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DYNAMIC PRICING & 13 MONTH FORECASTING

DYNAMIC PRICING & 13 MONTH FORECASTING. Long Term Yield Management. Yield Management = Revenue Management Invented by airline industry Principles: Perishable product Supply is known Demand is predictable Loading factor (= occupancy) can be predicted

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DYNAMIC PRICING & 13 MONTH FORECASTING

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  1. DYNAMIC PRICING & 13 MONTH FORECASTING

  2. Long Term Yield Management Yield Management = Revenue Management Invented by airline industry Principles: Perishable product Supply is known Demand is predictable Loading factor (= occupancy) can be predicted Consumer behaviour can be anticipated Price elasticity can be calculated Inventory can be actively managed Daily yield management = re-active Long term pricing strategy = pro-active

  3. Airlines vs Hotel Industry • Airline: • Uniform product in three classes (economy, business, first) • Large variety of fares for each class (red-e, super saver etc) • Limited availability of cheap fares • Long term booking = lower fare • Active inventory management • Hotel: • Uniform product in different room types • Large variety of rates for each room type • Low rates always available • Long term booking = higher rate • Passive inventory management

  4. Current Long-Term Strategies • Contracted rates are offered on “run of house” • “free upgrades” during high demand periods • High volume contracts get lower rates • is actual production in line with rate offered? • Next year’s rate based on past performance • Looking backwards, not forwards! • Long term contracts made on today’s rates • Is that rate appropriate for the contract period? • Focus on quantity not quality (more is better) • High rate business is more profitable!

  5. What can we improve? • Think ahead and be more pro-active • Long term planning vs. short term yield management • Diversify pricing strategy based on lead time • Give long-term bookings lower rates, but limit availability • Demand higher rates for short-term bookings, unless the expected occupancy is low and discounts are appropriate • Redefine contracted business • Rate structure by room type, not “run of the house” • Enforce this structure where possible • Award volume discount based on actual production, not on predictions or last year’s production • Reward commitment but charge for flexibility

  6. Market cycles are driven by supply, not demand ! Supply is predictable, as new developments take time Long-term demand can be forecast with reasonable accuracy The long-term market cycle is predictable! The rate cycle is usually lagging the occupancy cycle by about 18-24 months, due to short-term thinking Use long-term yield management strategies Be pro-active, not reactive!

  7. Projecting the future……….. Assess new supply Calculate supply growth Review market forecasts Predict demand growth Calculate occupancy projections Project rate growth

  8. Seasonality Analysis • Cycle analysis provides long-term growth indicator, but annual and weekly seasonality apply regardless • Seasonality highly dependent upon guest segmentation • Leisure market geared towards holidays and weekends • International leisure market is different from domestic leisure market • Corporate market less volatile across the year but strong weekly patterns • Leisure and corporate may complement each other • Effective management of guest segmentation helps sustain occupancy levels • Diversify demand bases • Diversify product to attract alternative market segments

  9. Forecasting Demand Periods & Revenue Management Strategies

  10. Yield Management From the most number of guests Achieving the highest possible rate WHILST MAINTAINING CUSTOMER LOYALTY. (an art, not a science!)

  11. Effective Forecasting • 1. Current Holdings - compared to same time for previous periods - use spreadsheets to track this (Demand Periods) • 2. Previous Year’s Results - trends, track reasons for past results • 3. Pick Up Trends - short term & long term • 4. Group Wash - formally tracked • 5. Market Conditions - supply , major events, seasonal effects - competitors, economic conditions

  12. Revenue Management Levels Check your rates within your hotel PMS. Clear out ALL rates that are not within your rate (matrix) structure!!! Allow rates to be grouped into categories Categories have a similar yield result or reflect contractual obligations Faster & more accurate A-H available for use (but normally only 4 levels, A-D required) every rate must be linked to an RM level

  13. Demand Periods What are demand periods? Periods that display similar occupancy levels and average rates. Demand periods can be a season, month, week, day of the week or a time period dictated by an event.

  14. Demand Periods • Proactive not reactive • Revenue Management Strategies • Marketing • Staffing levels - more/less staff - holidays - not forecasting to be full and hotel’s standard rates are not saleable

  15. Demand Periods 1. High Demand/Special Event - forecasting to be full on very high rates 2. High Demand/Normal Period -forecasting to be full • Normal Demand (white) - not forecasting to be full but hotel’s standard rates are saleable 4. Low Demand - not forecasting to be full and hotel’s standard rates are not saleable • (Spreadsheet)

  16. Types of Rates • We have TWO types of Rates “Dynamic” and “Contracted” • DYNAMIC RATES • Can be changed DAILY and should be updated 13 months ahead • $ Value is never contracted. • CONTRACTED RATES • CANNOT be changed. Usually set for a 12 month period • Based upon Day Marker 3 Rate levels. Limited access to rooms over Day Markers 1 & 2

