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Revenue Management Strategies

Revenue Management is a technique to optimize the revenue earned from a fixed, perishable resource. The challenge is to sell the right resources to the right customer at the right time.

Revenue Management implements the basic principles of supply and demand economics in a tactical way to generate incremental revenues.

Three essential conditions for revenue management to be applicable:

  • That there is a fixed amount of resources available for sale.
  • That the resources sold are perishable. This means that there is a time limit to selling the resources, after which they cease to be of value.
  • That different customers are willing to pay a different price for using the same amount of resources.

Revenue Management is of especially high relevance in cases where the constant costs are relatively high compared to the variable costs. The less variable cost there are, the more the additional revenue earned will contribute to the overall profit.

Revenue Management in other words tries to maximise revenues by managing the trade-off between a low occupancy and higher room rate scenario versus a high occupancy and lower room rate.

Hotels should identify the type of customers and the price they are willing to pay for utilising the service. This can be done on the basis of the following parameters:

Characteristic High price Low Price
View Pool View, Ocean View, Hill View Non Scenic View
Size Bigger rooms with more facilities Small Rooms with few facilities
Temporal Week Day Bookings Weekend Booking
High Season Low Season
Length of Stay Short Stay. One or Two Days Longer Stay
Time of Purchase Bookings made very close to check in date. Booking made quite early to check in date.
Flexibility Cancellation and rescheduling are allowed at no or low penalty High penalty for cancellation or schedule change
Privileges Are rewarded loyalty privileges No privileges
Size of Business Provided Self-funding vacationers booking rarely Corporate business customer booking frequently
Point of Sale At Hotel Front Desk or Physical delivery Online, phone or email
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