ch07 - Inventory and Price Management

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

Part II: Revenue Management for Hoteliers
© 2011 John Wiley and Sons, Inc.. All Rights Reserved

3
Revenue
RevenueManagement
Managementfor
forthe
theHospitality
Hospitality
Industry
Industry
Chapter
Chapter7:7:Inventory
Inventoryand
andPrice
Price
Management
Management
Chapter 7 Lesson Outcomes
4
1. Detailed examination of how RMs optimize revenue

when applying inventory management strategies
2. Candid presentation of the pros and cons of

overbooking as an inventory management strategy
3. Detailed examination of how RMs optimize revenue

when applying price management principles
Chapter 7: Inventory and Price Management

Inventory Management
5
Rooms inventory
All of the unique forms of guest room products offered

for sale by a lodging facility.
Rooms inventory management is also known as

inventory management.
Inventory Management
6

Characterizing Rooms for
7
Optimum Inventory Management
Room code
A property-specific, shorten description used to

identify a specific room product in a hotel.
For example, NSDD - nonsmoking, double-double

room,
SSP - smoking permitted suite that faces the
swimming pool, and created by using the first letters
of the words smoking, suite, and pool.
Characterizing Rooms for
8
Optimum Inventory Management
Not all rooms are created equal.
Factors most often utilized by RMs characterize rooms:
• Location of room
• Room size or type
• Bed configuration
• Package

Designating Unique Room Codes
9
Bed Sample Room

Room Description Configuration Code
1. Standard room; view of pool, Approx.

300 square feet King KP
2. Standard room; view of pool, Approx.

300 square feet Double-Double DDP
3. Standard room; Ocean view, Approx.

300 square feet King KO
4. Standard room; Ocean view, Approx.

300 square feet Double-Double DDO
Designating Unique Room Codes
10
When devising room codes, RMs should strive to

create the optimal number of them.
Individual room codes should help hotel sales and

front desk staffs clearly understand the significant
differences between the hotel’s various room types.

Classifying Guests by Market
11
Segment
Transient Rooms
RMs must ensure that effective upon arrival, up-sell

programs are in place at their properties and that the
program’s effectiveness is measured and assessed on
a regular basis.

Segment
Transient Rooms
• those who are not part of a group or contract sale.
Group Rooms
Special Contract Room
Negotiated Rooms

13
Segment
Transient Rooms
Pre-arrival Strategies
Pre-arrival Strategies for maximizing room revenues

via inventory management consist of clearly
communicating to potential buyers the availability of
the hotel’s various room types and then accurately
recording these guests’ purchases.
14
Segment
Transient Rooms
Communication Impact on Inventory

Option Advantages Disadvantages Management
No-way No third-party Inventory updates Availability-related
communication interface fees. are not made in decisions are
real time. communicated manually
to all intermediaries.
Real-time updates are
not possible.

15
Segment
Transient Rooms
One-way Improved Significant third- Multiple nearly real-
communication intermediary party interface time inventories must be
access to a fees. maintained and are
hotel’s CRS or No intermediary communicated.
PMS. access from a
hotel’s CRS or
PMS.

16
Segment
Transient Rooms
Two-way Eliminates Cost of equipment Availability/ inventory
communication most third- development and decisions can be made
party interface upgrade. Concerns and communicated in
fees. related to data real time.
Real-time security.
inventory
availability.

17
Segment
Transient Rooms
Upon Arrival Strategies
Upselling is the single most significant RM-related

effort that can be undertaken by a front desk staff
upon a guest’s arrival at a hotel.

18
Segment
Transient Rooms
Top-down (selling)
A selling approach that seeks to sell an entity’s
highest priced items prior to the sale of its lower
priced items.

19
Segment
Transient Rooms
Bottom-up (selling)
A selling approach that seeks to sell an entity’s
lowest priced items prior to the sale of its higher
priced items.

20
Segment
Group Rooms
Attrition
The difference between the purchases a group
pledges to make and the purchases it actually makes.
Also referred to as wash, wash down, or slippage.

21
Segment
Group Rooms
Effective group rooms management is affected by:

• Group Histories
• Unrealistic Buyer Expectations
• Buyer’s Negotiation Tactics

23
Segment
Special Contract and Negotiated Rate Rooms
Contract rate (room)

A long-term room rate whose availability is agreed
to in advance and for the duration of the contract
agreement.

24
Segment
Special Contract and Negotiated Rate Rooms
Negotiated rate (room)

An agreement to provide a select group of travelers,
subject to availability, rooms at and agreed on and
discounted rate. The discounted rate is in effect for
the term of the negotiated rate agreement.

