• Components of RM
• The Challenges
• The Solution

The potential for increasing profits with revenue management in the hotel industry is a well-established fact

Components of Revenue Management

The revenue management process consists of two major components—pricing and inventory management.

Pricing

Hotels must maximize revenues from their limited capacity, which will be unsellable after the time horizon expires. They have a segmented customer base, some that are willing to pay a premium to access the inventory when they want it, and others who are more price sensitive and will accept a restriction on how or when the inventory is purchased in exchange for a discount.The core product has different demand at different times and the goal is to use variable pricing strategies to sell the limited capacity to the right market at the right time at the right price.

Inventory Management

Hotels can benefit by increasing revenues and profitability through revenue management practices by optimally matching demand to available supply (rooms) to accommodate the most profitable mix of customers at each property. In the lodging industry, revenue management is the process of selectively accepting and rejecting customers by rate, length of stay and arrival date to maximize revenues. The process of revenue management generates incremental revenues.