SHA531: Introduction to Hotel Revenue Management...The goal of hotel revenue management can be...

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SHA531: Introduction to Hotel Revenue Management


This course includes:

Two self-check quizzes

One discussion review assignment

Completing all of the coursework should take about six to eight hours.

What You'll Learn

To describe hotel revenue management and its benefits

To discuss the strategic levers of hotel revenue management and how they can be manipulated to increase

revenue

To describe hotel revenue management in terms of component parts and critical considerations

To recommend ways in which revenue management can be applied to other hospitality-related industries

Start Your Course

Welcome! Revenue management can be applied to any business that has relatively fixed capacity, perishable inventory,

and time-variable demand. This course, produced in partnership with the ,Cornell School of Hotel Administration

introduces you to the basics of revenue management in the hotel industry: how to apply pricing and length-of-stay tools

and how to measure your revenue management performance.

http://www.hotelschool.cornell.edu/


The goal of this course is to inspire you to shift your thinking about revenue management from a focus on occupancy and

average room rate to a focus on revenue per available room (RevPAR).

Sheryl Kimes Professor, Cornell University

is a professor of operations management at the School of Hotel Administration. From 2005-2006, sheSheryl E. Kimes

served as interim dean of the School and from 2001-2005, she served as the school's director of graduate studies. Kimes

teaches restaurant revenue management, yield management and food and beverage management. She has been named

the school's graduate teacher of the year three times. Her research interests include revenue management and

forecasting in the restaurant, hotel and golf industries. She has published over 50 articles in leading journals such as

, , , , and the Interfaces Journal of Operations Management Journal of Service Research Decision Sciences Cornell

. She has served as a consultant to many hospitality enterprises around the world, including Chevy'sHospitality Quarterly

FreshMex Restaurants, Walt Disney World Resorts, Ruby's Diners, Starwood Asia-Pacific and Troon Golf. Kimes earned

her doctorate in Operations Management in 1987 from the University of Texas at Austin.


Module Introduction: What is Hotel Revenue Management?

In this first module of Introduction to Hotel Revenue Management, explore the basic concepts of the revenue management approach.

Use price and duration characteristics to define the most suitable candidates for revenue management, and find out about other

conditions necessary to its implementation. Finally, see why revenue per available room-night (RevPAR) is a powerful tool for

assessing profitability.

The goal of hotel revenue management can be summed up simply as follows: selling the right room to the right customer

at the right price at the right time. On a playing field defined by duration and price, the game of hotel revenue management

presents the challenge of maximizing revenue per available room.

In this module, Professor Sherri Kimes introduces you to the key concepts of hotel revenue management.

There are many measures of how well a hotel is doing and the extent of its success. In hotel revenue management,

revenue per available room-night (RevPAR) is of particular interest. This measure is simple to calculate and easy to use.

It's a valuable and powerful tool because it communicates information about rate and occupancy simultaneously.


Read: About the Course Discussions Assignment

Additional discussions with other eCornell students and your instructors can be found in the . eCornell Forum Join in these

extended Hotel Revenue Management discussions but only discussions contained within the course can be used in the

Course Discussions Assignment.

Discussions with your instructor and colleagues are an important part of your learning. As part of your coursework, you

must respond meaningfully to two of the discussion questions in this course.

At the end of the course, you will complete a . For this assignment, you will write an essay forCourse Discussions Assignment

each of two questions you responded meaningfully to. Your essays could cover new ideas you discovered, changes you

will make as a result of this discussion, next steps you will take based on the discussion, etc. Each essay should be about

400 words (two paragraphs).

What is meaningful participation?

A meaningful discussion post:

Is at least 200 words or more

Responds directly to the prior post

Extends the discussion beyond "I agree" or "I think that is right".

