HOTELS, STATISTICS & REVENUE MANAGEMENT By Benedikte Rosenbrinck HOTEL, RESTAURANT & TURISTERHVERVET
CONTENTS Presentation of HORESTA Normtalsanalysen (the benchmark report) Videnbanken (the knowledge bank) Development in the Danish hotel industry What is revenue management? Practical and theoretical barriers for revenue management Can the barriers be overcome, and if so, how? The consequence of competition, knowledge and demand. The economic benefits of revenue management Conclusion What do we do now?
WHAT IS HORESTA? The Danish Association of Hotels, Restaurants and Tourism. Almost 1900 members. 85% of the turnover of the Danish hotels and 50% of the turnover of the Danish restaurants.
HORESTAs VISION HORESTA must continue to be an attractive, respected and representative organization. And HORESTA must be the central organization in the development of the experience economy in Denmark
FOUR BASIC VALUES A. Presence B. Knowledge C. Innovation D. Reliability, professionalism and responsibility
ANALYSIS AND DEVELOPMENT
GOAL Collect, analyse and document economic circumstances. Communicate these to members as well as non-members. Create public and political understanding of the needs of the industry. Be known as the most professional and knowledgeable association within the hotel, restaurant and tourism industry
OBJECTIVES Taking care of the interests of the industry in relation to political system and external partners: Participation in meetings with politicians and members. Organize conferences and meetings for members and external partners. Analyses: The Benchmark report (Normtal) Tendency The Knowledge Bank (Videnbank) Foodservice rapport
OBJECTIVES Consultancy: Assisting members as well as non-members. Consulting team. Cooperation with the legal department: Entrepreneurs Koda/Gramex negotiations.
OBJECTIVES Course activities: Management workshop Two revenue management networks Inspiration day about housekeeping Sale & Service Start-up course Food hygiene Plus the possibility to have a course customized to your firm. Conferences & seminars
OBJECTIVES Secretariat tasks Competency committee Chef of the year Eurotoque Grants
THE KNOWLEDGE BANK The Knowledge Bank was started in January 1999 due to requests from the hotels in Copenhagen. Today almost 70 hotels participate, equivalent to 80 per cent of the room capacity in Copenhagen. Shortly hereafter a knowledge bank was started in Aarhus and Odense. I January 2005 HORESTA established ProvinsVidenbanken - a countrywide knowledge bank for all hotels outside Copenhagen.
REPORTING TO THE KNOWLEDGE BANK Every month the hotels receive an email with a link to an online reporting form. The hotels must report: Number of rooms sold in total and sold per customer segment. Average room rate for the whole month and per customer segment. Number of guest nights during weekdays and weekends. Number of guest arrivals. Total turnover divided into room, restaurant, conference and banquet turnover and other hotel turnover. The participating hotels commit themselves to reporting their data every month before the 8th.
THE KNOWLEDGE BANK REPORT In turn the hotels receive per email and by post a report that contains: Occupancy rates. Average room rates excl. VAT. Selling price for breakfast excl. VAT. Internal price for breakfast excl. VAT. Average length of stay. Average hotel turnover. Average restaurant turnover. Average conference and banquet turnover. Restaurant turnover per square meter per day. Restaurant turnover per seat per day. Conference turnover per square meter per day.
THE KNOWLEDGE BANK REPORT The report is split up into different categories depending on location and quality (number of stars). When there are 5 participants in a given region, a category can be established.
THE KNOWLEDGE BANK REPORT Currently the following categories exist outside Copenhagen: Jutland Eastjutland North-Westjutland South-Eastjutland Århus County Vejle County Århus Funen Odense Sealand 3 star hotels 4 star hotels 3 star hotels in Jutland 4 star hotels i Jutland Conference hotels
CONDITIONS FOR PARTICIPATION All hotels can participate. The price is DKK 14 per room per year excl. VAT
TRENDS 2005 The occupancy rate increased from 49,0 per cent in 2004 to 50,5 per cent in 2005. The increase in demand was concentrated in the Copenhagen area and other major cities in Denmark. The demand came from Danish tourists primarily business travellers.
REVENUE MANAGEMENT
IS IT RELEVANT FOR DANISH HOTELS TO IMPLEMENT REVENUE MANAGEMENT?
SUB QUESTIONS 1) Which practical and theoretical barriers have kept, and might still be keeping, some Danish hotels from implementing revenue management? 2) Can the barriers, which have kept the hotels from implementing revenue management, be overcome, and if so, how? 3) How do competition, demand and knowledge affect the possibility to benefit from revenue management? 4) Which economic effect has the implementation of revenue management had on Danish hotels?
