Demand Forecasts and Strategic Pricing

For most RMs, however, the law of supply simply does not hold true. That is, in the short run, the number of rooms available to sell at their hotels cannot be increased simply because demand for those rooms has increased. This hard constraint supply situation is one faced by many hospitality industry RMs, including those working in traditional hotels,time-share hotels, bed and breakfasts, cruise ships, and other housing facilities. In fact, it is a situation faced by all RMs managing a fi nite product supply.

It is often said that great minds think alike, and perhaps that is so. But it is certainly true that “great minds like a think.” If you, too, “like a think,” then you can now clearly see that three critical issues confront the RM who seeks to optimize revenue in a highly constrained supply setting:

1. Impact of demand on price

2. Impact of price on demand

3. Impact of demand forecasts on an RM’s pricing strategy

Questions

1. Three main reporting areas of current data?

2. Factors affecting future data for most properties?

3. Why RM seeks to optimize revenue in a highly constrained supply setting?

Literature:

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 7. Inventory and Price Management

7.1. Inventory Management

7.2. Characterizing Rooms for Optimum Inventory Management

7.3. Classifying Guests by Market Segment

7.4. Overbooking as an Inventory Management Strategy

7.5. Price Management

 

Inventory Management

In the lodging industry, sleeping rooms are the primary item sold. As a result, lodging industry RMs seek to optimize their facility revenue through the aggressive management of their unique products—the guest rooms that make up the hotels’ rooms inventory.

Rooms inventory: All of the unique forms of guest room products offered for sale by a lodging facility.

In the common industry vocabulary rooms inventory management is also known as inventory management, which is simply a shortened term for the same concept.

Recall from that inventory management is the process of allocating and modify the number of products available for sale at various prices and through various distribution channels. For RMs, inventory management is the process of allocating room types, room rates, and restrictions among the hotel’s various distribution channels. Inventory management

can best be viewed as the control of product availability and its nonavailability.

 

Characterizing Rooms for Optimum Inventory Management

Professional rooms inventory management requires that RMs know their guest rooms’ distinctive characteristics and that they match them to potential guests who value those same characteristics.

The number of unique rooms products offered for sale by a hotel can be quite large, and as a result so can thenumber of room codes utilized in the property. The specifi c factors that create these unique room products will vary by property but the factors most often utilized by RMs are quite similar to those used in establishingdifferential pricing strategies:

· Location of room

· Room size or type

· Bed confi guration

· Package

 

Classifying Guests by Market Segment

Superior rooms inventory management is the result of knowing the unique features of the rooms that make up the rooms inventory and then making available the right rooms products for the right guests. The specifi c tactics RMs use to do so are many. One good way to better understand these tactics is to examine how they are applied to rooms sought by potential

guests. Although the specifi c rooms buyers utilizing a hotel will vary based on the property’s location, service level (full or limited), and target market, in most hotels, guests can be generally classifi ed as belonging to one of three market segments:

· Transient

· Group

· Special contract and negotiated

As a result, RMs apply specifi c revenue optimization strategies to their transient rooms, their group rooms, and those rooms sold on a contract basis.

Transient guests are best defi ned simply as those who are not part of a group or contract sale. Strategies for optimizing rooms revenue relative to transient rooms inventory management can best be understood by examining those tactics applied prior to arrival and those that are applied at the time of the guest’s arrival at the property.

The best RMs are very adept at managing rooms inventory related to group room sales. Inventory management of group rooms is different from that of transient rooms simply because of the way group rooms are sold. Recall that the sale of a group room is a two-step process. In the fi rst step, rooms are blocked, or removed from available inventory for future use by the group. In the second step, rooms are picked up (i.e., individually reserved) by group members.

In addition to inventory issues related to transient and group rooms, RMs face unique challenges when managing

contract and negotiated rate inventories. To illustrate the inventory management challenge of negotiated rates consider the travel needs of a large corporation. The corporation, which is headquartered in city A, sends a large number of overnight corporate travelers each month to city B. To minimize room and travel planning costs the corporation’s rooms buyer negotiates with one of city B’s hotels to offer rooms to its traveling employees at an agreed on rate. The benefi t for the company is that all of its travelers know in advance where they are to stay and the rate they are to be charged. The hotel benefi ts from capturing all of this company’s business.