Is on topic and contributes to the core discussion

http://exchange.ecornell.com/


Watch: The Hotel Revenue Management Approach

You are a candidate for a management position with a small chain of hotels located in and around a major city. The

interviewing committee is impressed with your credentials and your knowledge of the industry. During your interview, they

provide you with some management reports for four hotels in the region. From this information and from what the

committee tells you, you learn that these hotels offer just one rate for all guests, regardless of the day of the week, time of

the year, or an individual guest's potential group affiliation. Occupancy levels at some of the hotels seem to be quite low,

though demand should be high. Current management is tracking no-shows but not forecasting no-shows. In fact, very little

is being done with regard to forecasting.

The committee's question to you is: if you were to come work for us, how would you improve occupancy levels and overall

profitability at these hotels?


Read: First There Was Yield Management

Key Points

Basically, yield management is the process of allocating the right type of capacity to the right kind of customer at the right

price so as to maximize revenue or yield.

View The Basics of Yield Management article

Yield management is becoming standard operating procedure for many hotels with sophisticated electronic

property-management systems. Appropriately tailored to the hotels they serve, yield-management systems generally

increase revenue and take much of the guesswork out of room-management decisions.

However, installing a yield-management system can create problems if management does not lay the proper groundwork.

This article ( ) by Professor Kimes addresses the issues operators should consider inThe Basics of Yield Management

determining whether yield management is right for their property and discusses some of the measures managers should

take to pave the way for the successful adoption of such systems.

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/sha531_113_yieldmanagement_en-us.pdf


Read: Revenue Management Evaluation Guide

Key Points

Many hotels have found that using revenue management has led to an increase in revenue of 2% to 5%.

Revenue management can be applied to many businesses and industries,

Price and duration, the two strategic levers critical to revenue management, provide a framework for considering the

extent to which businesses and industries are in the best position to take advantage of revenue management methods.

Let's look at different approaches to managing hotels using the framework, and think about ways in which hotel

management does or does not take advantage of revenue management methods.

Consider the matrix shown here, which plots representative hotels along the dual axes of duration and price, where

duration is either controlled or uncontrolled and price is either relatively fixed or variable. How might hotels in quadrants 1,

3, and 4 move into quadrant 2 and increase their revenue? Traditionally, hotels have not controlled length of stay and

have offered only one or two prices for each room. In short, revenue management has not been not practiced in traditional

hotels. Such properties fall into in quadrant 3.

Some initial attempts at revenue management came about when hotel managers tried the sort of top-down pricing

methods they saw in the airline industry. Hotel customers soon found that it was possible to receive lower rates just by

asking. This variable-price approach moved these hotels from quadrant 3 to quadrant 4. They were on their way to

managing revenue more effectively. However, customers viewed the top-down system as unfair. Not all customers knew

to ask for lower prices. If, after making their purchase, they found out they could've negotiated a lower rate, they were

likely to be upset. In this way, hotels learned that a multi-price approach would not work well for them unless customers

believed the rate practices were fair.

Hotels that were able to associate fairness with multiple prices established a firmer position in quadrant 4. Other

organizations, such as the Forte Hotels, incorporated length-of-stay controls in the absence of multiple prices. These

hotels fall into quadrant 1. Hotels in either of these positions are practicing a limited form of revenue management.


Hotels that are able to incorporate length-of-stay controls as well as multiple pricing are in quadrant 2, of course. Such

organizations, including Shangri-La, Ritz Carlton, and Raffles, are practicing the most comprehensive form of revenue

management.

Is it worth it to use revenue management? Many hotels have found that using revenue management has led to an

increase in revenue of 2% to 5%. So they would say yes, it is worth it. And it's worth it for a variety of management

challenges.

Consider a hotel that runs at about 95% occupancy all the time. It's true that they're doing a good job. However, it might

be possible to increase their average room rate and increase their revenue. Revenue management can help.

Now consider a hotel that runs at about 50% occupancy most of the time, with busy weekends and other periods. This

hotel can try to maximize revenue for busy periods using length-of-stay controls and variable pricing. Revenue

management is applicable here, too.

