REVinsight

A smart pricing strategy is the best way to increase revenue. Set prices, develop rate fences and differentiate prices by customer type, and use multiple distribution channels to manage price more effectively.

Price is one of the two strategic levers of revenue management. The revenue management approach requires that hotels make their prices more variable. The flexibility of a variable-price approach enables managers to offer the right room at the right price.

Understand the impact of variable pricing and discounting on revenue management in the context of price elasticity, optimal price mix, perceived fairness, and congruence with positioning and sales strategies.

Revenue per available room.

This hotel-specific variation of RevPATI can be calculated in two ways: a) by dividing the total nightly room revenue by the number of rooms available or b) by multiplying the
average room rate by the actual percentage of occupancy on a given night.

This measure is used in revenue management to analyze a business's ability to utilize its revenue capacity.

RevPAR can also be calculated by dividing total revenue by the number of available rooms.

What metric should a hotel use to gauge how well its rooms are being managed?

It could look at average daily rate. The average daily rate is the sum of all room-night rates paid, divided by the number of room-nights purchased. Or it could look at occupancy levels. The occupancy level is the number of rooms sold, divided by the total number of rooms in the hotel. This number will be a fraction that is less than one, but it is often written as a percentage. Neither average daily rate nor occupancy level give a complete picture.

Hotel X has the highest average daily rate, but Hotel Z has the highest occupancy. Which hotel is most successful?

RevPAR can help answer this question. Recall that RevPAR can be calculated by multiplying the average daily rate by the occupancy percentage. Using the sliders below, you can see how average daily rate and occupancy percentage influence RevPAR through this relationship.

Yield management is the process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield. An approach to maximizing revenue through the sale of the right product at the
right price to the right customer. "Yield management" is a precursor to revenue
management.

Yield management is the process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield. An approach to maximizing revenue through the sale of the right product at the right price to the right customer.

"Yield management" is a precursor to revenue management.

With best-available-rate pricing, often at flexible conditions, customers are quoted individual rather than blended rates. This approach is perceived as fair and honest.

Variable pricing is a powerful tool for managers interested in optimally matching the supply of hotel rooms with customer demand. However, policies and procedures that stem from these strategies can be confusing to customers and may create a negative impression.

The success as a revenue manager is contingent on the ability to work with price effectively. To do this, price must be controlled and, in particular, use a multi-price approach. Managers work with price, one of the two strategic levers of hotel revenue management, to increase revenue.

Understand how to compare the one-price model to variable pricing. Define rate fence and an optional price mix and develop a pricing policy for revenue management.

Managing price is a critical element of revenue management. Without a solid approach to pricing, no level of occupancy will guarantee your success. For this reason, it's important to be able to recognize problems when you see them.

Analysis of the strengths and weaknesses of pricing policies and understand how to set prices and how to determine who pays which price.

Hotels offer a variety of prices, not only for different types of rooms but also for exactly the same room purchased at different times or by different customers.

What Prices Will You Charge?

Managing price requires that you answer two difficult questions: what prices will you charge, and how will you determine who will pay which price?

Who Pays Which Price?

In pursuing a multi-price approach, revenue managers must answer the second question: who will pay which price? An important tool they use is the rate fence. With rate fences, the hotel allows consumers to segment themselves into market groups based on their willingness to pay, their behavior, and their needs.

Direct control by a hotel over customers concerning the length of their stays.
External controls include penalties for departures and no-shows.

The condition under which only a specific number of customers can be
accommodated at one time. For example, a hotel has a fixed capacity
determined by the number of rooms in its building.

A pricing strategy that does not vary prices according to demand, product characteristics, or segmentation of markets. Fixed pricing is strongly discouraged in revenue management.

In hotel revenue management, an estimate of the number of rooms that will be
sold for use on some future date. Accurate forecasting makes it possible to
employ the strategies of revenue management appropriately, according to the
expected level of demand.