THEORY INTERVIEWS ECONOMETRIC MODEL EXPERIMENT
EXPERIMENT ECONOMETRIC MODEL INTERVIEW STUDY THE HOTEL MARKET IN COPENHAGEN
TARGET GROUP The hotel market in Copenhagen was selected as target for the research because: High concentration of hotels. The largest variation in hotels. The highest probability of rejecting the hypotheses of monopoly. Unique access to information. The primary reason for not selecting the hotels in Copenhagen: The competition is not necessarily representative for the rest of the country.
HOTEL CHARACTERISTICS 1. Perishable product 2. Fixed capacity 3. High fixed costs 4. Low variable costs 5. Fluctuating demand REVENUE MANAGEMENT
CUSTOMER SEGMENTS AND PREFERENCES LEISURE TRAVELLERS Able to make advance commitments Accepting of varying quality levels Destination flexible Location flexible Prestige indifferent Price elastic Book typically 4-8 weeks in advance Stays of long duration BUSINESS TRAVELLERS Unwilling to make advance commitments Desire high quality Destination inflexible Location inflexible Prestige conscious Price inelastic Book typically 1-4 weeks in advance Stays of short duration
PRICE RESTRICTIONS Rule Type Advance purchase Advance reservation Advance Requirement 3 days 7 days 14 days 21 days 30 days Refundability Changes Allowed Required Time of Stay None None Weekday Percentage Change date of Weekend refund stay, but not Fixed-amount number of room refund nights Full Unlimited, but no refund Unlimited
REVENUE MANAGEMENT DEFINITION Revenue management is a business discipline that balances supply and demand in a way that maximizes revenue. Revenue management uses historical data and mathematical models to predict customers behaviour at a micro-market level and optimize product availability and/or price to maximize revenue and profit. (Kuyumcu, 2002).
REVENUE MANAGEMENT Airline Attraction Railway Restaurant Non-profit Organisations Broadcasting Cargo Golf Hotel Health care Theatre & Cinema Internet Service Tour Operator Sports Arena Cruise lines Congress Centre Car rental Retail
SUB QUESTION 1 Which practical and theoretical barriers have kept, and might still be keeping, some Danish hotels from implementing revenue management?
LEVEL OF REVENUE MANAGEMENT PRACTICE Level of revenue management practice Hotels Share Expert 5 10% High 1 2% Medium 11 22% Beginner 28 57% Unconcious use/minimum 4 8% Total 49 100%
REASONS FOR NOT PRACTICING REVENUE MANAGEMENT Why don't you practice revenue management? Hotels Share It is unfair and uethical 8 18% Regular customers/customer satisfaction 1 2% Extra ressources 1 2% Lack of revenue management system 0 0% Lack of knowledge 25 57% It is just common sense 1 2% Things are fine the way they are 3 7% The decision to implement revenue management has been made 1 2% New/newly accuired hotel 1 2% Other reasons 2 5% Has not answered 1 2% Total 44 100%
BIGGEST CHALLENGES Which factors has been the biggest challenge during the implementation proces Hotels Share Staff 21 42% Lack of time/resources 19 38% Organization 5 10% System 15 30% Data 12 24% Segmenting the customers 1 2% Customers 5 10% Partners (travel agencies, incoming and tour operators) 3 6% Forecasting 0 0% Optimization 1 2% Insufficient support from the management 7 14% Lack of knowledge about revenue management 1 2% New/newly accuired hotels 12 24% Other challenges 0 0% Has not answered 7 14%
COMPETITION 30% 25% 20% 15% 10% 5% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20-29 TOTALT Total RM RM HOTELLER Hotels 30-39 40-49 >49
PRACTICAL AND THEORETICAL BARRIERS Lack of knowledge about revenue management. Lack of competence and routines among the personnel. Insufficient time and resources. Problems with collecting and analysing historical data. Lack of revenue management system. Insufficient support from the management. Lack of support from colleagues. Fear of negative customer reaction to pricing strategy. The main theoretical barrier is that only a few of the hotels have monopoly which is one of the fundamental assumptions underlying most the existing revenue management literature.
SUB QUESTION 2 Can the barriers, which have kept the hotels from implementing revenue management, be overcome, and if so, how?
THE RESULT OF YM FORUM Participants Share Significant improvement 1 7,7% Moderate improvement 4 30,8% Unchanged 7 53,8% Decline 1 7,7% Total 13 100,0%
CUSTOMERS KUNDER EKSTERNE EXTERNAL FAKTORER FACTORS KONKURRENCE COMPETITION EXTERNAL INTERNAL REVENUE MANAGEMENT KOMPETENCE COMPETENCE ORGANIZATIONAL VIRKSOMHEDSKULTUR CULTURE
ELIMINATION OF BARRIERS The practical barriers can be eliminated, but this requires: Change of attitude towards revenue management. Full managerial support. Stimulation of the company culture. Allocation of sufficient resources. Finally, the establishment of a network for hotels, who wish to implement revenue management can accelerate the implementation process, as exchange of experiences can induce motivation and inspiration to the participants. Regular follow-ups may secure that focus on revenue management is maintained and that resources are not transferred to new projects.
