RM Theory Chapter 1&2

Revenue Management

selling perishable services or products to the most optimal mix of customers to maximize revenue and profits

4 Core Concepts

• the right time

• right product/service

• right price

• right customer

• right distribution channel

6 Necessary Conditions of RM

• Perishable inventory

• Fluctuating Demand

• Cost Structure

• Fixed Capacity

• Multiple Market Segments

• Ability to forecast

Perishable Inventory

have to sell item before expiration to not lose revenue

Fluctuating Demand

market based on demand (ex. low season = begging, high season = choose by willingness to pay)

Cost Structure

avoid high fixed costs because more pressure to make revenue, low variable costs you want to make more packages

Fixed Capacity

aiming for a certain amount of people

Multiple Market Segments

some segments have more willingness to pay

Ability to Forecast

have to forecast in order to use dynamic pricing

Can you do revenue management without having all six conditions

yes

Willingness to pay

applies different prices for the same product or service

RM Objective

define how may rooms should be allocated for each market segment over time

Length of stay

hotels can make a min max of the amount of nights people can stay

minimum number of nights

low seasons

max number of stays

for high season so more people can come

Lead Time

knowing how much time in advance there is before bulk bookings

Multiplier Effect

how much extra money is spent on top of the hotel room

The RM Cycle

1. Forecast Demands

2. Develop Strategy

3. Tactical Controls

4. Track Results

Forecast Demand

unconstrained demand: potential demand

constrained demand: people already there

market conditions: see what is happening in the world that can influence demand

Develop Strategy

maximize contribution of each segment based on other factors

Tactical Controls

Want to select most valuable reservations based on willingness to pay

Track Results

compare KPIs to forecasted and make adjustments