ADHM 360 Lecture Notes - Lecture 10: Demand Forecasting, Variable Pricing
20 Jun 2018
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Revenue Management
Variable pricing strategy based on anticipating product demand in order
to maximize revenue for fixed, time-limited products (ex: hotel rooms,
airline seats, rental cars)
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Originated in the airline industry
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Max. revenue- increase: occupancy and room rates
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Basics:
Economic principles of supply and demand
When supply is held constant, increase in demand results in
increase in price
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When demand is held constant, increase in supply leads to decrease
in price
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Demand-forecasting is key in the short term
Holds room rate high during times of high demand
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Decreases room rates during times of low demand
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Hotel Industry application
Capacity Management (CM)
Methods of controlling and limited room supply
Selective overbooking
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CM balances the risk of overselling rooms against the potential loss
of revenue arising from room spoilage
Room spoilage:
Rooms going unoccupied after the hotel stopped taking
reservations for a given date
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Accurate forecast of cancellations and no-shows
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Overbook more rooms in lower priced categories
Upgrading to higher-priced rooms is acceptable
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Discount Allocation (DA)
Involves restriction the time period and rooms available at reduced
rates
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Theory
Sales of a perishable item (guestrooms) at a reduced price is
better than no sales at all
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Goals of DA
To protect enough remaining rooms at a higher rate to satisfy
the projected demand while filling rooms at a lower rate the
would otherwise have remained unsold
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Requires a reliable mechanism for demand forecasting and analysis
of price elasticity in the market.
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Duration Control (DC)
Places time constraints on accepting reservations in order to
protect sufficient space for multi-day request
A reservation for a one-night stay may be rejected, even
though space is available for that night
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Can be combined with discount allocation
A three0night stay may be available for discount□
A one-night stay may require the rack rate□
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Yield Statistic
The ratio of actual to potential (maximum) revenue
Actual revenue: revenue generated by number of rooms sold
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Potential revenue: Revenue the would be received if all rooms were
sold at the rack their rack rates
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Yield Statistic= Actual room revenue / potential room revenue
Or: = occupancy percentage x Achievement factor
Achievement factor = actual average room
rate(ADR)/potential average room rate
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((# of rooms * occupancy rate) x ADR ) / potential room revenue =
yield statistic
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Potential average daily rate: potential revenue / total rooms
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Ch. 10 Revenue Management (yield Management)
Tuesday, April 17, 2018
11:16 AM