SUB QUESTION 3 How do competition, demand and knowledge affect the possibility to benefit from revenue management?
MODEL PERIOD 1 PERIOD 2 Leisure - Individual Business - Individual 60 30 0 Days before arrival
ASSUMPTIONS BEHIND THE DOUPOLY MODEL The hotels are identical. The customers prefer to stay at the cheapest hotel. The hotels set rates and booking limits simultaneously. No possibility of coordination of rates and booking limits. Unsold rooms in period 1 are transferred to period 2, while unsold rooms in period 2 are lost. The hotels can re-optimize their rates for period 2 between period 1 and 2.
REVENUE MANAGEMENT GAIN RM gain RM hotel Non-RM hotel Situation A No RM hotels Situation B 1 RM hotel Situation C 2 RM hotels
CONCLUSION Ideal conditions for revenue management PRODUCT The product is perishable. CAPACITY Fixed capacity Medium-sized hotel capacity measured against the total demand. MARKET Almost equally sized customer segments.. Differences in the preferences, willingness to pay and/or price sensitivity. COMPETITION Monopoly in the market. Information about and control of the behaviour of potential competitors. UNCERTAINTY Uncertainty regarding future demand. COST High fixed costs Low variable costs. Low costs of implementation of revenue management.
SUB QUESTION 4 Which economic effect has the implementation of revenue management had on Danish hotels?
THE IDEA BEHIND THE MODEL P Before implementation After implementation REVENUE CONSUMER SURPLUS Individual Groups D K Q
FACTORS IN THE MODEL Hotel specific factors Number of stars Location Chain affiliation Flag ship Newly established Change of ownership Competition Guest specific factors Number of guests Nationality Time specific factors Season Easter New hotels Trend Number of weekdays Events
THE DEPENDENT VARIABLE: REVPAR REVPAR = ROOM REVENUE/(# ROOMS X # DAYS) REVPAR = OCCUPANCY RATE X AVERAGE ROOM RATE
THE REVENUE MANAGEMENT GAIN A Typical Hotel Gain Per Cent January kr. 291,62 Kr. 1,47 0,5 % February kr. 341,84 Kr. 8,57 2,5 % March kr. 348,59 Kr. 10,24 2,9 % April kr. 432,75 Kr. 9,54 2,2 % May kr. 545,58 Kr. 23,57 4,3 % June kr. 565,44 Kr. 14,22 2,5 % July kr. 528,63 Kr. 6,27 1,2 % August kr. 550,98 Kr. 10,50 1,9 % September kr. 624,08 Kr. 23,54 3,8 % October kr. 474,76 Kr. 28,73 6,1 % November kr. 467,65 Kr. 21,33 4,6 % December kr. 350,00 Kr. 20,09 5,7 % Average kr. 460,45 Kr. 14,87 3,2 % Turnover kr. 16.806.408,00 Kr. 542.573,91 3,2 %
CONCLUSION Revenue gain corresponding to 3 per cent. The economic benefits are greatest in the shoulder periods. The effect of revenue management on a hotel located in the centre does not differ significantly from a hotel located in the suburbs. The RM hotels have been severely affected by the September 11th event and the macro-economic slowdown that followed.
IS IT RELEVANT FOR DANISH HOTELS TO IMPLEMENT REVENUE MANAGEMENT? 1) Will it be possible for the hotel to increase the revenue as a consequence of the implementation of revenue management? 2) What does it cost to implement and apply revenue management?
THE ABILITY OF REVENUE MANAGEMENT TO INCREASE REVENUE The likelihood of obtaining a revenue benefit is highest for hotels, which have the following characteristics: The competitive situation of the hotel is close to monopoly. Medium-sized hotel capacity measured relatively to the aggregate demand. The hotel accommodates different customers with different needs, preferences, willingness to pay and booking behaviour. There is a high degree of demand uncertainty.
COST OF REVENUE MANAGEMENT Successful revenue management implementation will depend on: The experience of the hotel in adopting new ideas and strategies. The level of competence of the employees. The managerial attitude towards innovation and revenue management in particular. The organizational culture. The individual who is selected to lead the new revenue management project.
Revenue management is relevant!
THE FUTURE Benchmark reports for attractions, hostels & night clubs Establishment of more revenue management networks Restaurant revenue management Revenue management for attractions
QUESTIONS!