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SHA531: Introduction to Hotel Revenue Management
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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.
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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.
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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.
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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
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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?
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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.
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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.
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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.
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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.
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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?
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Activity: Measuring Revenue
An interactive presentation appears below. Use this resource to enhance your understanding of RevPAR. This
presentation does not contain audio.
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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.
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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.
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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!
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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.
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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.
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Watch: Reducing Duration Uncertainty
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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.
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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?
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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?
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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
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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.
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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?
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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.
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Watch: Managing Revenue in Other Industries
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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
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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.
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Stay Connected
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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.
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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
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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
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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
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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.