Finally, consider a hotel that runs at about 40% to 50% occupancy all the time. Revenue management is often used in

managing excess demand, but it can also be used by hotels to increase demand. So revenue management can be used

to increase revenue at this hotel, too.

In fact, revenue management can be applied to many businesses and industries, using exactly the same approach as we

discuss here, and by considering the same strategic levers.


Read: Strategic Benefits of Revenue Management

Key Points

There are four steps involved in implementing a revenue management system: collect data, create forecasts, design

controls, and communicate with your agents and customers.

A revenue management system is a great way for hotels and other businesses to improve their financial performance.

Though implementing a revenue management system may seem like a question of putting the right information technology

in place, that's only the beginning. Here's an overview of the four steps involved. As you build your knowledge of hotel

revenue management through this and subsequent courses, you'll come to a deeper understanding of what is involved in

each step. At this point in your studies, use this overview as a framework to guide your exploration of these topics and to

get you on the road to increased revenue.

How to develop a revenue management system

Before you begin, you need a good information system that makes data easily accessible. Then you need to:

Collect data

Assemble and analyze data about your hotel, such as:

How far in advance reservations are made. For example, do your reservations come in near the day of

arrival or far in advance?

The rate at which reservations come in by market segment

Demand patterns according to time of year and day of week

These data are essential for your revenue management system

Create forecasts

If you don't do this already, you'll need to start using historical data to build forecasts for each of your market segments.

Determine which pricing and length-of-stay controls you need to put in place

You should a defined overbooking policy in place already. In addition, you should have an idea of how a change in price

will affect demand.

Train the reservations agents and set up your web site

You need to communicate clearly with your customers.


Watch: RevPAR Calculations

Hotel Occupancy Average Rate

A 90% $80

B 80% $90

C 60% $120

D 40% $180

You are a candidate for a management position with a small chain of hotels located in and around a major city. You did

very well in your first interview and you've been called in to meet again with the interviewing committee. During your

second interview, the committee provides you with this data on four of their hotels. You note immediately that Hotel A

has an impressive occupancy rate. On the other hand, Hotel D maintains the highest average room rate. Hotels A

and D appear to have significant strengths. On the other hand, Hotels B and C also look good. The committee's

question to you is, of the four hotels, which would you rather manage?


Activity: Measuring Revenue

An interactive presentation appears below. Use this resource to enhance your understanding of RevPAR. This

presentation does not contain audio.


Read: Hot, Warm, and Cold

Key Points

Both occupancy percentage and average daily rate communicate something about a hotel's success

RevPAR offers a measure of the hotel's revenue in terms of the hotel's revenue capacity

RevPAR provides more complete information about revenue and about revenue increases than occupancy percentage

and average daily rate

Consider the sample data for a hotel where occupancy fluctuates a great deal as you learn more about the uses of

RevPAR.

We have established that both occupancy percentage and average daily rate communicate something about a hotel's

success at generating revenue. RevPAR offers something more: a measure of the hotel's revenue in terms of the hotel's

revenue capacity.

Let's take a look at one way in which RevPAR can be used as a tool to you manage your hotel's revenue.

As we have noted, occupancy data like these provide information about the revenue the hotel is taking in. If we prefer to

examine RevPAR values for each time period, as we would in hotel revenue management, it's easy enough to convert

these data using the relationship RevPAR = rate x occupancy and assuming an average daily rate for this hotel of $100.

Now that we have RevPAR data, what can we do with them? Before we go on, let's simplify things a little. One technique

used by revenue managers to make it easier to read the dense information displayed here is to color-code the values

within the table. For example, high RevPAR can be colored red, for hot. Low RevPAR can be colored blue, for cold.

RevPAR in the middle usually remain white.


