Tactical Revenue Management

Question 1

What is “Tactical Revenue Management” and what are (5) of the measures it includes?

Answer 1

Revenue management at the strategic level focuses on long-term goals, while tactical revenue management focuses on operations. Tactical revenue management efforts should support strategic decisions and not undermine them. Tactical measures have a relatively short time horizon, usually from same-day to same-quarter issues. They are easily quantifiable and measurable, unlike strategic ones. Tactical measures include forecasting, rate management, stay control, capacity management, and displacement analysis.

Question 2

What “Forecasting” terms (short or long) are applied to tactical revenue management or strategic revenue management?

Answer 2

As one of the cornerstones of revenue management, short-term forecast provides vital information for tactical revenue management, while long-term forecasting provides the basis for strategic revenue management.

Question 3

What is the Budget of a hotel?

Answer 3

Budget of a hotel is the document that contains a detailed breakdown of all revenue and expenses reasonably planned and expected for the budget period. It outlines a hotel will realize its financial objectives. A budget, once approved, is unlikely to change.

Question 4

What is a “Forecast” and how often should it be updated for the following time periods: Annual, 90-day, 28-day, 10-day (or less)?

Answer 4

A projection based on information available at the time of its preparation. This is the best educated guess to anticipate rooms sold and revenue generated. It is not static. It can and should be updated on an ongoing basis as new data becomes available.

• An annual forecast may be revisited on a quarterly basis.
• A rolling 90-day forecast needs to be revised once a month.
• A 28-day forecast should be looked at on a weekly or bi-weekly basis.
• If a 10-day, 7-day, or 3-day forecast are necessary they should be updated daily.

Question 5

Forecasting Demand: What is the difference in forecasting long-term vs short-term?

Answer 5

Long-term demand forecast is based on historical data and current key economic indicators, while short-term demand is much more accurate and provides enough information to justify taking specific actions and refine chosen tactics.

Question 6

Wash Factor

Answer 6

Refers to group members who check out early rather than stay the entire length of the event.

Question 7

Spill Factor

Answer 7

Refers to the number of rooms set aside in the group block that do not sell to members of the group by the agreed-upon cut-off date and are released from the group and sold to others.

Question 8

Define “Granularity”. What is more granular, short-term or long-term forecasts?

Answer 8

Granularity means breaking forecast information down into clusters, i.e. market segment, price category, duration of stay, reservation channels, and/or reservation methods. Short-term forecasts are more granular.

Question 9

Regret

Answer 9

A potential guest who decides not to book.

Question 10

Denial

Answer 10

A potential guest turned away because of a lack of available space.

Question 11

Unconstrained Demand

Answer 11

When a hotel can fully meet the total demand.

Question 12

Constrained Demand

Answer 12

When demand levels rise above the hotel’s capacity to meet it fully. Hotels may apply constraints such as capacity allocations, rate thresholds, and stay (duration) controls when only a certain portion of demand can be accommodated.

Question 13

Pace of Build

Answer 13

Comparison of booking pace with the current year with those of previous years. In order to interpret the data correctly, the revenue manager must know that lead times differ for different segments of the market. Careful monitoring the pace of build will help revenue managers to avoid the “fire sale” of unsold inventory at heavy discounts.

Question 14

Forecasting Room Availability =

Answer 14

Forecasting Room Availability = the number of available units – stayovers – out of order rooms – expected arrivals – expected walk-ins – overstays + expected cancellations + expected no-shows + expected understays (early departures)

Question 15

Tactical Rate Management

Answer 15

Revenue management involves much more than rate control however the pricing of room nights is a pivotal issue that has both tactical and strategic aspects. A hotel’s tactical rate management should align with its strategic approach. Discounting has not been proven to be a successful method of RevPAR growth and the consistency of tactics and strategy is a lot more important than most managers would like to admit.

Question 16

Rate Structure

Answer 16

The difference between price points should be a reflection of buying behavior, customer needs, and purchase power balanced with the perception of value from the guests’ perspective.

Question 17

Rack Rate

Answer 17

The highest rate a hotel would like to charge for unconstrained demand. Also referred to as walk-in rate, the premium rate, and the posted rate. A hotel is in a stronger bargaining position to hold its rack rate in periods of excess demand.

Question 18

Rate Achievement Factor (RAF) and what is it a reminder of?

Answer 18

Measures the hotel’s efficiency in achieving the rack rate. If the rack rate is $100 and the ADR is $80 the RAF is 80%. The RAF serves as a constant reminder that we are now living in an age of comparison shopping, pricing transparency, and well-informed, hard-bargaining customers.

Question 19

Corporate and Special Corporate Rates

Answer 19

Transient hotels offer volume discounts to provide an incentive for potential buyers of a lot of room nights. If a corporation will buy enough room nights per year they can qualify for a corporate discount. This can happen at the property level or at the corporate (chain) level. Airline is an example of a special corporate rate in the form of contract rooms which will charge a fixed amount for the specific amount of rooms. It is important to work out fine details such as seasonal rate adjustments, room types, special event dates, blackout dates, and minimum lead time per booking.

