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Revenue Management Fundamentals
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Distribution Channel Management
The process of managing and selecting the mix of channels used to sell a property's inventory to various markets, often involving online travel agents, direct booking, and other third-party resellers.
Price Elasticity of Demand
A measure of how sensitive the quantity demanded of a good or service is to a change in its price.
Perishability
In the context of hospitality, it refers to the characteristic that services cannot be stored for sale in the future - if an airline seat or hotel room goes unsold tonight, that revenue opportunity is lost forever.
Market Segmentation
The process of dividing a broad consumer or business market into sub-groups of consumers based on some type of shared characteristic.
Customer Lifetime Value (CLV)
The total worth to a business of a customer over the whole period of their relationship. It's an important metric as it costs less to keep existing customers than it does to acquire new ones.
Average Daily Rate (ADR)
A metric used in the hospitality industry to measure the average revenue earned per paid occupied room over a specific period.
Forecasting
The process of making predictions about future demand based on historical data, current market trends, and external factors.
Inventory Management
The supervision of non-capitalized assets, or inventory, and stock items, aimed at ensuring that those involved in the selling, serving, or managing of these items are accounted for and used in an efficient manner.
Revenue Per Available Room (RevPAR)
A performance metric that calculates the revenue generated per available room, regardless of occupancy.
Cross-Selling
The action or practice of selling an additional product or service to an existing customer.
Strategic Pricing
The process of setting prices to achieve the organization's long-term goals such as maximising profit, gaining market share, or driving out competition.
Revenue Management
A pricing strategy used to predict consumer behavior at the hotel's market and maximize revenue and profits by selling the right product to the right customer at the right time for the right price.
Channel Costs
Expenses associated with using a particular distribution channel to sell services or products, which include commission fees, transaction fees, or any operational costs.
Value-Based Pricing
Pricing strategy which sets prices primarily on the perceived value to the customer rather than on the exact cost of the product or historical prices.
Occupancy Rate
A percentage indicating the number of occupied rooms compared to the total number of available rooms over a specific period of time.
Overbooking
A strategy where more rooms are sold than available, anticipating that there will be cancellations or no-shows to maximize occupancy and revenue.
Upselling
The practice of encouraging customers to buy a more expensive or upgraded version of a service or product to increase revenue.
Non-Refundable Rates
Room rates that are sold at a discount because the customer agrees to forego a refund if they cancel or do not use the booking.
Break-Even Point (BEP)
The point at which total costs and total revenue are equal, meaning there is no net loss or gain.
Opaque Pricing
A pricing strategy where the provider's identity is hidden from the consumer until after the purchase is complete, often used to sell surplus inventory without tarnishing a company's regular pricing structure.
Fencing
Market segmentation techniques that create clearly defined prices and product differences between the segments to prevent customers from moving down market.
Contribution Margin
The remaining revenue after variable costs are deducted, which contributes to covering fixed costs and profit.
Online Travel Agency (OTA)
A web-based marketplace that offers consumers the ability to compare and book travel-related services such as accommodations, flights, and car rentals.
Discounting
The practice of reducing the price of a product or service in order to encourage more sales or to sell off excess inventory.
Group Pricing
Special rate pricing offered to a segment of customers who are making bulk purchases, such as corporate groups or event attendees.
Global Distribution System (GDS)
A network that enables transactions between travel industry service providers, mainly airlines, hotels, car rental companies, and travel agencies.
Total Revenue Management
An extension of revenue management principles that considers all revenue sources in a business, not just room sales, to optimize total profitability.
Dynamic Pricing
A pricing strategy where prices are adjusted in response to real-time supply and demand.
Length of Stay (LOS) Restrictions
Policies implemented to control the number of nights a guest can book, with the intent of optimizing room availability and revenue.
Variable Costing
Costing method wherein fixed manufacturing overhead is treated as period cost and variable manufacturing cost is treated as product cost.
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