Table Of ContentThis page intentionally left blank
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RE VENUE M AN AGEMENT
HOSPITALIT Y INDUS TRY
FOR
THE
DAVID K. HAYES
ALLISHA A. MILLER
John Wiley & Sons, Inc.
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Photos were taken by the author unless otherwise noted.
This book is printed on acid-free paper. o
Copyright © 2011 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any
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Library of Congress Cataloging-in-Publication Data:
Hayes, David K.
Revenue management for the hospitality industry/David K. Hayes, Allisha Miller.
p. cm.
Includes index.
ISBN 978-0-470-39308-6 (pbk.)
1. Hospitality industry–Management. 2. Hospitality industry–Economic aspects. I. Miller, Allisha. II Title.
TX911.3.M27H395 2010
647.94068’1–dc22
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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CONTENTS
Preface vii
Acknowledgments xv
PART I: REVENUE MANAGEMENT PRINCIPLES 1
Chapter 1: Introduction to Revenue Management 2
Introduction 3
The Purpose of Business 5
The Purpose of Revenue Management 11
The Purpose and Design of This Book 12
Chapter 2: Strategic Pricing 35
What Is a Price? 36
The Importance of Price in the 4 Ps of the Marketing
Mix 45
The Role of Supply and Demand in Pricing 49
The Role of Costs in Pricing 53
Implementing Strategic Pricing 61
Chapter 3: Value 68
The Role of Value in Pricing 69
The Relationship Between Quality and Price 75
The Relationship Between Service and Price 77
The Link Between Quality, Service, and Price 79
The Art and Science of Strategic Pricing 84
Chapter 4: Differential Pricing 91
Ten Priciples of Managing Revenue 92
Differential Pricing 93
Limits to Differential Pricing 99
Applying Differential Pricing 103
Revenue Management or Revenue Optimization? 121
iii
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iv CONTENTS
Chapter 5: The Revenue Manager’s Role 129
The Revenue Manager in the Hospitality Industry 130
Legal Aspects of Revenue Management 133
Ethical Aspects of Revenue Management 139
The Revenue Manager Position 147
The Revenue Management Team 156
PART II: REVENUE MANAGEMENT FOR HOTELIERS 163
Chapter 6: Forecasting Demand 164
The Importance of Demand Forecasting 165
Historical Data 167
Current Data 174
Future Data 185
Demand Forecasts and Strategic Pricing 193
Chapter 7: Inventory and Price Management 208
The Marketing Mix Revisited 209
Inventory Management 209
Characterizing Rooms for Optimum Inventory Management 212
Designing Unique Room Codes 215
Classifying Guests by Market Segment 216
Overbooking as an Inventory Management Strategy 227
Price Management 233
Stay Restrictions 249
Principles of Inventory and Price Management 251
Chapter 8: Distribution Channel Management 259
Managing Distribution Channels 260
Nonelectronic Distribution Channels 268
Electronic Distribution Channels 278
Principles of Distribution Channel Management 298
Chapter 9: Evaluation of Revenue Management Efforts in Lodging 306
The Lodging Revenue Paradox 307
STAR Reports 318
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CONTENTS v
Competitive Set Analysis 325
Market Share Analysis 332
Additional Assessments 335
Common-Sense Revenue Optimization 340
PART III: REVENUE MANAGEMENT FOR FOODSERVICE OPERATORS 349
Chapter 10: Revenue Management for Food and Beverage Services 350
Traditional Foodservice Pricing Methods 351
The Cost Against Cost-Based Foodservice Pricing 359
Applying Differential Pricing in Foodservices 364
Factors Affecting Value Perceptions in Foodservices 373
Chapter 11: Evaluation of Revenue Management Efforts in Food and
Beverage Services 391
Food and Beverage Revenue Analysis 392
Examination of Revenue Sources 393
Measurement of Revenue Change 399
Evaluation of Revenue-Generating Effi ciency 409
The Revenue Evaluation Process in Foodservices 420
PART IV: REVENUE MANAGEMENT IN ACTION 429
Chapter 12: Specialized Applications of Revenue Management 430
Characteristics of Organizations Applying Revenue
Management 431
Service Industries Applying Revenue Optimization
Strategies 440
Specialized Revenue Management Duties 441
Revenue Management and Destination Marketing 450
Chapter 13: Building Better Business 458
Keys to Building Better Business 459
Better Business Issues in Moderate to Strong Markets 472
Better Business Issues in Weak or Distressed Markets 480
Index 503
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PREFACE
Revenue Management for the Hospitality Industry is a book that we were particularly
privileged and challenged to create. This is the fi rst textbook that has been developed
specifi cally to examine what revenue managers in the hospitality industry must know and
do to be successful.
