Additional Assessments

A recurring theme of this book is that maximized revenue generation, by itself, is not the best measure of an RM team’s effectiveness. As a result, while a continual assessment of occupancy, ADR, RevPAR, competitive set performance, market share and, if the data are available, GOPPAR and fl ow-through is important, at least three additional revenue-related areas of assessment are also important. These areas of examination and the specific questions they can answer are:

_ Source of business: Who are our buyers?

_ Distribution channels: At what cost do our buyers purchase from us?

_ Web 2.0: What do our buyers say about their experiences with us?

For some RMs, the answers to these questions may be provided by an effective hotel sales and marketing department or the property’s GM. This is so because the answers to these type questions are critical to effective hotel sales and operations, as well as to revenue optimization. The correct responses to these questions, however, are just as critical to revenue management teams because the answer to the question, “Who are our buyers?” will provide data essential to initial differential pricing decision making.

Knowing the distribution channels that deliver the majority of a hotel’s rooms buyers and the costs of those channels is key to effectively opening and closing room discounts and to rooms inventory allocation. Also, better understanding guests’ experiences during their stay can help an RM provide valuable assistance in product improvement, as well as in identifying areas in which a hotel excels and thus could gain marketing and perhaps pricing advantages.

 

Common-Sense Revenue Optimization

For RMs working in the lodging industry, a continual evaluation of evolving revenue optimization strategies, tactics, and results is crucial. Revenue optimization techniques in the industry have advanced far beyond a simplistic “head-in-beds” approach that focused on maximizing a property’s occupancy percentage. Such an approach all too often caused RMs to reduce their room rates in the false belief that doing so would increase demand and, as a result, maximize RevPAR.

Experienced RMs know that room rates, because they are prices, set their guest’s initial expectations for their hotels’ products and services. Rates that are too high set unrealistic guest expectations. Rates that are too low undervalue the efforts of the hotel’s staff and deprive the property of deserved profi ts. An overemphasis on Internet intermediaries(who seek their own revenue optimization strategies) as a hotel’s primary selling tool risks product and brand commoditization and in too many cases has led to lack of pricing credibility. What is needed, of course, is a common-sense approach to room rate determination.

Questions

1. How did you understand the lodging revenue paradox?

2. What are the specific questions that are answered by RM to maximize revenue generation?

3. What is Web 2.0?

Literature:

1. Hayes, D. & Miller, A. (2011). Revenue Management for the Hospitality Industry. Hoboken, NJ: John Wiley & Sons, Inc.

2. Segmentation, Revenue Management and Pricing Analytics by Tudor Bodea and Mark Ferguson. First edition by Routledge, 2014. ISBN 0-415-89832-3

3. Pricing Segmentation and Analytics by Tudor Bodea and Mark Ferguson, 2012. (ISBN: 978-1-60649-257-4)

 

Topic 10. Revenue Management for Food and Beverage Services

10.1. Traditional Foodservice Pricing Methods

10.2. The Case Against Cost-Based Foodservice Pricing

10.3. Applying Differential Pricing in Foodservices

10.4. Factors Affecting Value Perceptions in Foodservices

 

Traditional Foodservice Pricing Methods

A designated position termed revenue manager is not as well recognized in the foodservice industry as it is in the lodging industry. In fact, many foodservice operators would equate the duties assigned to a revenue manager in foodservice with those of the person responsible for determining menu prices and, perhaps, for the marketing or advertising of the business.

Of course, the proper determination of menu prices is very important. Today’s foodservice RMs should know that the careful examination of how industry professionals can best establish menu prices is not a new phenomenon.

If you undertake a detailed review of how most foodservice industry experts suggest menu prices are to be determined, you will discover that their recommendations vary only slightly. In general, the experts suggest that menu prices be assigned on the basis of one of the following general concepts:

_ Product cost percentage

_ Product cost: plus

_ Contribution margin

 

The Case Against Cost-Based Foodservice Pricing

To better understand the complexity of food and beverage pricing and exactly why trained pricing professionals

are so needed, it is important to recognize that in foodservice, an important distinction must be made between

total sales revenue and sales volume —or the number of units sold.

To illustrate, consider a bagel shop manager whose Monday business consists of $4,000 in total sales (revenue) because she sold 2,000 bagels (sales volume) at $2.00 (selling price) per bagel. Foodservice revenue and price are not synonymous terms. Revenue refers to the amount spent by all guests, while price refers to the amount charged to one guest. In the foodservice industry, total revenue is generated by the following formula:

Selling price X Number (volume) sold = Total revenue

From this formula, the two important components of total foodservice revenue are easily identifiable. Selling price is one component; the other is the number of items sold. In foodservice, variation in selling price (menu prices) will directly affect the number of items sold. As is true in the lodging industry, selling price and number sold are interrelated in the foodservice industry.