Corporate Revenue Management
Corporate Revenue Manager
Agenda
Introduction of Revenue Management
Pricing Philosophy for Shangri-La Hotels and Resorts
Revenue Management is …
The ART of turning business away
Revenue Management is also …
The SCIENCE of stimulating occupancy without sacrificing rate
Occupancy or Rate ?
That is the question …
Occupancy
A 76%
B 84%
C 96%
ATR
$
$
$
Revenue
$34,200
$34,200
$34,200
Rooms
Sold
171
189
216
This hotel has 225 rooms.
Definition of RevPAR
Rev = Revenue & PAR = Per Available Room
Formulas
Revenue / available rooms
ATR * Occupancy
ATR
$
$
Occupancy
A 76%
Revenue
$34,200
$34,200
Rooms
Sold
171
216
RevPAR Strategy
Occupancy needed to be
increased by 45 rooms (%)
ATR reduced $ (%)
96 %
C
What happened to our profit?
Revenue Management history
Prices of the US airline industry got de- regulated in 1978
Airlines started to segment their customer base and to apply different prices for different segments
Severe price wars slashed profit margins
Revenue Management was born
Why does Revenue Management work ?
Segmented Markets
Predictable, Variable Demand
Fixed Capacity
Perishable Inventory
Relatively Low Variable Cost
A definition of Revenue Management
for Shangri-La Hotels and Resorts
Revenue Management is:
the application of right pricing strategies
to allocate the right capacity
to the right customer
for the right product
at the right time
through the right channel
to achieve maximum revenue
Forecast
Demand
Retain
Demand
Manage Demand
Manage Demand
Yield and Business Mix Strategy
Delighting our Guests
Retain
Demand
Repeat
Business
Create Demand
Forecast
Demand
Demand Analysis
The Revenue Cycle
Optimize Demand
Demand Analysis
Critical process in order to develop an effective sales & revenue management plan
External analysis:
Understand the marketplace – demand versus supply
Business indicators
Internal analysis:
Historical performance
Business patterns
Demand Analysis
Pace pattern (How long in advance are the bookings coming in?)
Source pattern (Are bookings coming from your domestic, intra-regional or long-haul markets?)
Channel pattern (Are bookings coming through the Internet, GDS, WRC or direct?)
Stay pattern (What is the average length-of-stay of this reservation and when is the arrival day?)
Spend pattern (What is the incremental spend from this reservation?)
Forecasting
Estimating the company’s share of market demand
based on defined market segments and an assumed
marketing environment
Why do we forecast?
Staffing
Scheduling
Purchasing
Comparison to Budget
To optimize our business mix
To implement an effective Yield Strategy
Accurate forecasting will eventually help:
Business Mix Optimization
Note that sometimes you can generate more revenue
by changing your mix than by increasing your rate !
What is the optimum business mix for your property?
Business Mix Optimization
Source: Cathy cartoon strip. All rights reserved
Yield Management
The idea is to use restrictions (Minimum Length of Stay for example) if demand
exceeds supply to maximize total weekly rooms revenue.
Business Hotel Arrival Pattern
No restrictions
Revenue Generated: US$44,800 for a 100 rooms hotel
ATR: US$100
OCC: 64%
20 group rooms
On Wed
Same Business Hotel, but
Minimum Length of Stay 2 nights on Wednesday
Revenue Generated: US$46,200 for a 100 rooms hotel
ATR: US$100
OCC: 66%
20 group rooms
On Wed
Same Business Hotel, but
Different Minimum Length of Stay restrictions for different rate programs on Mon, Tue and Wed
Revenue Generated: US$52,360 for a 100 rooms hotel
ADR: US$110
OCC: 68%
20 group rooms
On Wed
Pricing
Crucial component in the Revenue Management Cycle
95% flows to the bottom line
(Source: Defining Revenue Management – Top Line to Bottom Line)
A dynamic process
Clear and simple
Pricing integrity
Pricing Philosophy for Shangri-La Hotels and Resorts
Introduced in mid August 2008 for all properties
3 different pricing concepts:
Seasonal Pricing
Tier Pricing
D-BAR (Dynamic Best Available Rate)
Seasonal Pricing
Introduced in resorts with distinctive seasonal demand patterns; and selective city hotels which market is comparatively less volatile
A single rate can be set up per season which needs to be pre-defined (low, shoulder, high)
Additional rate to be created for high demand Special Events period
4 sets of rates (for Select & Value Rate) are allowed
Tier Pricing
Introduced in selective city hotels which market is dynamic, but not ready to activate IDeaS BAR Module
3 tiers of rates can be set up per season which needs to be pre-defined (low, shoulder, high)
Additional rate tier to be created for high demand Special Events period
Application of the actual rate tier (for Select & Value Rate) is based on the forecasted occupancy for the arrival day
Tier Pricing – Situation 1
Tier 1 0 - %
Tier 2 71 - %
Tier 3 90 - 100%
What if?
Mon 75%
Tue 65%
Wed 95%
Which tier do you apply for Mon 3-night request?
Tier Pricing – Situation 2
Tier 1 0 - %
Tier 2 71 - %
Tier 3 90 - 100%
What if?
Mon 91%
Tue 92%
Wed 95%
Which tier do you apply for Mon 3-night request if you have 50% of your inventory sold to groups and the market is soft?
D-BAR
Will roll-out in 10 top destination hotels in batches, which market is highly volatile
Using IDeaS V5i Yield Management system, with BAR Module to be activated
A maximum of 15 rate tiers can be set up to cover all seasons, weekday/weekend patterns & Special Events period
IDeaS V5i will recommend the Best Available Select Rate by length-of-stay per arrival day, taken into account competitors’ rate offer
D-BAR
2 options are given on managing Value Rates:
Maintain the same number of Value Rate tiers and Select Rate tiers
. SR1 to SR15 vs RACK1 to RACK15
Apply non-dynamic flexing (reduce the number of Value Rate tiers)
. group SR1 to SR3 -> VR tier 1 (RACK3)
group SR4 to SR6 -> VR tier 2 (RACK6)
group SR7 to SR9 -> VR tier 3 (RACK9)
Ultimately, 15 SR tiers vs 5 VR tiers
D-BAR - Situation
If IDeaS V5i gives the below BAR recommendation:
Mon SR2
Tue SR3
Wed SR4
What if, the hotel is managing Value Rate as follows:
SR1 – SR3: RACK3
SR4 – SR6: RACK6
SR7 – SR9: RACK9
SR10 – SR12: RACK 12
SR13 – SR15: RACK 15
Which Value Rate tier do you apply on Mon, Tue & Wed respectively?
Home Takers
Ensure that business practice is strictly adhered to
Participate in the weekly Revenue Strategy Meeting
Q & A
Thank You !
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