Apply Hot and Cold Approaches

Let's see how a hot/warm/cold table like this one can be used as a revenue-management tool. Note that hot, warm, and

cold zones appear at different times during the week and during the year. Sometimes RevPAR is high and sometimes it's

low. Revenue management is applicable to all these situations, though the specific revenue management strategies you

employ may vary from one situation to the next.

Let's see how that might work:

Cold Period

If you employ a strategy to increase the average rate for a cold period, you probably will get poor results. Occupancy

could go down if not already zero. RevPAR is not likely to increase.

If you employ a strategy to increase occupancy during this time period, you probably will see some increase in RevPAR in

some instances.

Hot Period

If you employ a strategy to increase the average rate for a hot period, you probably will see some increase in RevPAR.

If you employ a strategy to increase occupancy during this time period, you probably will get poor results. Occupancy is

already quite high. RevPAR cannot increase very much, if at all.

Why Use RevPAR?

Why is it helpful to use RevPAR, as we did here, instead of occupancy or average daily rate, as a revenue-management

tool? Because RevPAR provides more complete information about revenue and about revenue increases. Using RevPAR,

you see improvement when you raise the rate during a hot period-whereas if you looked only at occupancy, you might be

concerned about a drop in average daily rate during cold periods. However, by looking at RevPAR, you can see this rate

change as positive: greater revenue per available room.

Curious about what strategies you can use to increase occupancy or raise rates? These topics will be covered later in the

course.


Module Introduction: Strategic Levers and Component Parts

This module examines how managers can work with the two strategic levers of hotel revenue management, price and duration, to

increase revenue. It also explores some of the practical aspects of putting revenue management into action, including the component

parts of the revenue management system and the key elements of revenue management.

The two strategic levers of hotel revenue management are price and duration. Your success as a revenue manager is

contingent upon your ability to work with these levers effectively. To do this, you must be able to make the duration of your

guests' stays more predictable. In this module, you will find out how to manage duration and take some of the mystery out

of guest-stays.

Imagine going into a store one morning to buy a compact disc. The sign on the rack informs you that the compact disc you

want is priced at $12.75 till 11am, at $15.95 till 5pm, and after 5pm at $18.50! This would surprise and probably dismay

you-you expect one price. But if this CD were a hotel night, a cell-phone minute, or an airline reservation, you might not be

surprised by similar variations in price.

This module asks you to consider the issue of variable pricing as it applies to hotel revenue management.

What you've learned so far about hotel revenue management should raise a number of questions in addition to answering

many others. For example, can revenue management be applied to other areas of the hotel (not just rooms) and to

industries other than the hotel industry? Also, what really makes up a revenue management system-is it more than

information technology and a set of decisions? Just how far-reaching is it? This module answers some of these questions

and provides a few good tools to get you started.

If you have not already done so, this would be a great time to respond to the course discussions.

Don't forget that you will have a Course Discussions assignment due at the end of the course!



Read: Uncertain Times

Case Study Random Stays Hotel

The new manager at Random Stays Hotel has noted some problems in her

monthly reports. Occupancy percentages are somewhat low, even though

demand is normally high. The manager is concerned that her employees at the

front desk and in the reservation office are making errors. Or is it a software

problem?

After investigating the situation, she finds that both her front-desk and reservation

office teams are performing as they were trained to and according to the hotel's

existing policies. That's the good news! The bad news is that low occupancy may

be a management problem. For example, it seems that there are no policies

regarding when guests may check in or check out. Currently, guests check out at many times of the day, from early

morning to late afternoon. They arrive for check-in at many times of the day and night, too-including mid-morning and after

midnight. Sometimes, of course, guests do not show up at all. In those cases, rooms remain empty even when there is a

demand for them.

The lack of policies surrounding check-in, check-out, and no-shows has put a strain on several teams on the hotel's staff

and probably accounts for some of the problems with occupancy. Can this be fixed?

Explore the activities in the following pages to find out.


Read: Redefining Duration

Key Points

The condition best suited to revenue management is controlled duration.

