Revenue management is the process that, through systematic application of analytical

tools, helps us allocate right room, at the right price, at the right time to the right
customer with the objective of maximizing hotel revenue.

There is no question that Hotel owners prefer to sell their rooms at high prices. After all,
they made sizable investment to build and operate their property..If prices are kept too
high, the hotel risks not selling a large portion of its’ rooms. On the other hand, if prices
are kept too low, occupancy may increase, but at the expense of revenue. And once the
hotel is full, there will be little opportunity to increase room income. Revenue
Management theory tactically utilizes supply and demand principles to define the right
allocation of rooms, price, and timing for each customer segment. However, for it to work
appropriately the following conditions must be met:

 Relatively fixed capacity

 Perishable inventory
 Ability segment markets
 Possibility of forecasting demand

.Hotels have a fixed number of rooms to sell; and these rooms are also perishable. You
may not have thought about it but when a room goes unsold on a given night, there is no
possibility of making back that revenue in the future. It is gone forever. Additionally,
markets can be segmented, demand can be forecasted, and different segments are
willing to pay different prices for the product depending on circumstances.

FIXED CAPACITY

Merchants of goods or services with greater flexibility in adjusting production can react
quickly to changes in demand. For example: A baker who estimates an increase in
demand may produce more bread and earn more money. If the same baker estimate a
decrease in demand he/she can produce less bread, saving production costs. On the
contrary, when we speak of goods of fixed capacity, sellers have very little flexibility to
adjust the number of goods offered. Hotels have a relatively fixed capacity. Once a hotel
is built, it is very difficult and expensive to increase or decrease the number of rooms
available for sale. This forces Hoteliers to manage capacity and optimize pricing very
carefully to maximize their income.

PERISHABLE INVENTORY
Perishable inventory refers to inventory that expires relatively quickly. It can be sold only
within a limited time frame. Because of this, to maximize revenue (or prevent loses),
those who trade in perishable goods must manage capacity very diligently and apply
dynamic and aggressive pricing strategies. If a merchant sells iPhones and today he/she
was not able to sell all the inventory, he/she can always do it tomorrow. However, a
farmer who sells fresh lettuces on Sunday´s farmers market will not be able to sell them
the following Sunday. On a hotel, at the end of each night unsold room are lost. The
room does not disappear, but the opportunity to sell that specific room-night was lost
forever.

POSSIBILITY OF CLIENT SEGMENTATION

Customer segmentation is one of the most important pillars of revenue management.

Good revenue management application requires the design and implementation targeted
strategies and actions per segment. Two typical hotel customer segments are business
and leisure travelers. A successful segmentation strategy requires a lot of study and
deep knowledge of the customer. It´s important to understand their consumption
patterns, likes, preferences, etc. This knowledge enable the creation of targeted
products and offers for each segment. For example, customers may be segmented by
their ability to pay. Hotels quickly recognized that consumers in certain segments would
pay more for rooms with a better view, such as sea or mountain views and other unique
features of their location; larger rooms or unique ones. Patterns or travel times are
another way to do it.

POSSIBILITY TO FORECAST DEMAND

Forecasting demand is also a key part of good revenue management. Understanding

high and low demand periods helps adjust pricing to counteract them. Almost all hotels
experience low and high seasons. Specially hotels in resort markets.

As the demand for rooms increases and the supply of rooms decreases, opportunities
for charging higher rates emerge. Too many hoteliers set a fixed rate for the year and
then panic when occupancy is low and Is too late to react. Hoteliers should be analyzing
demand, competition and future market conditions at least six months to a year in
advance and adjust pricing upward or downward for the different segments to optimize
that demand. When forecasting future reservations remember to review historical data,
future holidays and vacation periods, events and convention calendars, etc.
There is little room for guesswork when planning your sales strategy. Revenue
management can benefit almost all hotels. Know your customers and adjust rates and
promotions based on demand forecasts and data analysis. By doing that you can have
more profits and provide better customer service.