Revenue Management: Important Tool for the Hotel Industry

Today, implementing revenue management can be one of the most important revenue generating initiatives available to a hotel, which significantly can increase room revenues and strategies.

History of the term ‘Revenue Management’
The term ‘Revenue Management’ was first introduced in the 1980’s by the airline industry. Revenue management was born out the need to fill at least a minimum number of seats without selling every seat at discount prices; the idea was to sell enough seats to cover fixed operating expenses. Once fixed expenses were covered, and there were fewer remaining seats to sell, they could then sell the remaining seats at higher rates to maximize revenue and profits.

Revenue Management entirely depends and functions on the policy of DEMAND and SUPPLY.

The basic function which the airline industry as well as the hotel industry depend on is the basic ‘Revenue Management Formula’ which is as mentioned below:

· There is a fixed amount of resources available for sale.

· The resources to sell are very perishable.

· Customers are willing to pay a different price for using the same resources.

The ‘Revenue Management Formula’ works extremely well for the hotel industry. We must not forget that the rooms in a hotel are perishable. A room which is vacant for the night is gone forever.

Effective market segmentation is the key to successful revenue management for hotels.

Today we had Mr.Sandeep Joshi, General Manager – Fortune Select Excalibur, Gurgaon conduct an expert lecture for students pursuing International Hotel Management at INLEAD. The agenda of the workshop was ‘Revenue Management’ which gave students a deeper perspective in the hotel industry. To start with, he introduced the following terms:

RACK RATE/ TARIFF RATE: The hotel suggested rate to the seller/ guest through the rate or display card at the rack, the intention was to help standardize price among locations. The Rack rate / tariff rate is also the flat rate of the year. While hotels always sold at the suggested rack price, others started to sell below It when hotels were empty.

DYNAMIC PRICING: Dynamic Pricing, means that a hotel will change its room rates daily or even within a day if up to the minute market info which reveals the need for adjustments. Dynamic Pricing is based on the recognition that the right rate to charge for a room a night is what the customer is willing to pay.

DEMAND BASED PRICING: A very popular pricing principle that applies on dynamic pricing is called Demand Based Pricing. The inflow demand periods, lower rates are offered. As the demand increases. Higher rates are quoted else lower rate categories are considered. 

Mr.Joshi also listed few steps under RESTAURANT REVENUE MANAGEMENT which were as mentioned below:

1) Establish the baseline
2) Understand the Drivers

3) Make recommendations

4) Implement the changes

5) Monitor outcomes

INLEADers Speak:

1. Kashika Gopal, student of  International Hotel Management Batch: July’14 (PGDM) says, "Mr. Sandeep Joshi gave us a great insight in Revenue Management. It was an informative and knowledge oriented session. Concepts like dynamic pricing, SPARR and RevPASH which were new to the students were explained in a simple manner that helped us relate to the subject".
2. Ashwani Kumar, student of International Hotel Management Batch: July’14 MBA (L) says, "It was an interactive and informative session.
3. Sneh Malhotra, Student of International Business Management Batch: July’14 MBA (L) says, "It was a good and an informative session. We got to know about new scope in this field and learnt how in basic terms revenue is calculated and its application in industries across".

Students thoroughly enjoyed the session as it gave them a deeper perspective of the hotel industry and they now have a fair idea of how ‘Revenue Management’ plays an important role.

Towards the end, we can conclude by saying that, that Revenue Management is a discipline with proven track record and Revenue Management as tool is a effective means for a hotel business to run effectively.