When duration is not controlled, rooms are likely to remain empty and opportunities for revenue are likely to be lost.

, as we have already stated in this course, is one of two strategic levers of hotel revenue management. WeDuration

usually speak of hotel room stays in terms of nights, though a guest's expectation would be to have the hotel room for

more than just nighttime hours. In fact, we might consider the duration of a reservation to be a full day-24 hours. However,

this is not usually the case. Check-in might be at 3pm and check-out at noon, so the true duration typically might be 21

hours.

Duration is not the same at all hotels. There are hotels that sell rooms for less than a night. For example, airport hotels

might sell rooms for 6 hours or for a third of a night. Other hotels may rent for varying lengths of time, including for an

entire 24 hours. In addition, guests will check-in and check-out at different times. Regardless, the duration of hotel room

availability is considered controlled in that the hotel room can be occupied after a specified time and must be vacated by

some other specified time. For other industries, the duration is not so explicitly controlled. For instance, duration for a meal

at a restaurant or for eighteen holes at a golf course is not controlled. In these cases, there is no specified end time.

The condition best suited to revenue management is controlled duration. As long as duration is controlled by the hotel,

revenue management can be used effectively.

Some hotel space is rented on a different schedule all together. For example, hotels often include meeting space in

addition to rooms, and this might be rented by day part or by the hour. Controlling duration also applies here: the hotel

may require that day rentals extend only until 5pm and evening rentals begin after 5pm. Controls like these enable the

hotel to maximize the use of these spaces.

Hotel managers seeking to utilize resources such as guest rooms and meeting space effectively need to control the

duration of use associated with these resources. When duration is not controlled, rooms are likely to remain empty and

opportunities for revenue are likely to be lost.


Watch: Reducing Duration Uncertainty


Read: Tips for Managing Duration

Key Points

Reducing duration uncertainty-the uncertainty of when and how long each stay will be-will help you manage revenue.

In hotel management, it is impossible to know in advance the exact arrival and departure times of your guests. Reducing

duration uncertainty-the uncertainty of when and how long each stay will be-will help you manage revenue. Here are some

suggestions for how to do it.

Reduce Arrival Uncertainty

External measures

Require a credit-card guarantee

Call customers to remind them about their reservation

Impose cancellation penalties

Caveat: You may end up annoying your customers. Do not use during slow periods.

Internal measures

Use overbooking to reduce or control the no-show rate

Reduce Length-of-Stay Uncertainty

Internal measures

Remind customers how long their stay is supposed to be

Count how many people are going to be staying for one night, two nights, and three nights, and build that into the

forecast

External measures

Impose an early-departure fee

Have guests initial a departure date when they check in

Call guests to remind them of their length of stay

Caveat: You may end up annoying your customers with these external measures. Use judiciously.

Manage Duration Wisely

Do not limit your focus to cost: when evaluating approaches to managing duration, the cost of implementing a new

approach may be significant, but the revenue you gain as a result of implementing that approach may be much

greater.

Consider the impact on customer satisfaction. Use revenue management for the long term, not the short term. Be

very careful that when you implement revenue management, you keep your customers in mind.


Activity: Manage That Duration!

In this activity, you must increase your hotel's profits by selecting and taking specific actions. Each action you take has

consequences. This game of skill and chance is designed to help you answer an important question: can you manage

duration?


Watch: Variable Pricing

Welcome to the Stay the Same Hotel. This multistory waterfront hotel has 200 rooms, all of which are furnished with two

queen-sized beds. Some rooms are designated nonsmoking, some are designed for handicapped access, and some

provide an excellent view. However, the hotel has always made all rooms available at the same rate. Though the new

general manager is very interested in developing a new multi-price approach, the owners of the hotel would prefer to have

things stay the same.

Is there any strong evidence that a multi-price approach would be more profitable? The general manager is wondering if

the topic is worth pursuing. Should he just drop it?