Revenue Management is an emerging fi eld of study. Because that is true, there are
honest differences of opinion about what revenue management actually is today—and what
it will become in the future. Despite some philosophical differences among revenue man-
agement experts, we believe all of them would agree that a good way to describe the goal of
revenue management is to say that it is “to charge the right price, to the right customer, for
the right product, through the right channel, at the right time.” Doing that well is not as easy
as it looks—and as experienced revenue managers will attest, it doesn’t look all that easy.
This book was developed to teach its readers exactly how it is done.
It is important to note that Revenue Management for the Hospitality Industry is
intended for readers with prior knowledge and understanding of the hospitality industry.
We believe revenue management should be a unique and separate area of study and is an
area best studied by those with a solid understanding of how products and services are sold
in the exciting hospitality industry.
As it continues to evolve, revenue management will certainly develop more of its own
theory, principles, and practices. For the present, much of the information revenue managers
need to know is taken from the various fi elds upon which it has been built. This can
be confusing to some. For example, some marketing professionals believe that because
revenue managers must understand much about marketing, the terms revenue management
and effective marketing are the same. They are not the same. In fact, one very good way to
avoid any confusion about what this book is intended to be would be to carefully describe
what it is not.
Revenue Management for the Hospitality Industry is not a principles of economics
textbook, despite the fact that it is critical for revenue managers to understand how and why
consumers use scarce fi nancial resources to make purchasing decisions. Concepts such
as supply, demand, consumer rationality, and pricing are foundational topics for revenue
managers and as a result these and other very specifi c economic concepts are presented in
the book. Neither is this a pricing theory text, despite this book’s strong emphasis on the
critical relationship between strategic pricing and effective revenue management. Revenue
managers must be experts at understanding how businesses determine prices and how their
customers perceive prices. As a result, the principles and concepts revenue managers must
know to grasp the intricacies of effective pricing do make up an essential part of this book.
This is not a book about managerial accounting although it addresses those account-
ing principles and practices that revenue managers must be aware of if they are to do their
jobs effectively. It is not a textbook about marketing or e-marketing/information technology.
Certainly, revenue managers must know a great deal about marketing concepts. As well,
the extensive use of the Internet to sell hospitality products requires specialized knowledge
vii
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viii PREFACE
to use that tool effectively. As a result, marketing and e-marketing information make up a
signifi cant portion of this text.
It is not a text about how to manage the front desk in a lodging operation. This is so
despite the fact that in a large number of U.S. hotels the revenue manager and front offi ce
manager position will often be held by the same individual. Effective front offi ce adminis-
tration, however, is critical to revenue optimization in hotels. As a result, the book includes
a great deal of information about effective front offi ce management.
It is not a textbook about leadership, yet experienced revenue managers agree that the
ability to communicate goals and build teams who are inspired to achieve those goals is one
of a revenue manager’s most critical tasks. As a result, information about the leadership skills
that revenue managers must acquire and exhibit are included. Similarly, the book is not about
managerial ethics or those laws that directly affect pricing. This is so despite the fact that
employees, customers, and society at large care deeply about the ethical aspects of a business’s
pricing tactics and strategies. Also, it is important that revenue managers understand that
there are very specifi c legal requirements related to pricing products, and these requirements
must be well known. In any industry, the prices charged and the selling methods used must be
perceived to be fair, and they must follow the law. As a result, ethics in pricing and the legal
aspects of pricing are topics that must be addressed. This book does that.
In summary, the book is not an economics, pricing theory, marketing, e-marketing/
information technology, managerial accounting, front offi ce management, leadership,
ethics, or hospitality law textbook. Revenue Management for the Hospitality Industry is a
book about revenue management. Revenue management is an independent area of hospitality
study that draws from a variety of established academic areas to yield a subject of management
inquiry as unique as it is exciting.
TO THE STUDENT
Learning revenue management will not be boring. It is an easy statement to make because
revenue management is an exciting subject. It is fun and it is challenging. Revenue
Management for the Hospitality Industry will be fun and challenging as well.
The book has been carefully designed to include information taken from inside the
hospitality industry as well as from a variety of external sources. If you work hard and do
your best, you will fi nd you do have the ability to master all of the information in this text.
When you do, you will have gained an invaluable skill that will make you one of the rare
individuals with a thorough understanding of revenue management in the hospitality industry.
That knowledge will enhance your company’s performance and thus help you advance your
own hospitality career.
TO THE INSTRUCTOR
Teaching in a new subject area can be much more challenging for an instructor than teaching
in an area that is more well-established. It requires dedicated, innovative, and inspired
teachers to organize relevant information and to make that information easy to understand