Overbooking as an Inventory
25
Management Strategy
Walk(ed)
To relocate a guest with a confirmed reservation at a
hotel to an alternative property.

26
Management Strategy
The Case for Overbooking
Overbooking can be caused
by
Damaged rooms
Staff errors
Inventory availability errors
Guest overstays
27
Management Strategy
Experienced RMs know it is best not to walk:
• Members of their hotel or brand’s loyalty

(frequent guest) programs
• Group meeting or event attendees

28
Management Strategy
Experienced RMs know it is best not to walk:
• Contracted rooms such as airline crew rooms

• Couples celebrating special occasions
• Families arriving late at night

29
Management Strategy
The Case against Overbooking
Ethical issues
Legal issues
Property reputation (in the Social Networking age)
RevPAR generation

Sample MCQ1
30
For revenue managers working in the

lodging industry the term “Place” in the 4P’s
of the Marketing Mix refers to two items.
One is the physical location of the hotel.
What is the second?

A. The property’s amenity packages
B. The property’s chain affiliation
C. The property’s advertising programs
D. The property’s distribution channels
Sample MCQ2
31
What is the industry term used to

describe all of a hotel’s unique or
distinct forms of guestroom products
available for sale?

A. Rooms inventory
B. Rooms revenue
C. Room rates
D. CPOR
Sample MCQ3
32
What is a room code?

A. The identification number for a
specific guest reservation
B. The room number of a specific
guest room
C. A property-specific description
used to identify a particular room
product
D. A symbol used to identify the
housekeeping status of a specific
guest room
Sample MCQ4
33
Which of the following is not

typically used by revenue mangers
to designate specific room products
sold in their hotels?

A. Location
B. Price
C. Bed configuration
D. Room size
Sample MCQ5
34
What is the lodging industry term

used to describe two independent
data management systems that
have been electronically
connected?

A. Interface
B. Inverse connection
C. Bond
D. One-way connect
Sample MCQ6
35
What would be the effect of an upon-arrival

inventory management training program that
resulted in a hotel significantly up selling a
large percentage of its arriving guest?

A. ADR and Occupancy would increase and
RevPAR would be unchanged
B. RevPAR and Occupancy would increase and
ADR would be unchanged
C. ADR and RevPAR would increase and
occupancy % would be unchanged
D. ADR and RevPAR would decrease and
occupancy % would increase
Sample MCQ7
36
What are two synonymous lodging

industry terms used to identify the
difference between the purchases a
group pledges to make and the
purchases it actually makes?

A. Attrition and Dry
B. Attrition and Wash
C. Fade and Dry
D. Fade and Wash
Sample MCQ8
37
Tanika is the revenue manager at the Holiday

House hotel. Southeast Airlines has requested
that Tanika quote them a rate for the use of 20
rooms per night for a period of one year. If
Southeast airlines accepts Tanika’s quote for
both price and availability, what type of room
rate will the hotel and airline have agreed
upon?

A. Negotiated rate
B. Group rate
C. Volume rate
D. Contract rate
Sample MCQ9
38
Expedia.com wants Jessie, the revenue

manger at the Hilton, to agree to contract terms
that would require Jessie’s hotel to apply the
agreed upon Expedia rate to any room type
(except suites) available at the time one of
Expedia’s customers wants to make a
reservation. What is the industry term for
Expedia.com’s contract request?

A. Run of the House
B. First Room Availability
C. Last room availability
D. Black-out availability
Sample MCQ10
39
Angelina is the revenue manager at

the 1,000 room Bay hotel. Tonight she
forecasts 600 stay-overs and 400
arrivals. Assume Angelina is accurate
in forecasting a 5% no-show rate. How
many additional reservations could
Angelina accept before she would be
required to walk an arriving guest?

A. 20
B. 21
C. 30
D. 31
Price Management
40
Price management
The strategies and tactics employed by revenue
managers to best match rates or prices charged with
prospective customers’ willingness to pay.

Price Management
41
Historical Perspective
For example, consider:

If the hotel’s ideal target room rate is $100.00 per night
and with discounts and special rate included, the actual
ADR is $90.00. As a result, the hotel’s ADR achievement
would be 90 percent
$90.00 actual rate / $100.00 target rate = 90% achievement

Price Management
42
Historical Perspective
Yield Management and the Airline industry
Yield x Load =Total Yield

Price Management
43
Establishing Room Rates
Rate code
A property-specific notation used by a hotel’s PMS
to specify the price of a unique room product. Also
known as a rate plan.

