How do hotels do Revenue Management

Revenue management, also known as revenue management, originated in the United States in the 197s and was introduced to China in the late 199s. Its theory is revenue management for non-storable assets or perishable goods, and it is also a dynamic pricing strategy to increase revenue.

In recent ten years, it has been successfully applied in many industries and has been paid attention to, and now it has been widely used in service industries. Successful cases include: American Airlines increased its revenue by $1 billion a year; From 1995 to 1999, the sales of American automobile industry rose from 3 billion to 7.5 billion, of which 3 billion came from the application of revenue management methods and systems. Revenue management is a relatively new technology, and its basic principle is to adjust the balance between supply and demand by applying the principle of price leverage, replace cost-oriented pricing with demand-oriented pricing, and replace unified pricing with differential pricing.

Revenue management is a service management system for hotel owners to maximize the profitability of the hotel. The system can achieve the goal of maximizing the profitability of the hotel by identifying the profitability of the market segments, determining the product value, price setting, discount generation, reservation filtering criteria, and effectively controlling the price and room resources. We usually define revenue management as selling hotel products or services to the best guests at the best time, at the best price and through the best sales channels, so as to maximize hotel revenue. Pass? Five most? The perfect combination of Internet and computer technology can effectively solve the practical problem of overall revenue decline caused by idle limited resources or price competition in the hotel industry. By means of market segmentation, demand forecasting, differential pricing, dynamic pricing, capacity control and room overbooking, artificial experience and computer intelligence can be highly combined to minimize the waste of hotel resources, tap the market profitability, and finally maximize hotel revenue.

when it comes to revenue management, managers often misunderstand that it can only be effective when the room occupancy rate is 1%. In fact, this is a misunderstanding. Hotel revenue management is a technology based on price lever to adjust the balance between supply and demand. No matter whether the hotel is full or not, this technology can effectively play its role and maximize revenue for each market segment. For example, in differential pricing and capacity allocation, it is only based on market segmentation and capacity control technology and is not affected by room occupancy rate; Only the oversubscription technology is effective when the hotel can realize full room. In addition, the main indicator to measure hotel revenue management is neither the average room occupancy rate (OCC) nor the average room price (ADR), but the indicator of their interaction? RevPAR(Revenue Per Available Room)。 Among many operating indicators of hotel room sales, only RevPAR can reflect the level of room income most effectively. Therefore, hotel managers should eliminate this misunderstanding and correctly understand the importance of applying revenue management in hotels. So, how can revenue management maximize revenue in hotels? The author makes a brief description from the following aspects for readers' reference!

1. Data mining and demand forecasting

As hotel rooms are perishable products, the market demand fluctuates frequently and is quite flexible. Therefore, it often brings customers a sense of time pressure, which increases the extensiveness and quickness of customers in hotel selection. If the hotel marketing or revenue department can't accurately grasp the future market demand, it will not only lose potential income and waste resources, but also lead customers to flow to other competitors. By implementing demand forecasting, grabbing market data from hotel PMS system over the years, adopting scientific forecasting methods and establishing forecasting models, and through data mining, hotel managers can accurately grasp the pulse of future market demand and improve the foresight of market judgment. Therefore, the implementation of demand forecasting technology can help hotel managers effectively solve the following problems.

1) Know the trend of future house prices, accurately formulate future room prices and implement price dynamics;

2) Predict the booking volume in a certain period of time, and increase the single room income through differential pricing and capacity control;

3) During the period of strong market demand, forecast the No Show rate and room Cancellations on a certain day, so as to make the overbooking quantity more accurate and avoid the occurrence of overbooking, which not only achieves the effect of full rooms, but also avoids unnecessary costs and expenses caused by overbooking.

