Strategic Revenue Management

Question 1

What is “Strategic Revenue Management” and (4) examples it includes?

Answer 1

Long-term planning for a hotel’s overall goal including seeing pricing in the larger context of desired target markets, overall management of all a hotel’s revenue streams, strategic packaging, and distribution channel management.

Question 2

What is the goal of “Demand Generation”?

Answer 2

Goal is to produce the most possible revenue under any supply/demand conditions.

Question 3

What are four types of “Differentiation” strategies?

Answer 3

The most frequent applied differentiation strategies build on unique features, level of service, location, and brand affiliation.

Question 4

Unique Features

Answer 4

Some hotels are considered one-of-a-kind due to their unique locations or architecture, unique amenities, and landmark hotels.

Question 5

Level of Service

Answer 5

Extraordinary level of service can also be a differentiator, along with pet-friendly service, select-service, etc.

Question 6

How can “Location” provide differentiation?

Answer 6

A prime or unique location can provide a highly valuable point of differentiation in markets with high barriers to entry, i.e. an airport hotel inside the terminal, the closest hotel to a main attraction, best ocean front, hotel right on the slopes at a ski resort, etc.

Question 7

Brand Affiliation

Answer 7

A successful brand can be the source of quantifiable competitive advantages. 30%-70% of guests can come from brand affiliation for a chain hotel.

Question 8

Asset Managers

Answer 8

Representatives of Owners.

Question 9

First-Tier (Branded)

Answer 9

Management companies that offer a brand of their own.

Question 10

Second-Tier (Unbranded)

Answer 10

Management companies that may manage properties under many flags.

Question 11

Market Strategies for Revenue Management

Answer 11

Marketing is closely related to most facets of revenue management.

Question 12

Market Segmentation Methods (list 5 market segmentation variables)

Answer 12

Traditional market segmentation variables are geographic, demographic, psychographic, behavioral traits, and price-sensitivity.

Question 13

Elasticity

Answer 13

A ratio that expresses how a change in the price of a product or service affects unit demand for that product or service. It is based on an economic principle that, for a given level of demand in a market, a rise in price will cause unit sales to drop, while a drop in price will cause unit sales to rise. A value less than 1.0 is interpreted as inelastic demand and a value greater than 1.0 is interpreted as elastic demand

Question 14

Elasticity =

Answer 14

Elasticity = (Percent change in demand, aka unit occupancy) / (Percent change in room rate)

Question 15

“M Commerce”

Answer 15

Mobile telecommunications technology for data access when traveling.

Question 16

“Road Warriors”

Answer 16

Frequent guests who purchase a significant amount of room nights in hotels while traveling on business who prefer to conduct transactions while on the go.

Question 17

What is the objective of “Market Targeting” and what is the process to achieve it (such as considerations)?

Answer 17

Objective is to focus marketing efforts on a group that has the potential to respond to a marketing appeal and that the hotel is best able to serve. The process of evaluating different market segments for targeting should consider a segment’s size and growth potential, as well as it’s structural attractiveness (age diversity, income bracket, geographic distribution, and whether it is reachable).

Question 18

Market Positioning

Answer 18

Positioning strategies can be built on product attributes, price, or the needs a product or service can meet and the benefits consumers gain from buying it. For example, a hotel may position itself as child-friendly property with an indoor water park, games room, children’s menu, supervised activity center, etc.

Question 19

Repositioning/Rebranding

Answer 19

An effective way to improve revenue performance of and underperforming hotel through switching brands, becoming independent, or becoming branded or by switching tiers from an upscale to competitive mid-tier, or a mid-tier to a budget. Also, through renovations and major upgrades, a hotel can reposition to a higher tier.

Question 20

What are (4) facets of “Promotion”?

Answer 20

Includes a blend of advertising, sales promotions, public relations, and personal selling.

Question 21

What is the aim of Customer Relationship Management (CRM) and what are (4) questions you should be able to ask through it?

Answer 21

Aims to generate more revenue through interacting with and retaining customers.

• Who are my best customers?
• Why are they my best customer?
• How do I keep them?
• How do I find more like them?

Question 22

Predictive Analytics

Answer 22

A relatively new tool that cannot only determine a customer’s propensity to buy, but it can also forecast whether a customer will respond to a specific marketing appeal within a given time frame.

Question 23

What is the objective of “Market Mix Management” and what is it determined based on?

Answer 23

Objective is to maximize profitability by allocating sufficient inventory to the most appropriate segment(s). The targeted market mix will be determined based on the individual hotel’s capacity, location, classification, market position, bed configuration, and other factors such as affiliation, ratings, age, etc.

Question 24

How does “Capacity” impact a property’s focus on strategy?

Answer 24

Smaller properties have to focus on a key segment of the market that they are best suited to target versus a midsize and large hotels that need to develop room inventory allocation strategies.

Question 25

How does “Location” impact mix of potential guests?

Answer 25

Has a lot to do with the mix of potential guests it appeals to, i.e. leisure getaway destinations, major convention cities, accessibility (direct flights), climate, and urban vs suburban markets.

