REVENUE MANAGEMENT IN HOSPITALITY

Revenue Management in Hospitality

Revenue Management in Hospitality

Introduction

Technology systems can support restaurant managers' efforts to improve sales and profits through revenue management. By subdividing a meal into its component sections, a manager can determine which systems to apply at a particular stage for the purpose of providing the greatest revenue benefit for a particular restaurant. In adopting technology, managers must first conduct a financial analysis to determine whether the technology's cost will be more than offset by revenue improvements. If that financial calculation is favorable, management must then consider benefits to both employees and customers and must also take into account employees' and customers' perceptions of the technology's utility and ease of use. Without those elements in place, the technology faces dim prospects no matter what its prospective financial benefit.

Appropriate technology, when used in conjunction with revenue management principles, can help restaurants of all types increase revenue and profit.

In UK alone, table service restaurants account for approximately £ 180 billion per year in revenue (National Restaurant Association 2006). If these table service restaurants can achieve the 2 to 5 percent revenue improvement typically associated with the adoption of revenue management (Hanks, Noland, and Cross 1992; Smith, Leimkuhler, and Darrow 1992; Kimes 2004a), overall revenue could increase by $3.6 billion to £9.0 billion per year. Correctly implemented, technology can more than offset its cost with increased revenue. Technologies that support restaurant revenue management range from relatively simple credit card processing systems to elaborate table management and kitchen production software.

Revenue Management

Revenue management has been widely adopted in the airline, hotel, and rental car industries (Carroll and Grimes 1995; Hanks, Noland, and Cross 1992; Smith, Leimkuhler, and Darrow 1992) but has only gained attention in the restaurant industry in the past ten years (Kimes et al. 1998; Kimes 2004a, 2004b; Kimes and Thompson 2004, 2005). Companies using revenue management have reported revenue increases of 2 to 5 percent (Hanks, Noland, and Cross 1992; Kimes 2004a; Smith, Leimkuhler, and Darrow 1992). Revenue management is activated by the following two strategic levers: duration control and pricing (Kimes and Chase 1998; Kimes et al. 1998). Duration management requires control and knowledge of when customers arrive, how long they stay, and when the table becomes available for the next party. If meal duration can be reduced during busy periods, more customers can be served and revenue can be increased. At the same time, however, duration control must be approached carefully because rushing customers may impair their satisfaction. The duration of a meal, which includes the entire time that the table is in use, can be managed by controlling guest arrival, meal duration, and table turnover. Managing guest arrivals requires the ability to predict when customers will arrive. Restaurants can manage arrivals both internally (by means that do not directly involve customers) and externally (by mechanism that do directly involve customers). Common internal arrivalmanagement strategies include improving the accuracy of arrival forecasts, tightly managing the customers' waiting times, developing overbooking policies that maximize ...