© 2011 John Wiley and Sons, Inc.

All Rights Reserved

 Part I: Revenue Management Principles

© 2011 John Wiley and Sons, Inc.. All Rights Reserved

3

Revenue
RevenueManagement
Managementfor
forthe
the
Hospitality
HospitalityIndustry
Industry

Chapter
Chapter5:
5:The
TheRevenue
Revenue
Manager’s Role
Manager’s Role
 Chapter 5 Highlights
4

1. Explanation of the hard and soft supply

constraints faced by RMs in the hospitality
industry

2. Examination of the legal and ethical

aspects of revenue management

3. Presentation of the typical job

responsibilities and reporting relationships
of RMs
Chapter 5:The Revenue Manager’s Role
 The Revenue Manager in
5
the Hospitality Industry
Hard Constraint
Management
Option A

Establish one fixed price, then sell to

customers on a first come-first served
basis until they have exhausted their
supply of products.

Chapter 5:The Revenue Manager’s Role

 The Revenue Manager in
6
the Hospitality Industry
Hard Constraint
Management
Option B

Allocate the limited supply to selected

customers who meet established criteria
(i.e., they are volume buyers, repeat
buyers, or they hold other favored buyer
status).

Chapter 5:The Revenue Manager’s Role

 The Revenue Manager in
7
the Hospitality Industry
Hard Constraint
Management
Option C

Raise prices until demand is reduced

sufficiently to equal the available supply.

Chapter 5:The Revenue Manager’s Role

 The Revenue Manager in
8
the Hospitality Industry
Soft Constraint
Management
Lodging industry RMs face hard supply
constraints.

Most foodservice operators face soft

supply constraints. (i.e. they have the
ability to add chairs or extend hours)

Chapter 5:The Revenue Manager’s Role

 The Revenue Manager in
9
the Hospitality Industry
Revenue Management Characteristics in the
Hospitality Industry

Issue Hotelier Restaurateur

SUPPLY CONSTRAINT Hard Soft
ABILITY TO INCREASE None Limited
SUPPLY
ABILITY TO DECREASE None Limited
SUPPLY

Chapter 5:The Revenue Manager’s Role

 The Revenue Manager in
10
the Hospitality Industry
Revenue Management Characteristics in the
Hospitality Industry
Issue Hotelier Restaurateur
ABILITY TO CARRY OVER Service capacity: No Service capacity: No
EXCESS SUPPLY TO THE
NEXT DAY Product: No Product: Yes
PRACTICE PRICE
MODIFICATION IN
RESPONSE TO VARIATION Almost always Almost never
IN SHORT-TERM
DEMAND
CAN BENEFIT FROM
EFFECTIVE REVENUE Yes Yes
MANAGEMENT
PRACTICES
Chapter 5:The Revenue Manager’s Role
 Legal Aspects of Revenue
11
Management
Federal Antitrust Legislation

The Federal Antitrust legislation are laws

and regulations aimed at preventing
abusive business behavior or anti-
competitive practices, including those
related to unfair pricing.

Chapter 5:The Revenue Manager’s Role

 Legal Aspects of Revenue
12
Management
Federal Antitrust Legislation
The Clayton Act

The Clayton Act mandates that a business

must apply its prices fairly—that is, it
cannot illegally discriminate in its pricing
policies.

Chapter 5:The Revenue Manager’s Role

 Legal Aspects of Revenue
13
Management
Federal Antitrust Legislation
The Robinson-Patman Act

Also known as the Small Business Protection

Act. It prevents sellers from giving
discount prices to volume buyers if the
volumes required for the discount are so
high that only one or two buyers could
meet them.
Chapter 5:The Revenue Manager’s Role
 Ethical Aspects of Revenue
14
Management

Ethics

Moral standards of right and wrong conduct

toward others.

Chapter 5:The Revenue Manager’s Role

 Ethical Aspects of Revenue
15
Management

Are the actions I am taking ethical?

Are the profits resulting from my
actions ethical?
Are my prices presented fairly?
Are my prices perceived as fair by
customers?

Chapter 5:The Revenue Manager’s Role

 Ethical Aspects of Revenue
16
Management

Reference price

The price perceived by consumers to be the

normal price for a product or a service

Chapter 5:The Revenue Manager’s Role

 The Revenue Manager
17
Position
The industry titles used vary greatly.

 Customer relations management

(CRM)

A term applied to a variety of processes,

often computerized, implemented by
companies to handle their direct contact
Chapter 5:The Revenue Manager’s Role
 The Revenue Manager
18
Position
The Revenue Management
Step 1Process Step 2
Establish Forecast
Prices Demand

Step 5 Step 3
Evaluate Manage
Results Inventory

Step 4
Manage
Distribution

Chapter 5:The Revenue Manager’s Role

 The Revenue Manager
19
Position
Step 1: • Establish prices

Step 2: • Forecast demand

• Manage
Step 3: inventory
• Manage
Step 4: distribution
Step 5: • Evaluate results
Chapter 5:The Revenue Manager’s Role
 The Revenue Manager
20
Position
Typical RM Responsibilities by Industry
Segment Part 1
Hospitality Industry Areas of RM Responsibility
Segment
Full-service resorts Guest rooms
Meeting space
Food and beverage operations
Resort activities
Full-service hotels Guest rooms
Meeting space
Food and beverage operations
Limited-service hotels
Chapter 5:The Revenue Manager’s Role
Guest rooms
 The Revenue Manager
21
Position
Typical RM Responsibilities by Industry
Segment Part 1
Hospitality Industry Areas of RM Responsibility
Segment
Condominiums/time shares Guest units
Food and beverage operations
Cruise ships Cabins
Food and beverage operations
Activities
Commercial restaurants Food services
Beverage services
Chapter 5:The Revenue Manager’s Role
Meeting space
 The Revenue Manager
22
Position
Typical RM Responsibilities by Industry
Segment Part 1
Hospitality Industry Areas of RM
Segment Responsibility
Private clubs (Golf) Tee times
Food and beverage operations
Meeting space
Private clubs (Golf) Tee times
Food and beverage operations
Meeting space
Private clubs (Dining) Food and beverage operations
Chapter 5:The Revenue Manager’s Role Meeting space
 The Revenue Manager
23
Position
Typical RM Responsibilities by Industry
Segment Part 1
Hospitality Industry Areas of RM
Segment Responsibility
Convention centers Meeting space
Food and beverage operations
Sports and entertainment Tickets
venues Meeting and/or event space
Food and beverage operations
Casinos Guest rooms
Food and beverage operations
Chapter 5:The Revenue Manager’s Role
 The Revenue Manager
24
Position
Typical RM Responsibilities by Industry
Segment Part 1
Hospitality Industry Areas of RM
Segment Responsibility
Theme /amusement/ water Admission tickets
parks Food and beverage operations
Rides/activities
Spas Spa services
Salon services
Intermediaries/ service Services designed to
organizations inform/advise RMs
Chapter 5:The Revenue Manager’s Role
 The Revenue Manager
25
Position
Reporting Relationships
The Director of Sales and
Marketing (DOSM)
The Rooms Manager

The Controller

The property GM

A Corporate-level Executive
Chapter 5:The Revenue Manager’s Role
 The Revenue Management
26
Team
Reporting Relationships

Revenue manager

Organization administrators

Sales and marketing staff

Chapter 5:The Revenue Manager’s Role

 The Revenue Management
27
Team
Reporting Relationships

Financial administrators

Line-level employees

Intermediaries and channels

Guest and buyers

Chapter 5:The Revenue Manager’s Role