Read: Managing Revenue with Price

Key Points

It is possible to charge different consumers different prices for the same product or service.

Creating rate fences is a good way to deal with the question of who will pay what price.

What Prices to Charge

Though the one-price approach is common, it is possible to charge different consumers different prices for the same

product or service. Setting prices may be done according to:

: prices are determined based on what competitors are chargingCompetitive pricing

: prices are higher for high-demand times and lower for low-demand timesDemand-based pricing

: the price a customer expects to pay for a service or product. Reference prices can be based onReference pricing

the price last paid, the price most frequently paid, the price other customers say they paid for similar offerings, or

market prices and posted prices. For example, customers may know that they generally pay about $100 per night

to stay in a particular city, so their reference price for a hotel room in that city is $100.

Who Pays Which Price

Creating rate fences is a good way to deal with the question of who will pay what price. Using rate fences, you allow

consumers to segment themselves into market groups, based on their willingness to pay, their behavior, and their needs.

Here are some types of rate fences:

: for instance, rates are linked to particular locations,Physical rate fences

views, or amenities

: for instance, rates are linked to product classesProduct-line rate fences

such as top-of-the-line or deluxe versus economy

: for instance, rates are determined byControlled-availability rate fences

coupons, by the guest's or hotel's geographic location, or by distribution

channel

: for instance, seniors, kids, or group members get special pricesBuy-characteristics rate fences

The pricing information provided in this course is intended as an introduction to the topic. If you want to learn more about

developing pricing policies, you might be interested in the third course in this series: Pricing and Distribution Channel

.Management in Hotel Revenue Management


Read: Best Available Rate

Key Points

With best-available-rate pricing, customers are quoted individual rather than blended rates. This approach is perceived as

fair and honest.

View the Best-available-rate Pricing at Hotels article

Variable pricing is a powerful tool for managers interested in optimally matching the supply of hotel rooms with customer

demand. However, policies and procedures that stem from these strategies can be confusing to customers and may

create a negative impression. In this paper, Professor Kimes and her coauthor explore the question of whether variable

pricing can be used to maximize revenue without compromising customer satisfaction. Their survey explores the public

perception of best-available-rate pricing, where customers are quoted individual rates, rather than one blended rate,

whenever multiple rates apply. The survey findings indicate that customers view this approach as fair and honest.

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/sha531_225_bstavlblrt_en-us.pdf


Watch: Component Parts

The rooms manager at The Big Picture Hotel is writing a proposal to begin a revenue management program. She would

like to have some of the other managers at the hotel help her with her proposal and get excited themselves about revenue

management, but she's reluctant to involve new people in her plan until she fully understands what the program might

mean to them. If she were to get a program started that focuses on rooms, could she keep the effort confined to just

rooms staff, or would she need others to buy in? What about talking to the restaurant manager or the spa manager about

revenue management for their areas? Just how far could this approach reach?


Read: What You'll Need to Get Started

You can increase revenue. Using the revenue management approach to developing pricing policies and implementing

length-of-stay controls, you can improve your RevPAR. By considering component parts like marketing and training, in

addition to the technical aspects of revenue management, you can help to build a successful revenue management

organization. Are you ready to get started?

Before you begin, review these four ingredients for a revenue management system.

1. Forecast

First of all, you need a forecast of arrivals and departures. This is the most important ingredient. Without a forecast, you

can't do revenue management. Furthermore, if you have a bad forecast, you will have a bad revenue management

system.

2. Overbooking Strategy

The second thing you need is an effective overbooking strategy. As we all know, just because people make reservations

doesn't mean that they will honor them. As a manager, you need to work with the reality of no-shows and keep you

occupancy rates high when demand is high. Overbooking is covered in depth in the fourth course in this series,

Overbooking Practices and Group Management in Hotel Revenue Management.

