REVinsight

The practice of accepting reservations beyond capacity in order to compensate for cancellations and no-­‐shows. Overbooking is an essential element of revenue management.

This approach guarantees that the hotel quotes the lowest possible rate.

Hotels developed this approach when they found that customers were able to get lower room rates from third-party Internet sites than from the hotel directly.

The BAR guarantee encourages customers to book rooms with hotels directly rather than through third parties. A strategy used within a variable-pricing framework in which the lowest ("best") rate available for each night is quoted for a multi-night stay, rather than a blended rate.

This method starts with a low basic price. From there, the seller suggests "extras" that result in higher-priced options. In the hospitality industry, a bottom-up pricing approach might begin with the rate for a basic room and arrive at a higher price through the addition of amenities or deluxe features.

A period (a season, month, day, or time of day) when demand is low. From the perspective of hotel revenue management, cold periods are times when discounted rates and incentives can be used to try to increase occupancy and improve RevPAR.

Competitive pricing sets prices according to what competitors are charging. This is a common and fairly effective approach in the hotel industry. With this approach, it may be preferable to be in the position of price leader rather than price follower. A pricing strategy that bases prices on what competitors are charging.

This is the most traditional method of setting prices. This method is no longer widely used in the hotel industry, although it remains common in food and beverage businesses.

As the name implies, this approach is designed to respond to levels of demand. Demand-based pricing looks at the price elasticity of customers — that is, how sensitive customers are to changes in price. During low-demand periods, discounted rates are open. During periods of high demand, discounted rates are largely closed.

In revenue management, it is common to use a combination of demand-based and competitive pricing. A pricing strategy that sets higher prices for periods of high demand and lower
prices for periods of low demand.

In hotel revenue management, this refers to a hotel guest's length of stay. It is a
goal of revenue management to predict duration as accurately as circumstances
will allow.

When consumers purchase significantly less of a product due to price increases and significantly more due to price reductions, demand is said to be elastic. Here are some situations in which demand is likely to be elastic.

Many alternatives
Elastic demand often indicates high competition and standardized services. Products with many close substitutes are usually characterized by elastic demand. For example, a budget motel in a downtown area with three other budget motels is likely to have elastic demand.

Significant price
Demand for products that make up a large portion of the consumer's total budget tends to be elastic. The demand for dinner at an expensive, four-star restaurant may be elastic.
A result of higher competition and standardized services. When demand is
elastic, consumers are more responsive to price changes.

When consumers purchase about the same quantity of a product regardless of changes in price, demand is said to be inelastic. Here are some situations in which demand is likely to be inelastic.

Few alternatives
Inelastic demand often indicates low competition and highly differentiated services; demand doesn't vary because there are few or no close substitutes for the product. For example, the demand for a particular hotel is likely to be inelastic if that hotel is the only one in the downtown area.

Insignificant price
Demand may be inelastic because the product price may represent a very small portion of the consumer's budget. For example, the demand for chewing gum and breath mints is likely to be inelastic.

New product
Demand for a product is likely to change over the product's lifetime. When the product is new, demand may be inelastic because there are few or no other products like it available. However, the demand for this product may become elastic in the long term; competitors may emerge or the product may become less desirable.

A result of low competition and highly differentiated services. When demand is inelastic, consumers are unresponsive to changes in the price of a product or service.

The menu-guide approach provides a list, or menu, of several different rates for the customer to review. These rates may include a basic rate, an upgraded rate, and a rate available to selected customers through a club membership or other designation. The guest is asked which rate he or she would like to pay.

The multi-price approach is essential to revenue management. Businesses that offer just one rate miss opportunities with at least two important segments, those who would have spent more and those who will only spend less.