REVENUE MANAGEMENT 2

• Revenue


  An item or source of income
• Management


  The art, or manner of managing, or handling, controlling, directing
• Revenue Management


  The act of skillfully, carefully, and tactfully managing, controlling, and directing sources of income
• Revenue


  • Depends on elements that address price and availability
• Capacity


  The amount of space that can be filled and we may add during that particular time
• Supply


  The amount of goods or services that a seller is willing and able to sell for any given price at any given time
• Law of Supply


  As price rises, the quantity supplied increases and as the price falls, the quantity supplied decreases
• Demand


  The amount of a good or service that a purchaser is willing and able to buy for any given time
• Law of Demand


  The quantity of a good or service demand by buyers tends to increase as the price of the good or service decreases, and tends to decrease as the price increases, all other things being equal
• Major Areas of Discipline of Revenue Management

  • Economics
  • Marketing
  • Psychology
  • Finance
  • Strategic Management
  • Current events and politics
• Opportunity Cost


  Any action taken is the loss of opportunity of taking any alternative action given the same resources
• Resources are scarce and some resources are finite, meaning that once the last unit of the item is utilized, that item will cease to be available in the future
• Prices fall


  The amount supplied exceeds the amount demanded at existing prices
• Prices rise


  The amount demanded exceeds the amount supplied at existing prices
• Market Equilibrium


  Occurs when the quantity supplied is exactly equal to the quantity demanded at that point in time
• Surplus


  Occurs when the quantity supplied exceeds the quantity demanded
• Perishables


  If the product is not sold within a given time (a day, a night, a week) that product cannot later be sold
• Shortage


  Occurs when the quantity demanded exceeds the quantity supplied
• Price Elasticity


  A measure of the change in the demand for a product in relation to a change in its price
• Elastic


  Whenever a 1% change in price causes more than a 1% change in quantity supplied or demanded
• Perfect elasticity


  Demand or supply change would not change in price
• Inelastic


  Whenever a 1% change in price causes less than a 1% change in quantity supplied or demanded
• Factors Impacting the Elasticity of Demand


  • Whether the product or service is considered to be a luxury or necessity
  • The availability of substitutes and complements
  • Time Factor
  • Price relative to consumer's budget
• Elastic Demand


  The % change in quantity demanded is greater than the percentage change in price
• Inelastic Demand


  An increase in price will increase expenditure since it will cost more per unit. A decrease in price will decrease overall expenditure on this item since it will cost the consumer less per unit
• Shoulder Season


  A time of year immediately before or after a peak or weak season
• Peak Season


  A season with the highest demand
• Weak Season


  A season with the lowest demand, also referred as valley season
• Forecasting


  The act of estimating, calculating, or predicting conditions in the future
• Demand Forecasting


  The act of estimating, calculating, and predicting consumer's demand for products and services in the future
• How to identify overall market demand


  • Demand Generators - an activity or event that causes demand to increase
  • Demand Drainers - an activity or event that causes demand to decrease
  • Compare past forecast from actual
  • Historical Reports
• Compression


  Pressure placed on a market as a result of demand
• Booking Pace


  The pattern and rate at which reservations were requested and accepted
• Constrained Demand


  Demand that is held back or confined by rules, restrictions, and availability
• Unconstrained Demand


  Naturally occurring demand that occurs in the absence of restraints and restrictions
• Customer Knowledge and Customer Behavior

  The 4P's of Marketing: Price, Product, Place, Promotion
• Pricing


  The amount of currency needed to acquire a product or service
• Price / Value


  Total Customer Value = Perceived Product or Service - Total Acquisition Cost
• Price/Value Relationship


  • A balanced Price/Value relationship
  • Relationship imbalance - price is higher than perceived value
  • Relationship imbalance - perceived value is higher than price
• Value-Based Approach to Pricing


  • Tradition Approach: Total Cost (Fixed + Variable Cost), Cost-Based or Cost-plus
  • Value-Based Approach: Human element, Perceptions held by the customers