Revenue Management

International University College

ASSIGNMENT

E-BUSINESS

REVENUE MANAGEMENT

Prepared by

Alnorly López Zambrano

Alberto Toro Jímenez

Guillermo Rodríguez Prades

May 2013

Table of contents

I. Introduction

II. Definition

III. Literature review: Revenue / Yield management

IV. Analysis of the revenue management techniques

V. Analysis: Hotel Melia Sol y Nieve

VI. Tools used by the hotel service performance.

VII. Recommendations

VIII. Conclusion

IX. References



I. INTRODUCTION

The new tourism environment has confirmed prices control as one of the most important tools for achieving competitive advantages in a hotel distribution market.

The Yield Management philosophy whose central objective in the optimization of prizes and capacity and consequently a basic process innovation for hotels; though the implementation of this management tool has to be combined, in many cases, with the use of technology to improve its results. The Revenue Management is a management and analysis tool that helps us make decisions that drive revenue and profit of our establishments. In our days, and not just to maximize room sales but rather to optimize the hotel as a whole, with all its benefits.

The aim of this work is to evaluate the strategy by Melia Hotel - Spain in relation with cost control for the customers and of own company. Through Revenue Management decisions should we determine who is the client that gives the hotel more value in terms of total spending, and from there begin to make strategic decisions to sell. The principal objective of revenue management is to optimize the Revenue per available room.

II. Definition Revenue / Yield management

It is precisely the ability to maximize the benefit which will cause the expansion of the technique to other service sectors (business with high fixed costs and low variable costs) such as hotels, car rental companies, tour operators, etc.

If we focus on the main definitions provided about YRM, highlight the B. C. Smith, W. H. Lieberman and, finally, the P. Jones.

For Smith (1992) the YM "consists of selling the right seat, to the right customer at the right price." Others specialists such as Lieberman (1993), which provides a more consistent to the sector in which we are he says that the YM "is the practice of maximizing profit on the sale of perishable active such as hotel rooms, through price control and inventory and improving service. "Finally, would highlight the definition proposed by Jones (1999) for being the most complete of the three:

“Yield Management is a system for hotel managers who seek to maximize profits through the identification of the ability to generate profits for each of the market segments, value setting, price allocation, discounts creation and establishment of rules for the extension of an advanced reservation process and monitor the efficiency of the rules and their implementation”. Jones (2000).

III. Literature review: Revenue / Yield management

Below is the 5 steps to the success of YM in a hotel, according to Kelly Blake and Bonnie Buckhiester (2005):

- Create a group of RM: RM eel and what is a discipline. Responsibilities should be delegated to the heads of various areas related to management decision making rates, using information reporting tools to allow for a daily checklist.

- Know the hotel and competence: knowing perfectly what kind of hotel is operating, thus able to assess whether this meeting the expectations of customers. You should know that's what our competition offers dl unlike hotel in question. Comparisons should be made competitive against RevPar and occupancy percentages against for well know with whom you share the market.

- Strategically pricing: if you know the hotel and handling own rate of competition, you can take advantage and set rates a strategic way. "The right product": a hotel can classify their rooms based on their size, guidance, decor or service associated therewith such as Breakfast, room service, etc.

Using this classification can determine which product is best suited for our clients.

- Determination of profitable customer: you must assess whether the hotel reservations are being made by the major segment you target and higher rates compared to those outside the mainstream market. "Right customer": even the hotels and very specialized accommodations can be made distinction between potential customers, either based on age, purchasing power or any other characteristic of differentiation.

- Forecast demand and not just the occupation: if demand predicts controls can be taken on the choice of rates.

At first glance, the definition we have raised for Revenue Management (hereinafter MRI) can seem complex. This is due to a RM concept that forms the union of several processes:

- Demand Management – Forecasting

The main objective of the demand management is to find the perfect balance between the resources available to the company and demand by customers.

The management of demand and future nature "Demand forecasting" is known as of Forecasting. Forecasting involves the conducting estimates and demand analysis based on and historical data calculation data forecasts, in order to know the volumes of business establishment at a time will (Future) determined.

- Price management

Price management for most consumers, the price is one of the main determinants when select a product or service. Just as demand management seeks to achieve a balance between demand and supply available in an enterprise price management pursues an equitable relationship between the needs of customers and the benefits of the establishments.

The Pricing or pricing is a tool key within the RM, which is the dynamic allocation of products or services prices of a company.

The pricing is a technique to determine the value of the rooms of an establishment taking into account a number of factors, besides the costs and benefits to be obtained:

Availability

Competition

Demand

- Capacity Management

The capacity management is one of the RM process is closely related to the management of demand.

At first glance the capacity management seems unimportant; because the ability of a establishment is fixed (no room number is variable).

However, since the hotels offer hosting services and products tangible, to know what is the capacity for a given time (day, week, etc..) is not only to calculate the number of bookings.

Although in this case may serve as reserves possible inventory in this sector we find customers can make reservations but they cannot be confirmed.

- Sales Channel Management

Sales Channel Management the channel or medium used to deliver the hosting services to customers need not unique.

IV. Analysis of the revenue management techniques currently used by the company

For the different techniques used or to be developed must be meet the following steps.

Requirements for Use

YM techniques are appropriate when the following conditions occur:

 The company operates with fixed capacity.

Fixed capacity. Application of YM is focused on companies that

exhibit this characteristic. It is suitable for companies that they cannot adapt quickly to an eventual capacity demand change. Because of this restriction of capacity, financial success is function of the ability to manage the use of its capacity efficiently.

For example, if all the hotel rooms are occupied, it is very difficult to add a new one, even if the client is charged in another hotel the company had in the same city.

 The demand can be clearly segmented into distinct sets.

The segmented market to be effective YM, the company should be able to segment the market in different types of customers, Ladany (1996).

Basically it must be able to identify what customers are more sensitive to a change in prices by a change in service, so that market will develop different strategies for different types of customers.

 The inventory is perishable.

One of the factors that differentiate the service companies from other companies is the type of inventory.

In service companies, inventory is perishable. Also when has limited capacity, the problem is accentuated through the failure to increase this capacity. Free rooms hotel inventory units represent lost. If a company can minimize this inventory expired will get higher revenues and therefore profits.

 The product can be sold in advance.

One of the most common practices in these companies is to use a reservation system, in which inventory units

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