What is Revenue Management?

Question 1

What is the history of Revenue Management and what does it encompass?

Answer 1

Originating in the airline industry in the mid 1980’s, also known as yield management, revenue management is “selling the right product, at the right time, to the right person, at the right price”. It is complex involving several aspects of management control including rate management, revenue streams management, and distribution channel management (to name a few). It encompasses product definition, competitive benchmarking, strategic pricing, demand forecasting, business mix manipulation, and distribution channel management.

Question 2

Businesses That Benefit from Revenue Management have what (4) conditions?

Answer 2

1. Work in fixed capacity environments.
2. Have perishable or time-sensitive products.
3. Face varied but predictable demand over time.
4. Have a high proportion of fixed costs and low proportion of variable costs.

Question 3

Fixed-Capacity Environment

Answer 3

Hotels have a finite number of rooms to sell.

Question 4

Perishable Products

Answer 4

Tonight’s room night cannot be sold tomorrow.

Question 5

Varied but Predictable Demand

Answer 5

A hotel’s records document the rush hours and high-occupancy days and weeks. This knowledge can be used to prepare demand forecasts. Identifiable patterns will help determine best suited strategies and tactics to exploit revenue maximization opportunities.

Question 6

High Fixed Costs and Low Variable Costs

Answer 6

Some expense items are not affected by occupancy. For the most part, hotels have high fixed costs including mortgage payments, insurance premiums, amortization of capital assets, the payroll costs of annual salaries, energy, and maintenance. The really only variable costs are the cost differential between an occupied and a vacant room.