Price Management
44

Rack Rates at Sample Beach Hotel
Room Rate
Room Description Code Code Rate
1. Standard room; view of pool. KP Rack $ 199.99
Approx. 300 square feet
2. Standard room; view of pool. DDP Rack $ 199.99


Price Management
45

Rack Rates at Sample Beach Hotel
Room Rate
Room Description Code Code Rate
3. Standard room; Ocean view. KO Rack $ 249.99
4. Standard room; Ocean view. DDO Rack $ 249.99
5. Jr. Suite; small parlor (sitting JKO Rack $ 299.99
area) and 2 TVs. Approx. 400
sq. feet
Price Management
46
RMs should strive to sell as many rooms as possible

at their rack rate.
Rack rated rooms are those sold with no discount.

Price Management
47
RMs should offer discounts when:
• When the length of a guest’s stay offsets the rate

reduction
• When the number of rooms purchased is large
• When the buyer has special status
• When the total revenue generated by the sale
offsets the reduction in rack rate
Price Management
48
Strive to sell the maximum number of rooms possible

at rack rate.
Offer easily explainable and defensible discounted

rates as needed to fill rooms.

Price Management
49

Special event (rate)
An above–rack room rate typically implemented
during single day or multiday periods of extremely
high demand for rooms.
Also referred to by some RMs as a premium rate,

premium rack rate, or super rack rate.
Stay Restrictions
50
Stay restrictions
Duration rules and limitations related to guests’
arrival dates, departure dates and minimum stay
lengths.
Also known as stay controls.

Stay Restrictions
51
CTA
Short for closed to arrival. A date on which guests
are not permitted to begin their hotel stays.

Stay Restrictions
52
Minimum length of stay (MLOS)

A revenue management strategy that instructs
reservationists to decline any room reservation
request that does not equal or exceed the
predetermined minimum number of nights allowed.

Principles of Inventory and Price
53
Management
12 Principles of Inventory and Price Management
1. Maximize the number of logical room codes

utilized in the property, minimize the number of
rate codes utilized.

54
Management
2. Carefully monitor and minimize errors resulting

from communication gaps between the property
and its intermediary sales partners that can affect
room inventories.

55
Management
3. Institute an aggressive upon-arrival upsell

program.

56
Management
4. Carefully and continually monitor the impact of

group contracts and contracted rooms on
inventory levels.

57
Management
5. Avoid intentional overbooking; use payment

restrictions (e.g. non-fundable advanced payment)
to ensure sell-outs on high-demand dates.

58
Management
6. Establish rack room rate based on buyer behavior,

and always sell at (e.g. never close out) the rack
rate.

59
Management
7. Utilize sound differential pricing strategies to

create multiple, but easily defensible, rack rate
discounts.

60
Management
8. If special event rates are utilized, increase via

product and service enhancements the value
offered to guests to help justify the higher rates
internally and externally.

61
Management
9. Close out discount rates aggressively and institute

appropriate stay restrictions when forecasted
demand is very strong.

62
Management
10. Implement and maintain effective training

programs to ensure staff understand and can
explain to guests the meanings of all room and
rate codes.

63
Management
11. Drive rates up by continually monitoring the

appropriateness of rack rates levels via
competitive set analysis (a procedure you will
learn to do in Chapter 9).

64
Management
12. Minimize channel distribution costs to maximize

GOPPAR.

Sample MCQ11
65
What is true about a revenue manager’s

rooms demand forecast?

A. It is based on customer demand at an
established price
B. It is based on customer demand at a
yet to be determined price
C. It cannot be altered in the future via
price management strategies
D. It is based on the total number of
hotels in an area
Sample MCQ12
66
In the airline industry, airline companies

establish ticket prices. In the lodging
industry, who is responsible for
establishing room selling prices?

A. Franchise companies or their
designees
B. Brand managers or their designees
C. Area CVBs or their designees
D. Hotel owners or their designees
Sample MCQ13
67
In the lodging industry, what is a rack rate?

A. A room’s highest legally allowable selling
price
B. A room’s selling price when no discounts
of any type are offered
C. The selling price of a hotel’s lowest cost
rooms
D. A room’s selling price after its distribution
channel costs are subtracted
Sample MCQ14
68
What is true about discounts offered on the

selling price of hotel rooms?