second, market segmentation and differential pricing

differential pricing refers to the behavior and method of setting different prices for different customers or market segments through the same hotel products (such as the same type of rooms, meals, sports or entertainment items, etc.). Differential pricing is both an art and a science. Its artistry lies in finding a way to segment the market, so that we can charge high prices for customers with high willingness to pay and low prices for customers with low willingness to pay. Its scientific nature is embodied in maximizing the total income of all market segments by making and updating prices with the help of various technologies. From the perspective of economics, we realize differential pricing by introducing the concept of price discrimination. In the hotel market segmentation, we should fully consider the following principles to ensure the effectiveness of the segmentation. First, market segments should be measurable and accessible. Market capacity and hierarchical structure can be measured and can be achieved through various marketing means; Second, the market segment should have a certain scale, and the market capacity should be enough to make the hotel profitable; Third, each market segment must have considerable purchasing power, so that hotels can gain greater benefits through revenue management; Fourth, we should ensure that the average willingness to pay in each market segment is different and have the conditions to implement differential pricing; Fifth, the market segments are sustainable and have corresponding time continuity. In order to meet the needs of differential pricing and combine with the structure of hotel tourist market, the author thinks that hotels can consider differential pricing according to the following different markets. Group pricing; Including individual prices, student discounts, membership discounts, etc.; Second, channel pricing; Including OTA price, company agreement price, travel agency price, government price, etc. Three-time pricing; Including advance booking price, joint occupancy price, off-peak season price, end-of-season price, long-stay price, etc. 4. Quantity discount price; Including group price, conference price, wholesaler price, etc. 5. Preferential discount price; Including promotional price, new product price, special event price, guaranteed house price, etc.

although differential pricing can bring more benefits to hotels by finding guests who are willing to pay high prices, it is also limited by the following objective facts. Hotel managers should consider the following factors when adopting differential pricing, and try to avoid them to reduce risks. First, incomplete market segmentation. Because it is impossible to accurately measure each customer's willingness to pay and form a complete market segment, the best way to take at present is to segment the market in groups according to the above methods; The second is erosion. If differential pricing is adopted, those customers with high payment ability will? Pretend? Customers with low willingness to pay try to buy at a lower price, eroding the interests of the hotel; The third is arbitrage. Differential pricing also provides opportunities for third-party arbitrageurs, who will buy goods at low prices and then sell them at below-market prices to obtain the difference.

third, dynamic pricing and price optimization

dynamic pricing is based on the market demand forecast, which makes the hotel's house price change with the change of market demand, and finally matches the market fluctuation trend, thus eliminating the disadvantages of high price income lost by constant price in the demand boom period and customer loss caused by high price in the demand recession period. Because demand forecasting is always at the front end of a certain market cycle, the price has been predicted accurately before the objective facts occur, which can match the market demand and avoid the potential loss risk to the maximum extent. The implementation of dynamic pricing can bring the following benefits to hotels. First, the income has increased significantly. Through the implementation of dynamic pricing, hotels can fully tap the potential revenue space according to the forecast data, and find out the best available price BAR(Best available rate) through price optimization without increasing the marginal sales cost, so as to maximize revenue. The second is to achieve a balance between supply and demand. The balance between supply and demand is a difficult problem that often puzzles hotel managers. When the market demand is in a strong period, it is often because the hotel products can't increase the output in a short time, and part of the income they should get is lost. When the market is in oversupply, they always want to attract more discount customers and increase their income through small profits but quick turnover. Dynamic pricing is precisely to use price lever to adjust the balance between supply and demand, which can avoid the above problems to the maximum extent, and achieve the balance between supply and demand through the adjustment of price lever, so as to increase income. The third is to reserve some rooms and sell them to customers with higher willingness to pay at a higher price. The implementation of dynamic pricing can provide the most valuable customers with room reservation or reservation services, and obtain this part of the income.

price optimization is an effective means to maximize the potential revenue space on the basis of differential pricing and dynamic pricing of hotels. Hotel managers determine the BAR in different market cycles of the hotel through price optimization procedures and sell it to the most valuable customers in order to obtain the maximum income. In the process of price optimization, we should fully consider the factors such as hotel brand, product value, competitor price and customer's consumption interest, and determine the elasticity coefficient with the help of the calculation method of demand price elasticity in economics to find the best available house price. BAR。 When determining the price of BAR, in general, it is necessary to reasonably determine the number of Bars in each market cycle in combination with market segments, not the more the better, but generally 3 to 5. As BAR is the best saleable house price, the number of rooms reserved or reserved for the most valuable customers can be determined through reservation allocation, which can effectively solve the problem that rooms are reserved by discount customers for leisure and vacation prematurely, and finally sell the reserved or reserved rooms to these most valuable business customers at the best price, thus obtaining higher income.

