Revenue Management is about making predictions and decisions about how much and what type of business to expect, and the subsequent decisions a manager makes to get the most revenue from that business.
This concept was originated in the airline industry, becoming discounts, advance-purchase or different fares the norm for airline pricing. Like airline industry, hotel companies have a common problem: there is a fixed inventory of perishable products that cannot be stored if unsold by a specific time.
The goal of revenue management is that it involves selling the right rooms to the right guests at the right rate at the right time. Selecting revenue management strategies and tactics is really about picking and choosing the reservation you want. Each day is a separate situation and implement tactics best suited to your property, your guests, your market and your demand conditions. This is done through:
Capacity Management, also called selective overbooking, balances the risk of overselling guestrooms against the potential loss of revenue arising from room spoilage. Capacity management strategies usually vary by room type and it might be economically advantageous to overbook more rooms in lower-priced categories, because upgrading to higher-priced rooms is an acceptable solution to an oversell problem. A walking guest leads to guest dissatisfaction and will change hotels or brands if overbooking relocates them too often. In addition, hotel management must be aware of how the local laws interpret overbooking.
Discount Allocation involves the time period and availability. The primary objective is to protect enough remaining rooms at a higher rate to satisfy the projected demand for rooms at that rate, while at the same time filling rooms that would otherwise have remained unsold. And second objective is to encourage upselling, but this technique requires to estimate of price elasticity, referring to the relationship between price and demand.
Duration Control places time constraints on accepting reservations in order to protect sufficient space for multi-day requests; this means that a reservation for a one-night stay may be rejected, even though space is available for that night.
These strategies may be combined but it must be cautioned because a guest might not understand the reason. Proper use of revenue management relies on selling; it never divulges the revenue management strategy being used.