Pearson New International Edition International pcl tp indd 1

REVENUE MANAGEMENT
Objective 1
Explain the revenue 
manager’s role in 
establishing room rates
by applying information 
about rate types and rate 
determination factors and 
by considering traditional 
and Web-based pricing 
strategies.
Objective 3
Present tactics used by 
revenue managers to 
influence their hotel’s 
occupancy rates and 
average daily rates and 
review how to evaluate 
the success of tactics to 
manage occupancy
and ADR.
Objective 2
Discuss how revenue 
managers use
information about
room types, market 
codes, and track
codes to help
maximize RevPar.
Objective 4
Provide an overview
of yield management 
philosophy and describe 
procedures to help 
maximize long- and 
short-term RevPar using 
yield management 
techniques.
Role of Revenue Manager: 
• Revenue Management 
• Room Rate Mgmt. 
• Room Rate Economics
Revenue Management 
Tools
Revenue Management 
Essentials
Yield Management
ROADMAP 4
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also manage yield with pricing tactics. Other industries that use yield management
techniques include cruise ships, railroads, condominiums, time-shares, and live the-
aters. The common denominator is the daily perishability of inventory—inventory,
such as unsold hotel rooms, that cannot be carried over to be sold the next day.
Hotel rooms are perishable items (as are airline seats), so it makes sense for rev-
enue managers to study how their rooms are typically rented to understand the best
time to discount or to increase a room’s price. For example, if a hotel is usually com-
pletely booked every October, there is little reason to offer a discount to a group that
wants a block of rooms at that time, unless the group is willing to purchase enough
additional services to justify the discount.
In most cases, consumers intuitively understand that businesses increase prices
when there are limited product inventories. Not all industries, however, can effec-
tively implement yield management strategies. Ethically, for example, few consumers
would condone an emergency medical supply company that significantly increased its
product prices immediately after a disaster caused an increase in demand. Similarly,
consider the public’s consistent response to the routine increases in gasoline prices
before holidays when automobile use is expected to significantly increase. Public
reaction typically ranges from cynicism to absolute outrage and a demand for federal
investigations of and price controls for the “big oil companies.” In hotels, yield man-
agement tactics that are improperly planned or implemented at a time that makes lit-
tle sense to guests can generate the same negative reactions by consumers. Consider
the legal implications of and harm to a property’s reputation when rates for rooms are
raised as citizens leave their homes because of dangers from hurricanes, forest fires,
earthquakes, and other natural disasters. (Florida has laws that prohibit price goug-
ing during emergencies, and the state took court action against at least two hotels
during the aftermath of Hurricane Charley in August, 2004.)
Implementation
Yield management can be viewed as the application of tactics that predict (forecast)
consumer behavior and effectively price highly perishable products to maximize
RevPar. Industries that can easily carry inventory to the next day (e.g., carpet, lum-
ber, and computer businesses) have difficulty using yield management, because cus-
tomers do not accept price variation. Industries that are perceived by customers to be
able to increase inventory without difficulty (e.g., bread and milk producers and
restaurants) do not generally use yield management even though they may sell a per-
ishable commodity.
The goal of yield management is to consistently generate the highest possible
revenue from a given amount of inventory. The techniques of yield management are
used during periods of high and low demand. Revenue managers should be imple-
menting yield management procedures under the following conditions:
•
Demand for their rooms varies by day of week, time of month, or season, or in
response to local special events.
•
Their demand variance is predictable.
•
They have turned away a potential guest willing to pay a higher price for a
room because available inventory had been previously sold to another guest at
a lower price.
•
Their hotel serves guests who are value conscious as well as those who spend
more for reasons of convenience, status, or another motivating factor.