Question 20

What are the variables to consider for “Group Rates”? What are the sub-segments of groups? What are Ad hoc groups vs. Series groups?

Answer 20

Depend on a number of variables including the season of the year, number of nights wanted, other revenue, and the group’s history. Includes sub-segments such as corporate meeting, conventions, associations, incentive groups, leisure groups, SMERF groups (social, military, educational, religious and fraternal organizations). Ad hoc groups do not happen each year and do not plan to return ever again. Series groups can include tours that arrive every i.e. every Tuesday for two nights between April and October.

Question 21

What are some examples of Promotional Rates?

Answer 21

AAA, AARP, publishers of coupon books.

Question 22

What is are the types of “Government Rates” and some of their characteristics?

Answer 22

Municipal, provincial/state, and federal government rates that are government-set rates and per diems that can vary by location and seasons in response to differences in cost of living.

Question 23

Event Rates

Answer 23

Event rates may fluctuate based on seasonality and the size and overall revenue impact of the event in question. Based on how it is spent (function space, catering, beverage purchase) the same total revenue amount can have very different margins.

Question 24

Employee Rate

Answer 24

Discounted rates for employees or “Friends and Family Rates” and are always subject to availability.

Question 25

Complimentary rate

Answer 25

Offering free accommodations to clients, potential clients, and dissatisfied guest is considered a cost of doing business.

Question 26

Hurdle Rate and Best Available Rate

Answer 26

The lowest rate a hotel is willing to offer on a given day or week and may be a flexible amount, as rates may fluctuate under varying market conditions.

Question 27

What is a “Stay-Sensitive Hurdle Rate” tactic

Answer 27

Tactic is to maximize revenue generation by offering price incentives for longer stays.

Question 28

Tactical Discounting

Answer 28

Discounting in the tactical context is done to generate revenue in the short term and managers who consider tactical discounting need to understand the complexity and possible dangers of the issue.

Question 29

Dynamic Pricing

Answer 29

A hotel will change its room rates daily or within a day if up-to-the-minute market information reveals the need for adjustment in response to ever changing supply/demand conditions.

Question 30

Demand-Based Pricing

Answer 30

In low-demand periods, lower rates are offered and as demand increases, lower rate categories are closed and higher rates are quoted. It is important to be selective in closing rate categories and to look beyond the volume of demand to see segment dynamics as well before applying rate controls.

Question 31

Stay (Duration) Control

Answer 31

The application means that instead of offering rooms on a “first-come-first-served” basis, the hotel attaches conditions to its room offers.

Question 32

Minimum-Stay Requirements

Answer 32

Objective of this tactic is to maximize revenue by accepting bookings that produce higher yields based on stay pattern forecasting.

Question 33

What is a “Stay Through” tactic?

Answer 33

Tactic that intends to boost occupancy for the gap day(s) by promoting reservations that arrive before and check-out after the gap day(s).

Question 34

Close to Arrival

Answer 34

Closing a given day to arrivals for VIPs with extraordinary security arrangements, renovating, deep cleaning, or redecorating floors or sections of the hotel. Closing a date is seldom the best option for revenue maximization.

Question 35

Capacity Management

Answer 35

Objective is to maximize revenue through maximum guestroom occupancy on any given night.

Question 36

Overbooking

Answer 36

Accepting more bookings for a given day than the hotel has capacity to meet. In some jurisdictions, overbooking can be against the law. Rationale for this ambitious measure lies in the fact that every hotel deals with cancellations, no-shows, and early departures.

Question 37

Wash Factor

Answer 37

Total effect of cancellations, no-shows, early departures, out of order rooms, and overstays. The hotel “washes” its data to remove the misleading parts.

Question 38

Walking a Guest

Answer 38

When a hotel cannot honor a reservation and must move the guest to another hotel.

Question 39

What are some “Preventive Measures” to walking guests?

Answer 39

It is important to communicate and ensure definite departure dates, be communicative when granting overstays, and be selective when walking guests (such as not choosing single female guests, business travelers, and corporate travelers).

Question 40

Reclaiming Rooms

Answer 40

Finding unused rooms such as OOO rooms (even at a reduced rate), discrepancies in the PMS, function rooms such as small boardrooms or executive conference rooms that can be temporarily set up for one-night stays, parlor rooms with lock-off doors, and upgrading room types.

Question 41

What is a “Displacement Analysis” and some additional considerations (4) when doing one?

Answer 41

An analysis that can determine the quantifiable benefits and different options in accepting or turning away group business. Some additional considerations include other revenue streams (F&B, function rooms, etc.), the lifetime business value of a group client, market share/revenue mix, and difference in profitability between scenarios.