What is the Definition Revenue Management?

In this first article we will go over the definition of what is revenue management in the hotel and hospitality industry. Additionally we will be covering the fundamentals of revenue and yield management.

So what is the meaning of Revenue Management again?

Selling the Right Room to the Right Client at the Right Moment at the Right Price

We would like to add the following to that description:

On the Right Distribution Channel with the best commission efficiency

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Revenue management helps to predict consumer demand to optimize inventory and price availability in order to maximize revenue growth. The purpose of Revenue Management is not selling a room today at a low price to sell it tomorrow at a higher price. Revenue Management also means selling a room at low price today if you do not expect higher demand.

Revenue Management challenges the resources in the importance of gathering information about the market so that you can be proactive and not reactive. Use the information to divide your market and adjust your products through distribution, to the right customer at the right time and at the right price.

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Revenue Management is a concept that not only maximes in high period demand, it helps stimulating demand in low periods while avoiding pricing cannibalism. Revenue Management is long term strategic, takes all revenue with their profitability into consideration, can sell low rates even in high demand period.

What makes hotels suitable to be able to apply Revenue Management

  • fixed capacity
  • perishable product
  • high fixed costs and low variable costs
  • product can be priced differently
  • demand evolves
  • product can be sold in advance
  • market can be segmented

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Revenue Management started with the Airline Industry. But today many more industries use Revenue Management:

  • Hotels
  • Car rental, Train companies
  • Theatres, Cinema
  • Now starts with Restaurants
  • IKEA offers lower prices at time of the week when demand is low

In essence, almost every industry would benefit some ways from the purposes of Revenue Management techniques.

Would you add anything to the way we define revenue management? Please add your comments below ...

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