RMs seeking continuous improvement in their revenue optimization efforts undertake the following steps:
Step 1: Establish prices.The importance of price and strategic pricing has been extensively addressed in earlier chapters of this text. Because the word price communicates strongly to potential customers the value placed on a product or
service by its seller, the ability to properly establish pricing is a critical aspect of every RM’s job. Some readers might suggest that this step should only follow that of forecasting demand (Step 2), but the authors would remind such readers that, as explained in Chapter 2, consumer demand is a function of how much of a good or service is desired by buyers at a specifi c price. As a result, it is extremely diffi cult, if not impossible, to assess demand for a product independent of its price.
Step 2: Forecast demand.After a price has been established, customer demand for products and services can be estimated or forecasted. Of course, if prices are changed, forecasts of demand may be changed as well. Some RMs specialize in this task and use sophisticated mathematical modeling tools to help them. All RMs seeking to optimize
revenue, however, must have the ability to forecast demand for their products and services.
Step 3: Manage inventory.This crucial step requires RMs to understand how to withhold or make available to specifi c buyers the products and service capacity held in inventory. This task is made more challenging by the fact that revenue optimization must be viewed from a long-term as well as a short-term perspective.
Step 4: Manage distribution.In nearly all segments of the hospitality industry intermediaries are used to assist in the selling process. The portion of the selling price paid to intermediaries should vary, based on the value the intermediary adds to the process. As a result, channels of distribution must be carefully managed to maximize revenue while minimizing selling-related costs.
Step 5: Evaluate results.The thoughtful evaluation of results is one of an RM’s best tools for improving performance. Assessing the outcome of revenue management-related decisions that have been made in the past helps improve the
quality of future decisions.
Just as there is no single job description that would address the activities of all RMs, there is no single best organizational structure representing an RM’s ideal reporting relationship.
In fact, even within the same industry segment, the reporting relationships of RMs vary greatly. This can refl ect
the objective of the business employing the RM, the specific revenue management philosophy of its managers, or both.
In most cases, RMs will fi nd that their reporting relationship will be to one of the following individuals:
_ The director of sales and marketing (DOSM):Organizations utilizing this structure emphasize the RM’s role in demand forecasting and in the selling process. Because the DOSM is typically responsible for group roomsales, this scenario is also common in those lodging properties in which group room sales constitute a signifi cant portion of
total rooms revenue. The title of the customer may change from guest, to diner, to client, to attendee, but the RM in this scenario plays a supporting role to the DOSM.
The rooms manager:Exclusive to the lodging industry, in this scenario, the RM reports to the rooms manager,the
individual traditionally responsible for the management of a hotel’s front offi ce and the housekeeping departments.
In other properties, the RM may report directly to the FOM. This scenario is common in those lodging properties in which transient roomsales constitute a signifi cant portion of total rooms revenue.
The controller:The controller is responsible for a hotel’s on-property accounting procedures. Those entities selecting this placement for the RM’s position emphasize the pricing and results analysis duties of RMs. Typical in this role are activities related to the forecasting and evaluation of the organization’s fi nancial results aswell as preparation of fi nancial reports related to the management of revenues.
The property GM:In some properties, the RMs position is valued so highly the reporting relationship is directly to the general manager or even the owner of the business.
A corporate-level executive:In multiunit organizations, it is common for propertylevel RMs to report directly to an area or regional RM. This structure helps ensure revenue management consistency across properties and where more than one
property exists in the same geographic market, allows for cooperative revenue management activities.
1. What is price gouging?
2. Four pricing-related ethical issues that must be considered?
3. Reporting relationships of RM?
1. Hayes, D. & Miller, A. (2011). Revenue Management for the Hospitality Industry. Hoboken, NJ: John Wiley & Sons, Inc.
2. Stanislav Ivanov. Hotel Revenue Management: From Theory to Practice. 2014. Varna: Zangador
3. Revenue Management. American Hotel & Lodging Association (AHLA), 2006
Topic 6. Forecasting Demand
6.1. The Importance of Demand Forecasting
6.2. Historical Data
6.3. Current Data
6.4. Future Data
6.5. Demand Forecasts and Strategic Pricing