 1. 2. 3. 4. 5. 6.
Defining the profit goals based on expected return for owners Establishing revenue targets through forecasting Considering volume and price considerations for revenue forecasting Determining expenses on the basis of revenue forecasts Calculating expected profitability Understanding the process of budgetary control and variance analysis
Key Concepts:
Financial Objectives Return on investment Budget process Forecasting Budgetary control Variance Analysis
Media and Materials:
Video Lecture 12 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 13
Social Media and Relationship Management
Objectives: 1. 2. 3. 4.
Define and describe the elements of the Social Media environment Explore some of the main Social Media sites and how to effectively manage your online presence Understand the value of guest relationship management Describe guest relationship management in a Revenue Management context
Key Concepts:
Social Media Social Networking sites Blogging and micro blogging Guest rating sites Travel websites User generated content Guest engagement and relationship management
Media and Materials:
Video Lecture 13 Section Slides Expert Interview Section Quiz
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Section 3 Revenue Management Tools and Techniques
Section 3 Revenue Management Tools and Techniques Lecture 14
Rate Management
Objectives: 1. 2. 3. 4. 5.
Understand how the hotel’s value offering relates to the guest’s willingness to pay Differentiating products and services, and charging the right price Setting room rates for different segments Creating a comprehensive rate structure Understand how rates relate to different channels
Key Concepts: Value offering & pricing Segmentation pricing Rate structure
Media and Materials:
Video Lecture 14 Section Slides Reading
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Section 3 Revenue Management Tools and Techniques
Lecture 15
Distribution & Channel Management
Objectives: 1. 2. 3. 4.
Understand the elements of a hotel distribution system Knowing how to choose the right distribution channels for your hotel Explore ways of optimizing reservation management Managing different room rates effectively through multiple channels
Key Concepts:
Reservations and inventory control Distribution Network Channel Management Channel Manager Rate Integrity Rate Parity
Media and Materials:
Video Lecture 15 Section Slides Expert Interview
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Section 3 Revenue Management Tools and Techniques
Lecture 16
Forecasting
Objectives: 1. 2. 3. 4. 5. 6. 7.
Understand what forecasting entails and how it relates to revenue management Evaluate the market and anticipate changes in demand and supply Understand constrained and unconstrained demand Making use of events and seasonal occurrences to anticipate higher demand periods Forecasting for different segments Monitoring booking pace Evaluating the accuracy of forecasts
Key Concepts:
Demand & Supply Constrained & Unconstrained demand Seasonality Booking pace Pick-up MAD MAPE
Media and Materials:
Video Lecture 16 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 17
Displacement Analysis
Objectives: 1. 2. 3. 4. 5. 6.
Define Displacement Analysis Understand the conditions of displacing transient bookings Calculating the total revenue value of a booking enquiry Calculating the profit potential of a booking enquiry Determining the most value-adding booking enquiries to accept Evaluate other factors in accepting or rejecting booking enquiries
Key Concepts:
Transient room nights Displaced rooms nights Peripheral revenues Total contribution margin Long term guest value
Media and Materials:
Video Lecture 17 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 18
Price Fencing
Objectives: 1. 2. 3. 4.
Define Price Fencing Review the different types of Price Fences Understand how price fencing can be used in Revenue Management Avoiding the pitfalls of ineffective price fencing
Key Concepts:
Price Fences Room Related fences Transactional fences Consumption fences Guest related fences
Media and Materials:
Video Lecture 18 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 19
Managing No-Shows and Overbookings
Objectives: 1. 2. 3. 4. 5.
Understand the impact of no-shows and overbookings on hotel revenues Devise an effective no-show policy Devise an effective overbooking policy Devise clear procedures to follow in the event of no-shows and overbookings Maximize occupancy through accurate no-show and overbooking forecasting
Key Concepts:
Now-shows Overbookings Accurate forecasts Policies and procedures
Media and Materials:
Video Lecture 19 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 20
Measuring and Managing Channel Efficiency
Objectives: 1. 2. 3. 4. 5.
Understand the different kind of distribution costs Explain the Agency and Merchant models of distribution channels Calculate the channel contribution Calculate the channel efficiency Explore different ways in cutting down on distribution costs
Key Concepts:
Distribution costs Fixed fees Commission Agency & Merchant models Channel contribution Channel efficiency
Media and Materials:
Video Lecture 20 Section Slides Exercises
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Section 3 Revenue Management Tools and Techniques
Lecture 21
Total Hotel Revenue Management
Objectives: 1. Explore revenue management possibilities beyond room sales in relation to Total Hotel Revenue Management 2. Explain revenue management for meeting and conference spaces 3. Explain revenue management for spa, golf and other leisure activities 4. Review food & beverage revenue management practices 5. Understand the contribution of Total Hotel Revenue Management to hotel profitability
Key Concepts:
Total Hotel Revenue Management Meeting & conference spaces Spas, golf and other leisure activities F&B Revenue Management Bottom-line maximization
Media and Materials:
Video Lecture 21 Section Slides Exercises Section Quiz
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