Implementing Revenue Management
To: Management team
Date: 19-01-2012
Subject: Implementing Revenue Management
To improve our hotel and to keep up with the competition we have to keep developing new strategies. At this moment we are not using our guests information to the fullest and by using all this information we can improve our Revenue. We have decided to implement a revenue management department in our company. In this memo I will explain you what revenue management is and how we are going to implement it within our company.
We can define revenue management as follows:
Selling the Right Room to the Right Client at the Right Moment at the Right Price On the Right Distribution Channel with the best commission efficiency. (Landman, 2011)
I will explain this to you: revenue management is about optimizing your revenue. This can be achieved by selling the right product to the right person at for the right price in the right period at the right place. So for us as company it is all about selling as many rooms as possible for the right price. The price demands of what our customers are willing to pay, and it is the job of the revenue manager to find out what this price is and improve our revenue.
What are the requirements for applying revenue management?
Fixed capacity
The business needs to have a fixed capacity what means that you cannot just add more capacity if you need it, you have to deal with the capacity you have available and make sure you get as much revenue as possible. A hotel has got a fixed capacity, because when there is high demand it is not possible to add some more rooms to make sure that we can handle all the demand, sometimes we have to say no to certain costumers.
Perishable product
To apply revenue management it is important that you sell a perishable product; this means that you can only sell it today, because tomorrow it is gone. In a hotel this is the case, if we do not sell a room tonight, we cannot sell it twice tomorrow.
High fixed costs and low variable costs
Another requirement is high fixed costs and low variable costs. This means that you can sell your product for less than cost price, but it still can be useful. The most important factor is that we sell a room for more than our variable costs, if we do so we decrease our loss because those fixed cost we have anyway even if we do not sell the room.
Product can be priced differently
The product can be priced differently, this because we want to make sure that we generate as much revenue as possible and on high demand days this will mean that we have not enough rooms, so we can increase our rates and filter out those who are willing to pay those