  17. Demand Period Rate StrategiesHIGH DEMAND/SPECIAL EVENT/SAT NIGHT RM levels A & B only open with special event surcharge or Sat night rate applied (include on your rate grid) • Apply minimum night stay restrictions • Minimise lower rate conference rooms • Sell to room type – NO UPGRADES • Dark blue colour code • Hotel to Input RM Levels and Strategies for this Type if Demand Period also to decide upon LOWEST RATE for each Mkt segment ie: Group ad hoc / Conferences & Leisure in Special Events

  18. Example of DP/RM levels Best Available Rate can be pre-determined for levels 1-4. “BAR” = Level 1 $400 Level 2 $300 Level 3 $200 (normal hotel rates) Level 4 $150

  19. Demand Period Rate StrategiesHIGH DEMAND/NORMAL PERIOD RM levels A, B & C only open • Sell to room type • Sell higher room types for those major providers on lower rates • Purple colour code • Hotel to Input RM Levels and Strategies for this Type if Demand Period

  20. Demand Period Rate StrategiesNORMAL PERIOD All RM levels open (lowest level closed when necessary) • Competitive offers to hotel database • Offer complimentary upgrades to close sale • Offer standby rates direct at the hotel • Be cautious about turning away any bookings • White colour code • Hotel to Input RM Levels and Strategies for this Type if Demand Period

  21. Demand Period Rate StrategiesLOW DEMAND All RM levels open! • Increase allotments (wholesale, inbound) • Offer specials to domestic wholesalers/inbound • Promotional rates • One off group rates • Pale blue colour code • DO NOT TURN AWAY ANY BUSINESS • Front office and reservations to “ASK” for business !! • Hotel to Input RM Levels and Strategies for this Type if Demand Period also to decide upon LOWEST RATE for each Mkt segment ie: Group ad hoc / Conferences & Leisure

  22. Contracted rates Wholesale..- Inbound 30%, local 25%. Any ‘preferred’ agreements – based on productivity in Demand Periods 3 and 4. All promotions and packages are dynamic. Corporate = 5% off rate of the day (LRA) Government = 20% off rate of the day.

  23. Demand Period Forecast • The Demand Period forecast (DPF) is THE tool used in Yield Management Meetings. It has the following Information • Day by Day Holdings ( Updated monthly for 13 months and weekly for the next three months) • Forecasted Occupancy and Average Rate Day by Day (Updated monthly then updated when a large group is entered or cancelled or an event is declared for those dates for 13 months and updated weekly for the next three months ) • Major Groups that make up the Holdings – Number of Rooms and Rate that the group is on • Assumptions, Public Holidays, School Holidays and events are all entered as COMMENTS in the spreadsheet, which then print out at the end. • Add events if new ones are announced (eg. Concerts, stage productions, exhibitions, large city conferences, etc.) • The Yield Management report is used to review and then accurately forecast the next three months.

  24. What next??? Enter data in DPF sheet for full year YTD actual, including:- Rooms sold- Average Rate- Day Marker indicator- Comments (conf, special events, min night stays, etc) Complete forecast for next 13 months on DPF sheet. Occupancy graph with seasonality and marketing periods, plus special events.

  25. Yield Committee Review of the Demand Period Forecast at a Yield Meeting ? Reservations Sales Manager creates a DRAFT Forecast this isreviewed day by day by the YM Team for 3 months ahead on a weekly basis. (Team: RSM, GM, DOSM, FC) At the beginning of each month the RSM updates 12 & 13 months ahead. This is then reviewed with the YM Committee monthly AND all months ahead where major changes have occurred. Ie: At end of March when that month is very clear in everyones mind the forecast is done for MARCH next year and for APRIL next year. At the end of April the APRIL forecast for next year is reviewed closely and MAY is forecasted. The Forecast is colour coded to clearly show strategies for each day 13 months ahead. These strategies are pre determined by DEMAND PERIOD

  26. How is the Demand Period Forecast then used ? • RSM Updates PMS according to the Demand Period strategies on the DPF (plus 3rd party off line web sites). • Copy of DPF given to ALL departments for strategic future planning. • OPERATING DEPATMENT USES: Housekeeping for Spring Cleaning, ALL Departments for Staff planning, holidays, recruitment. Maintenance for OOO Room requirements, HR for Staff planning general. • RESERVATIONS, SALES & CONFERENCE SALES: Each person has a copy with them at all times. It shows WHEN they can negotiate and the pre determined Demand Period strategies tell them the rate they can go to. • The DPF forms the BASIS for the Budget and for forecasts. Basically the hotels occupancy and average rate are always updated for next 13 months. Makes forecasts & budget time very easy for the rooms budget.

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