[MUSIC]

To understand revenue management, and the importance of distribution and

demand management, we need to get a better understanding of the notion of leverage,

both operating and financial leverage.

The notion of leverage is simple to understand.

Let's imagine two situations.

For the first situation, you need to think of a business

that has relatively low fixed costs, but high variable costs related to revenue.

This chart illustrates this situation.

The horizontal axis represents the quantity of products sold.

It can be the number of rooms or the number of colors.

The vertical axis then shows the resulting amount of monetary value

associated with the quantity sold, such as revenue or cost.

In this situation, the relatively low fixed cost, but high variable cost,

the black and the red lines results,

when added, in their total cost of the business, the green line.

This represents the case of a low leverage, where the break even point,

where revenue is equal to total cost, is achieved relatively quickly.

And when profits or

losses do not change by much when you change the number of products sold.

In this case, we consider the cost structure to have a low leverage.

As this cost structure does not amplify the changes in profit or

loss, when there's a change in quantity sold.

The second situation is the opposite.

With a business with relatively high fixed costs, but

low variable costs as is illustrated in this graphic.

The black line for the fixed costs is higher than the previous example.

And the slopes of the red and green lines, the variable and total costs, is flatter.

This second situation represents a high leverage.

As the changes in profit or

loss is significantly amplified by the cost structure.

The notion of leverage is important as it defines the contribution margin

of the business.

Contribution margin is the dollar or

Euro amounts that each product sold generates to cover the fixed cost.

It is thus calculated by taking the unit price minus the unit variable cost.

For instance,

it would be the room rate minus the variable cost related to selling the room.

Hotels are generally considered as having both high operating and

financial leverage.

They generally have high fixed operating and financial costs.

As a consequence of the high leverage, hotels need to maximize, on a daily basis,

the contribution they generate for the sale of the room.

Thus, they must maximize the overall revenue they

generate from the sale of the rooms.

Which is measured by the revenue per available room, or RevPAR.

The goal of revenue management, which is to maximize RevPAR, and

thus RGI, is no easy task.

Remember that RevPAR can calculated by multiplying occupancy and

average daily rate.

Hence, to increase RevPAR, one can increase occupancy, increase ADR,

or increase both.

As is generally agreed, the demand for hotel rooms is elastic.

In other words, customers tend to be price sensitive.

Thus when hoteliers increase the ADR,

the demand as measured by occupancy tends to decrease.

Revenue management is the art and

science of trying to maximize RevPAR despite the elasticity of the demand.

The basic idea of revenue management is to offer the right service at the right time,

at the right price, to the right customer, and through the right channel.

In order to maximize RevPAR to the lowest cost of distribution.

The logic of revenue management is to identify customers

that are willing to pay different prices for

different services through different channels or at different time periods.

This chart illustrates the case of a hotel selling its room at a single price.

P1 represents that single price which results in capturing only

one single market.

Those that are willing to pay that price.

This market is represented by the quantity demanded Q1.

With this single price and single market,

the revenue of this hotel is only equal to P1 multiplied by Q1.

The profit of the hotel is thus only equal to the revenue minus the total costs for

this level of quantity sold.

The profit here is represented by the yellow area.

As this hotel is essentially aiming at a single market, and

is not discriminating the demand, it is losing opportunities to make extra profits

by not selling its rooms to those willing to pay more or willing to pay less.

These lost profit opportunities are represented by the orange areas.

In contrast, revenue management aims at identifying other markets, and

at creating a discriminating offering that enables hotels to reach other customers

at varying price points.

In this graphic,

the hotel is discriminating its demand by identifying two other markets.

One that is willing to pay a higher price, p2,

and another one that is willing to pay a lower price, p3.

It is worth nothing that there are more people willing to pay p3 than p2 or p1.

Hence, there is greater demand for lower prices.

By discriminating the demands,

the hotel is thus able to generate extra profit compared to the previous case.

The extra profit is represented by the extra orange areas.

The art and

science of revenue management has become a critical success factor for hotels.

Yet, as the distribution and sales landscape has become increasing complex

to manage, only large companies, or large hotels can develop the necessary tools and

competencies to perform the task effectively.

Generally, hotel chains try to organize their distribution and

revenue management activities by clusters of hotels.

At times, they also organize these functions by regions too.

Lodging for doing so is to improve the quality and quantity of market

data available to improve the ability to cross-sell hotels and to decrease

the overall cost of the function by gaining from economies of scale.

These issues will be further discussed in the next modules of this specialization.

Introduction to revenue management

酒店分销基础

与讲师见面