Revenue Management Case Study

The Effects of Revenue Management in the Hospitality Industry
Up until recent years Revenue Management was something that has never been heard of. Now days, it is something that hotel managers cannot go without. They spend numerous amounts of time checking their computers for the nightly rates of the hotel. But what exactly is Revenue Management? “Revenue Management (RM) is a scientific technique that combines Operations Research, Statistics and Customer Relationship Management and categorizes customers into price bands, based on various services” (Revenue Management, 2010). In other words someone might reserve a room that is at a going rate of $245 per night while their cousin who reserved a room at the same hotel months in advance only has to pay $105 per night. Now you may ask yourself how hotels can get away with doing this? But what it all boils down to is that someone who reserves a room last minute will end up paying the higher amount because his or her demand for the room is higher.
This technique of raising or lowering prices based on the demand of the guest is something that airlines have been using for some time now. The first two airlines to use Revenue Management in 1985 were United and American Airlines. They used a series of algorithms to determine the best price to sell their seats (Desiraju & Shugan, 2000). The reason Revenue Management came about in the airline industry had to do with the airplanes only having a select amount of seats. Trying to sell all of the seats at the same price is very difficult to do especially when the airlines needed to at least be able to cover fixed operating expenses. A lot of times the planes would be left with empty seats, which, doesn’t help the airlines make any money. So by a...

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...hould not be. Alan Campbell who has been working in the hotel industry for over thirty years believes that there should be more that goes into Revenue Management than just what the computer tells us. Campbell states, “Revenue managers need to have a feel for the system, not how it works, but what it does, and how it does it.” In other words a Revenue Manager must know all of the events happening in the area as well as all of the other venues in the area. They must have an instinct for knowing if the numbers are right and will bring the hotel the best property rates.
Campbell’s views and ideas are something that is spreading within the Hospitality Industry, because when you are aware of the “human factor” as he calls it, properties are able to increase their Revenue per available room (Revpar), and occupancy percentages, above what the software will predict.