Total Revenue Management In Hotels

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Total Revenue Management in Hotels

Total Revenue Management

Revenue management (RM) is the business practice of selling the right product and service to the right customer for the right price at the right time. The concept of “right” in this definition means achieving the maximum revenue for the sellers and gaining the maximum value for the buyers. It is a concept which came up through technological advances. The basic principle of hotel revenue management is to match the room rate and timing of the sale to the buyer's needs. In the hospitality industry the goal of revenue management is to maximize the revenue by forecasting the future demand based on the current and past reservation data. A number of authors have proposed three basic levers of RM which justify the previous definitions: the price, the time and the space. We have all noticed the arrival of the hotel market crisis in recent months - and we are assailed by the uncertainty of what will happen in future.

In recent years - when we had a strong market, when applying revenue management techniques, we limit ourselves to higher rates. "Revenue Management is the adjustment of prices on demand" - in times of high demand this implies the ability to raise prices. In most cases, in that environment the application of revenue management concepts merely increase prices. In fact, revenue management techniques are much more than just higher prices, are a set of measures and tools that allow each case to optimize and maximize revenue.

Price: Smart and fair pricing can lead companies to success. With high fixed costs, for hotels cost cutting is unlikely to reap substantial rewards as most opportunities have already been exploited. Sales volume seems to be an effective leverage, but the possibilities for significant volume growth are limited, especially if hotels choose price as an instrument to gain market share from competitors. Moreover, hotels with lower price levels than their competitors did not win enough additional demand to offset the lower average rates. While hotels need to remain competitive in the market in which they operate, slashing of rates is a very dangerous strategy to follow and often does not stimulate the demand required. The price can be managed by controlling arrival and duration uncertainty and reducing the amount of time between customers and purchase transactions. Fair pricing and transparent price terms stimulate clients to buy extra products (Chen, 2010, 129).

Time: Hotels sell exact time (several hours, night, day and night), as a result they are able to perform better control of their capacity, as they know how long guests will be using the space. Usually hotels try to maximize their revenue per available night (the unit of time). Extend time can be an option for generation of additional revenue, because of the potential impact on other customers who might want to use the service.

Space: Hotels configure their physical space into rooms and able to design those in order to meet need of different ...
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