3. Pricing Strategy

Third, you need a coherent pricing strategy. What are the different prices you're going to be offering, and who are you

going to be offering those prices to? Pricing issues are covered in depth in the third course in this series, Pricing and

Distribution Channel Management in Hotel Revenue Management.

4. Information System

And finally, you need an information system to collect all of these data, enabling you to make quick decisions.


Watch: Managing Revenue in Other Industries


Read: Revenue Management Retrospective

Key Points

The techniques of revenue management have potential application in many industries-as long as customers view the

resulting policies as being fair.

View the Revenue Management Retrospective article

Professor Kimes's paper, "Revenue Management Retrospective," reviews the evolution of her research in revenue

management and discusses areas for further inquiry. It examines descriptive revenue management research, covering

applications to other industries; pricing research, covering development of pricing strategies; and inventory-control

research, covering customer arrival and use patterns.

It also includes information about many related articles that have appeared in the Cornell Hotel and Restaurant

, as well as research questions that-at the time of its publication-had yet to be investigated.Administration Quarterly

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/sha531_235_revmanageretro_en-us.pdf


Read: Thank You and Farewell

This is Sherri Kimes again. I'd like to thank you for taking this course. I hope I've gotten you interested in revenue

management and that you are interested in looking at other opportunities for how to increase revenue at your hotel. You'll

have to go to the next page-you can find out about some of the other learning opportunities that we have available through

eCornell. Again, thank you for your time.


Stay Connected


Supplemental Reading List

The provides focused whitepapers and reports based on cutting-edge research.Center for Hospitality Research

The following articles are presented in .pdf format. You will need Adobe Reader® to view these articles. If it is not already

installed on your computer, you can download it (free) from the .Adobe Web site

Hanks, Richard D., Robert G. Cross, and R. Paul Noland. " "CornellDiscounting in the Hotel Industry: A New Approach.

Hotel and Restaurant Quarterly 43(2002): 94-103. (This article originally appeared in Cornell Hotel and Restaurant

Administration Quarterly in February of 1992.)

Kimes, Sheryl E. Feb 2002. " ." Cornell Hotel and Restaurant AdministrationPerceived Fairness of Yield Management

Quarterly 43 (2002): 20-30.

Kimes, Sheryl E. Aug 2002. " A Retrospective Commentary on Discounting in the Hotel Industry: A New Approach.

"Cornell Hotel and Restaurant Administration Quarterly 43 (2002): 92-93.

Orkin, Eric B. Aug 1998. " Wishful Thinking and Rocket Science: The Essential Matter of Calculating Unconstrained

" Cornell Hotel and Restaurant Administration Quarterly 39 (1998): 15-19.Demand for Revenue Management.

Withiam, Glenn. " " Center for Hospitality Research Reports 1.1 (2001): 1-20.A 4-C Strategy for Yield Management.

http://www.hotelschool.cornell.edu/research/chr/

http://www.adobe.com/index.html

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/SHA531_991_Discounting_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/SHA531_991_PerceivedFairness_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/SHA531_991_RetrospectiveCommentary_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/SHA531_991_WishfulThinking_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/SHA531_991_WishfulThinking_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA531/SHA531_991_withiamyieldmanagement_en-us.pdf


Glossary

best-available-rate pricing

a strategy used within a variable-pricing framework in which the lowest ("best") rate available for each night

is quoted for a multi-night stay, rather than a blended rate.

cold period

a period (a season, month, day, or time of day) when demand is low. From the perspective of hotel revenue

management, cold periods are times when discounted rates and incentives can be used to try to increase

occupancy and improve RevPAR.

competitive pricing

a pricing strategy that bases prices on what competitors are charging.

demand-based pricing

a pricing strategy that sets higher prices for periods of high demand and lower prices for periods of low

demand.

duration

in hotel revenue management, this refers to a hotel guest's length of stay. It is a goal of revenue

management to predict duration as accurately as circumstances will allow.