Question 26

What can “Classification” determine and lead a hotel to identify?

Answer 26

Classification can determine the market orientation and price range of a hotel, leading to identify primary and secondary (and even tertiary) market segments that will make up the market mix.

Question 27

Market Position

Answer 27

Within its compset this will influence the decisions of a hotel related to market mix strategy. There are leaders and followers.

Question 28

Bed Configuration

Answer 28

I.e. if a hotel has only king beds, it will not appeal to travelers who want to share a room, but not the bed, which would not be ideal for hotels looking to target family travelers.

Question 29

What are some “Other” facets of differentiation?

Answer 29

Property’s age, room size, furniture etc. A hotel’s ambience where some customer segments mix together better than others.

Question 30

Strategic Pricing

Answer 30

Considers long-term aspects of rate management to increase revenue by growing market share and improving market positioning. Strategic positioning should align price point and product quality with target markets.

Question 31

Competing on Price

Answer 31

Revenue managers should always monitor rates in their comp set and act on rate changes if there is a justifiable reason that is consistent with a chosen pricing strategy.

Question 32

What has research shown about “Pricing Strategy and Market Share”?

Answer 32

Research has shown that hotels that hold their rates and do not pursue a strategy of underpricing competitors achieve higher RevPARs.

Question 33

Physical Rate Fences

Answer 33

Used to differentiate similar value propositions such as size and location of a room, the view, bed configuration, etc.

Question 34

What are some (6) examples of “Non-Physical Rate Fences”?

Answer 34

Examples include the season of the year, time of booking (same-day vs advanced booking), membership (loyalty program or association), from of payment (nonrefundable), booking channel (lower rates for direct bookings), volume discounts (group rate), etc.

Question 35

Rate Parity

Answer 35

Offering the same room rate for the same room night, regardless of distribution channel or booking mechanism.

Question 36

Rate Disparity

Answer 36

When different rates for the same room night are found on distribution channels.

Question 37

Revenue Streams Management

Answer 37

Also known as Revenue Mix Management, this involves making decisions on the basis of contribution margin information. Revenue streams typically have different contribution margins and a failure to understand the importance of revenue stream margins can lead a manager to increase gross sales in a way that actually has a very small effect on net revenue.

Question 38

What is “Strategic Packaging” and some of its benefits?

Answer 38

Products and services bundled with room nights. Although underrated and underused due to the amount of effort involved, this can increase both occupancy and overall revenue. These do not necessarily have to be discounted from what they would be if purchased separately.

Question 39

What does “The Package Development Process” begin with?

Answer 39

Starts with analyzing data based on CRM information and creating a perception of value.

Question 40

Packages with Internal Components

Answer 40

Using only components that the hotel itself produces and controls.

Question 41

Packages with External Components

Answer 41

Bundled packages that involve teaming up with external service providers.

Question 42

The Objective of Packaging

Answer 42

Fundamental purpose is the perception of value, which can change based on a destination resort hotel versus urban properties.

Question 43

Packaging and Segmentation

Answer 43

Packaging to different market segments based on varying needs and wants.

Question 44

Packaging and Revenue Streams Management

Answer 44

Identifying the profitability of each component in a given package. High and low margin items may be bundled together, but the overall revenue impact and profitability implications need to be clearly identified and aligned with the hotel’s strategic marketing purposes.

Question 45

What are (3) goals to obtain in “Distribution Channel Management” and what is the difference between “Direct “and “Indirect” bookings?

Answer 45

Managers try to obtain most of the hotel’s revenue through those channels that are (1) the highest revenue producers, (2) the most cost-effective, and (3) the most easily controlled. Direct bookings are in person, on the hotel’s website, over the telephone, or using e-mail or text messaging. Indirect is when there is an intermediary between the guest and a hotel in the process of booking such as travel agents, tour operators, demand collectors, central reservation services, destination management services, global distribution systems, etc.

Question 46

Voice Channels

Answer 46

Have been decreasing since the turn of the century, but are still popular in serving the upscale market. Call centers for chains or referral services are an effective method for handling high call volumes, however cost per booking may be higher and service lower than reservation agents employed at the property level.

Question 47

GDS Channel

Answer 47

“Global Distribution System” that hotel revenue managers use to connect with travel agencies and other demand collectors. Major players are SABRE, Apollo, WorldSpan, and Amadeus.

Question 48

Internet Channels

Answer 48

Includes third party OTA’s and B2C direct distribution model.

Question 49

B2C Model (Hotel Direct)

Answer 49

Business-to-customer model. When guests book their stay with a hotel or hotel brand without an intermediary.

Question 50

Agency Model

Answer 50

Simple straight commission based (usually 10%).

Question 51

Merchant Model

Answer 51

Model is based on an agreement between the hotel and the e-merchant that allows the online agency to take a hotel’s negotiated capacity allotment with a cut-off date at BAR and mark it up to resell it to customers.

Question 52

Hybrid Model

Answer 52

Combination of merchant and agency models.

Question 53

Opaque Model

Answer 53

Under this model, the hotel is not revealed until after the customer prepays and books (based on the customer’s described needs, criteria, and price point).