Overbooking as an Inventory Management Strategy

All hotels overbook. In some cases, the overbooking is unintentional while in other cases it is intentional. The reasons for unintentional bookings can vary but include the following:

Damaged rooms.

Staff errors.

Inventory availability errors.

Guest overstays.

Experienced RMs know it is best not to walk:

_ Members of their hotel or brand’s loyalty (frequent guest) programs

_ Group meeting or event attendees

_ Contracted rooms such as airline crew rooms

_ Couples celebrating special occasions

_ Families arriving late at night

Price Management

When RMs have accurately forecasted buyer demand and monitored their product availability, their next task is price management. Recall from that the establishment of an initial price is the fi rst step in revenue management. This is so because the demand forecast for a hotel’s rooms reflects buyer response to an established price. Price management is the process of adjusting that initial price to infl uence demand.

To illustrate, consider your own personal interest in purchasing a fi ve-night stay in Miami, Florida, to visit South Beach. If you are like most buyers, your interest in purchasing the fi ve-night stay can only be determined after you know its price. At a very low price, your interest will likely be high. At a higher price, your interest will likely decline. Thus, it is an RMs’ response to forecasted demand and supply levels at initially determined rates or prices that is the essence of price management.

Hoteliers may establish their initial rate offerings based on a variety of factors including the season, their hotel’s location, its operating costs, and the service levels it provides. Understanding exactly how hoteliers historically determined their initial room prices is helpful in understanding how it is done today, as well as how a hotel’s initial rates can be pricemanaged to optimize revenues.

Questions

1. Differential pricing strategiesfor optimum inventory management?

2. Name the the reasons for unintentional bookings?

3. What is price management?

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 8. Distribution Channel Management (binary lecture)

8.1. Managing Distribution Channels

8.2. Nonelectronic Distribution Channels

8.3. Electronic Distribution Channels