elastic demand

a result of higher competition and standardized services. When demand is elastic, consumers are more

responsive to price changes.

external controls

direct control by a hotel over customers concerning the length of their stays. External controls include

penalties for departures and no-shows.

fixed capacity

the condition under which only a specific number of customers can be accommodated at one time. For

example, a hotel has a fixed capacity determined by the number of rooms in its building.

fixed pricing

a pricing strategy that does not vary prices according to demand, product characteristics, or segmentation of

markets. Fixed pricing is strongly discouraged in revenue management.

forecast


in hotel revenue management, an estimate of the number of rooms that will be sold for use on some future

date. Accurate forecasting makes it possible to employ the strategies of revenue management appropriately,

according to the expected level of demand.

hot period

a period (a season, month, day, or time of day) when demand is great. From the perspective of hotel

revenue management, a hot period is when rates can be set higher and length-of-stay controls can be used

to improve RevPAR.

inelastic demand

a result of low competition and highly differentiated services. When demand is inelastic, consumers are

unresponsive to changes in the price of a product or service.

internal controls

indirect control by the hotel over duration of use by the guest or potential guest. Internal controls include

courtesy calls that serve as reservation reminders and the requirements that guests record a departure date

at check-in.

length-of-stay controls

all controls, internal and external, that regulate duration of use.

no-shows

individuals who, having reserved a room at a hotel or a table at a restaurant, never arrive.

one-price model

a commercial model that sets one price for an entire inventory regardless of the variation of demand for

certain features or variation of consumer profiles.

overbooking

the practice of reserving the same room at the same time to two different customers in order to compensate

for no-shows. Overbooking is essential to hotel revenue management.

price discrimination

an approach to pricing that introduces variations in price not associated with differences in the quality of the

product or service nor with the cost of production.

rate fence

a tactic used to segment customers into market groups based on their willingness to pay, their purchasing

behavior, or their needs. In hotel revenue management, the following rate fences may be used as part of a


variable-pricing strategy: physical rate fences (location, view, amenities), product-line rate fences (top of the

line vs. bargain), controlled-availability rate fences (coupons, those who ask), and buyer-characteristics rate

fences (seniors, kids, group membership).

reference price

the price customers think a service (or product) should cost. Reference prices may be based on the price

last paid, the price most frequently paid, the price other customers say they paid for similar offerings, or on

market prices and posted prices.

RevPAR

revenue per available room-night. This hotel-specific variation of RevPATI can be calculated in two ways: a)

by dividing the total nightly room revenue by the number of rooms available or b) by multiplying the average

room rate by the actual percentage of occupancy on a given night. This measure is used in revenue

management to analyze a business's ability to utilize its revenue capacity.

RevPATI

revenue per available time-based inventory unit. RevPAR and RevPASH are industry-specific variations on

this all-inclusive measure, which is calculated differently in different contexts and is used in all applications

of revenue management to analyze a business's ability to maximize its revenue capacity.

segmentable markets

markets composed of various classes of consumers, differentiated by how much they are willing to pay for a

product or service, by age, by frequency of purchase, or by affiliation with potentially profitable groups.

time-based inventory unit

in the leasing or renting of a product, any unit of time for which that product is made available, including

minutes, hours, days, and weeks.

unconstrained demand

a theoretical measure of the demand for a particular service or product that is the sum of all consumers who

have purchased or would purchase that product at a particular time. "Unconstrained" refers to the

elimination (in theory) of the constraint of availability.

variable pricing

pricing that is sensitive to the nature of the products offered (such as scenic views or wheelchair

accessibility of hotel rooms or time of day of telephone service) or the customer profile (such as

budget-conscious, elite, or affiliated with a potentially profitable group).

warm period


a period (a season, month, day, or time of day) when demand is neither high nor low.

yield management

an approach to maximizing revenue through the sale of the right product at the right price to the right

customer. "Yield management" is a precursor to revenue management.


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