Dynamic Pricing And Objectives Of Revenue Management

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Revenue Management has been applied across number of service industries, including airline (B.C. Smith, Leimkuhler, & Darrow, 1992), hotel (Hanks, Robert & Noland, 1992; etc. The goal of Revenue Management is to maximize revenue using demand based pricing and duration controls (Kimes & Chase, 1998). Revenue Management is basically the application of information systems and pricing strategies to allocate the right product to right customer at the right time at the right price and at the right channel. Revenue Management is basically setting the prices according to predicted demand levels. The Revenue Management is most effective when applied to operations that have fixed capacity, perishable inventory, a high fixed cost, demand is variable …show more content…
Yield strategies should be applied on those days when there are not enough rooms to accommodate all the demand. During the peak season or when a special event takes place in the city, the occupancy rate suddenly goes up. It is very true in the service industry that demand varies, there is peak season and off season, it is wrong to say that occupancies remains constant throughout the year. Dynamic Pricing and Forecasting are the two major Revenue Management issues that we are going to discuss. Pricing is a critical part of Revenue Management, the main objective of pricing is to determine the price for different customers and prices vary over time in order to maximize revenue or profit (Chiang, Chen, Xu, 2007). Dynamic Pricing means that hotel will change the room rates on daily basis or even within a day if there is a huge demand arises ( Forgacs, 2010). Industries that have adopted Dynamic Pricing as a key tool to make profit are Airlines, theaters, cinemas, stadiums and hotels (Freed, 2014). In dynamic based pricing hotel has to continually adjust rates seeing the changing demand. A …show more content…
Revenue Management forecasting include Demand Forecasting, capacity forecasting and price forecasting (SAS, 2012).Three Components of effective demand forecast are future data, historical data and current data (Hayes, Miller, 2011). All these three data can create good forecasting. An accurate revenue forecast allows hotel departments managers to efficiently schedule the departmental staff needed to serve guest it also helps the departments like Sales, Food and Beverages and Housekeeping to make correct purchase quantities and one foremost benefit of accurate forecasting is it helps the managers and owners to estimate the future profitability of their properties and cash flows (Hayes, Miller, 2011). In short we can say that with forecasting all the departments are inter related and even the owners. Group room pace reports which summarize future demand for group rooms is the key aspect of Current forecasting ( Hayes, Miller, 2011) group room pace report is basically a summary report of describing the amount of future demand and the rate that has been given to the group.With the wide application of Revenue Management Systems, hotels have started gathering a huge amount of data (Chiang, Chen,Xu, 2007). Now all big calculations can be easily done through latest versions of RM Software’s, Revenue Managers can do forecasting easily now. The three basic forecast types are Occupancy Forecast

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