A. They should be offered only during high
demand periods
B. They should be granted only to long term
stay guests
C. They should be provided only to group
rooms buyers
D. They should be easily explainable and
defensible
Sample MCQ15
69
In which situation would a customer-

centric revenue manager likely
implement a special event rate?

A. During a major weather-related event
such as a hurricane or flood
B. During implantation of a new room
coding system
C. During a local festival that would fill all
of the area hotels
D. During periods of very low room
demand
Sample MCQ16
70
Hanna is the revenue manger at the

Waterford hotel. For a Saturday in the
future she has determined her hotel will
accept reservation only for those guests
seeking to stay for two or more days.
Which of the following revenue
management control (restriction)
strategies is she using?

A. MLOS
B. Attrition
C. CVB
D. CTA
Sample MCQ17
71
Hanna is the revenue manger at the

Waterford hotel. For the first week in July
next year she has determined her hotel
will accept reservations for guests
seeking to arrive on July 1st. July 2nd. or
July 3rd; but not on July 4th. Which of the
following revenue management control
(restriction) strategies is she using?

A. MLOS
B. Attrition
C. CVB
D. CTA
Sample MCQ18
72
Which of the following is not a strategy

typically used by revenue managers to
optimize revenue during periods of high
demand?

A. Implement rack rate discounts to
maximize occupancy
B. Implement a length-of-stay restriction
to maximize occupancy
C. Implement a payment restriction to
maximize revenue collections
D. Control allowable arrival dates to
maximize occupancy
Sample MCQ19
73
To optimize revenues while enhancing

property operations, which strategy pair
should revenue managers seek to
implement?

A. Minimization of room codes,
minimization of rate codes
B. Maximization of room codes,
minimization of rate codes
C. Minimization of room codes,
maximization of rate codes
D. Maximization of room codes,
maximization of rate codes
Sample MCQ20
74
What strategy should be put into action

when revenue managers implement special
event rates?

A. Enhance guest value by implementing
rack rate discounts
B. Enhance guest value by removing stay
restrictions and stay controls
C. Enhance guest value by providing
product and/or service enhancements
D. Enhance guest value by eliminating
aggressive upon-arrival up sell programs
during the period of high demand
The End
75

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© 2011 John Wiley and Sons, Inc.

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

1. Detailed examination of how RMs optimize revenue

2. Candid presentation of the pros and cons of

3. Detailed examination of how RMs optimize revenue

Chapter 7: Inventory and Price Management

All of the unique forms of guest room products offered

Rooms inventory management is also known as

Chapter 7: Inventory and Price Management

A property-specific, shorten description used to

For example, NSDD - nonsmoking, double-double

Chapter 7: Inventory and Price Management

Bed Sample Room

1. Standard room; view of pool, Approx.

2. Standard room; view of pool, Approx.

3. Standard room; Ocean view, Approx.

4. Standard room; Ocean view, Approx.

When devising room codes, RMs should strive to

Individual room codes should help hotel sales and

Chapter 7: Inventory and Price Management

RMs must ensure that effective upon arrival, up-sell

Chapter 7: Inventory and Price Management

• those who are not part of a group or contract sale.

Special Contract Room

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

Pre-arrival Strategies for maximizing room revenues

Communication Impact on Inventory

Chapter 7: Inventory and Price Management

Chapter 7: Inventory and Price Management

Chapter 7: Inventory and Price Management

Upselling is the single most significant RM-related

Chapter 7: Inventory and Price Management

Chapter 7: Inventory and Price Management

Chapter 7: Inventory and Price Management

Chapter 7: Inventory and Price Management

Effective group rooms management is affected by:

Chapter 7: Inventory and Price Management

Contract rate (room)

Chapter 7: Inventory and Price Management

Negotiated rate (room)

Chapter 7: Inventory and Price Management

Chapter 7: Inventory and Price Management

Experienced RMs know it is best not to walk:

• Members of their hotel or brand’s loyalty

Chapter 7: Inventory and Price Management

Experienced RMs know it is best not to walk:

• Contracted rooms such as airline crew rooms

• Families arriving late at night

Property reputation (in the Social Networking age)

Chapter 7: Inventory and Price Management

For revenue managers working in the

What is the industry term used to

What is a room code?

Which of the following is not

What is the lodging industry term

What would be the effect of an upon-arrival

What are two synonymous lodging

Tanika is the revenue manager at the Holiday

Expedia.com wants Jessie, the revenue

Angelina is the revenue manager at

Chapter 7: Inventory and Price Management

For example, consider:

$90.00 actual rate / $100.00 target rate = 90% achievement