IV. Room overbooking and overbooking control

Room overbooking refers to the technology of adding a certain number of reservations when the hotel is full of rooms or for a certain market segment. Why oversubscribe? This is because most hotels don't set No Show or cancellation restrictions for reserved customers. Especially in China's hotels, there are few additional restrictions on the cancellation or cancellation of customers' No Show reservations, except for big holidays or special offers. If the booked customer shows up No Show or cancels the reservation, it will not pay any cost, but it will bring the following resources to the hotel. First, idle and wasted rooms will cause unnecessary economic losses to the hotel; Second, guests who want to stay in this hotel lose the opportunity to stay in the hotel and will turn to competitors' hotels; Third, if the rejected guest later learns that the hotel he wanted to stay in but didn't have a room available, it will increase his dissatisfaction with the hotel and may lose a loyal customer from now on. Therefore, it is precisely because of the phenomenon of "No Show" or "Cancellations" that the room overbooking technology came into being. So, how to determine the oversubscribed quantity? Usually, hotel managers will learn from industry experience data and adopt empirical estimation method to determine the number of oversubscriptions. For example, according to industry experience, the No Show rate is usually 3% ~ 5% of the booking volume, and Cancellations are usually 5% ~ 1% of the booking volume. Then, the number of oversubscriptions can generally be estimated as 8% ~ 15% of the reservation. Although the empirical estimation method is sometimes accurate, because the motivation of customers' non-arrival or cancellation is random, there is an error defect caused by randomness that cannot be eliminated. The author believes that the following two calculation methods of oversubscription quantity can effectively eliminate the influence of customer randomness, thus improving the accuracy of oversubscription forecast. One method is to use moving average method or exponential smoothing method to predict the No Show rate, the cancellation rate, the number of early check-out rooms and the number of extended check-in rooms on a given day on the basis of collecting and capturing the No Show rate or the cancellation rate of guest history over the years, and to calculate the overbooking formula (oversubscribed number value =No Show room+temporarily cancelled room+early check-out room-extended room) to eliminate fluctuations and random factors to the maximum extent. The second method is to establish a room overbooking model with the help of computer revenue management software, and determine the number of overbooking by calculating the minimum expected loss. At present, this method has been widely used in civil aviation, hotels, leasing and other industries through computer revenue management system, and has received good results.

however, oversubscription technology is also a skill? A double-edged sword? On the one hand, it can bring benefits to the hotel, on the other hand, it will also bring certain risks. Because the overbooking quantity is determined on the basis of demand forecast, and the forecast can not be 1% accurate, as long as the overbooking strategy is adopted, it is possible to overbook, also known as? Oversold? . The occurrence of over-subscription will inevitably bring a large compensation cost to the hotel, which may seriously lead to legal disputes. Therefore, hotels should formulate the following measures to minimize the probability of overbooking.

1) improve the accuracy of No Show rate prediction as much as possible;

2) Accumulate oversubscription experience, adopt suboptimal value with small oversubscription, and increase insurance coefficient;

3) set different levels of prices with different restrictions;

4) Pay attention to setting restrictive clauses when signing a group agreement;

5) Always check the reservation list and correct the wrong reservation and duplicate reservation;

6) communicate with the reservation guests or reservation channel providers regularly, so as to keep abreast of the guests' trends;

7) Take measures such as collecting deposit or asking for credit card guarantee. If overbooking occurs, the hotel can take free upgrade, arrange other hotels of the same grade around, choose the object of voluntarily giving up staying, start the overbooking competition plan and make reasonable compensation.

v. capacity control and capacity allocation

capacity control refers to a control method to allocate appropriate product quantities to customers with different price willingness to pay. That is, the hotel needs to decide how many rooms to sell at a discount price and how many rooms should be reserved for high-priced customers who spend late. The effective way to solve this problem is capacity control. Its essence is to determine the corresponding price level of opening or closing through the capacity allocation technology, and realize the effective configuration of room products in the price level. Its purpose is to meet the consumption demand of customers in each market segment to the maximum extent, not only to ensure the use of discounted customers, but also to reduce the loss of high-priced customers, so as to maximize revenue. The key point of capacity control is how to determine the number of reserved or reserved rooms. If you can