HTM 381 Exam 1

Revenue
The total amount of sales achieved in a specified time period.
Hospitality business
An organization providing food, beverages, lodging, travel, or entertainment services to people away from their homes.
Profit
The net value achieved by a seller and a buyer in a business transaction.
Barter system
A trading system in which goods and services are exchanged without the use of money.
Economics
The area of study concerned with the production, consumption, and transfer of wealth.
Return on investment (ROI)
The reward to investors for taking an investment risk.
Channel (Distribution Channel)
A source of business customers. Also, a vehicle used to communicate with a source of customers.
Constrained supply
The condition that exists when sellers cannot readily increase the amount of products or services available for sale when consumer demand for them increases.
Hard constraint
A supply constraint that cannot be removed regardless of product demand. Examples include hotel rooms and the capacity of natural gas pipelines.
Soft constraint
A supply constraint that can, with sufficient lead time, and/or a reasonable expense, be removed or lessened. Examples include the commercial airline and car rental industries, as well as the taxi business and many foodservice operations.
Revenue manager (RM)
The individual or team responsible for ensuring that a company’s prices match a customer’s willingness to pay.
Customer-centric revenue management
A revenue management philosophy that places customer gain ahead of short-term revenue maximization in revenue management decision making.
Hospitality business
An organization providing food, beverages, lodging, travel, or entertainment services to people away from their homes.
Yield management
A demand-based revenue management strategy. It seeks to maximize income via manipulation of selling prices.
Overbook
To accept reservations for more rooms than a hotel has available or in inventory. Sometimes referred to as overselling or being oversold.
Average daily rate (ADR)
The average (mean) selling price of guest rooms during a specific time period.
ADR Formula
Total room revenue/ Total rooms sold=ADR
Occupancy percentage
The number of rooms sold during a specific time period; expressed as a percentage of all rooms available to sell during that same period.
Occupancy percentage formula
Total rooms sold/Total rooms available for sale=Occupancy percentage
Revenue per available room (RevPAR)
It is the average revenue generated by each available guest room during a specific period of time.
The two formulas for RevPAR yield identical results and are:
ADR*Occupancy percentage= RevPAR or Total revenue/Total rooms available for sale=RevPAR
Revenue per occupied room (RevPOR)
The average revenue generated by each occupied guest room during a specific period of time.
RevPOR Formula
Total revenue/Total occupied rooms=RevPOR
Gross operating profit per available room (GOPPAR)
The average gross operating profit (GOP) generated by each available guest room during a specific period of time.
GOPPAR Formula
Total revenue-Management controllable expense/Total rooms available for sale=GOPPAR
Competitive set
A group of similar and directly competing lodging properties to which an individual hotel’s operating performance is compared. Frequently referred to as the individual property’s comp set.
Market segment
A subset of a customer group that can be readily identified by one or more common but individual customer characteristics (for example, the customer’s income, gender, or purpose of travel).
User-generated content (web site) (UGC)
A web site in which the content is produced by the site’s end users. Typical content includes news, information, opinion, gossip, and customer reviews of businesses.
Pace report (booking place report)
A summary report describing the amount of future demand for a lodging property’s rooms or other services and the rate at which that business is being captured.
Rack room rates
The price of rooms when no discounts of any type are offered to guests purchasing the rooms.
QSR
Quick service restaurant
Revenue source (foodservice)
A subsection of an operation that contributes a definable portion of the operation’s total income. Typical factors used in foodservice to differentiate revenue sources include product sold, time of day, and the method of product ordering or delivery.
Revenue Per Available Seat Hour (RevPASH)
The revenue generated during a specified time period divided by the number of seat hours available during that period.
RevPASH Formula
Total period revenue/Number of available seats*Hours of seat availability=RevPASH
Destination marketing
The advertising and promotion of travel and tourism activities in a specifically designated geographic area.
Target market
The potential customers to whom a business’s marketing activities and message are directed.
Revenue Formula
Number of units sold* Unit price= Revenue
What is the name for the laws and regulations aimed at preventing abusive business behavior or anti-competitive practices?
Anti-Trust Legislation
What is the name used to describe a consortium of independent organizations formed to limit competition by controlling the production, distribution and pricing of a product or service?
Cartel
Hotel revenue managers face hard supply constraints. In which industry below are hard constraints also likely to be encountered?
Hair Salon
What is the name of the US legislation that outlawed all contracts and conspiracies that unreasonably restrain interstate trade?
Sherman Anti-Trust Act
What is the name of the US legislation that prohibits competing hospitality managers from meeting to agree upon the room prices that will be charged for upcoming events or charged to specific groups of customers?
Sherman Anti-Trust Act
What is the name for the price perceived by consumers to be the normal or standard price for a product or a service?
Reference Price
What is the name of the hospitality management position responsible for the accounting functions in a hotel?
Controller
To whom would a Revenue Manager likely report if consistency across multiple properties was of most importance
Corporate Level Executive
Which group of employees is most responsible for implementing the revenue optimization strategies and tactics developed by a revenue management team?
Line-level Employees
What vehicle do effective revenue managers use to best develop and evaluate their organizations’ pricing and revenue management strategies and tactics?
Regular Strategy Meeting
Sandy has 100 hotel rooms to sell. This Saturday night has enough customers to sell 125 rooms so she will be refusing 25 requests for rooms. What is this an example of
Constrained Supply
Which industry was the first to use Yield Management principles?
Airlines
What is the industry term used to describe the selling of rooms which are not actually available for sale?
Overbooking
Tashia’s hotel sold 175 rooms last night at an ADR of $200.00. Her hotel has 250 rooms. What was Tashia’s RevPAR last night?
$140.00
Room night
The single night’s use of a guest room. For example, one room sold for three consecutive nights yields three room nights.
RMs are forced to implement one of three income-management alternatives when demand for their products is high:
1. Establish one fixed price, then sell to customers on a first come-first served basis until they have exhausted their supply of products. 2. Allocate the limited supply to selected customers who meet established criteria (i.e.,they are volume buyers, repeat buyers, or they hold other favored buyer status). 3. Raise their prices until demand is reduced sufficiently to equal the available supply.
Capitalism
An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.
Antitrust legislation
Laws and regulations aimed at preventing abusive business behavior or anticompetitive practices, including those related to unfair pricing. It is also known internationally as competition legislation.
Cartel
A consortium of independent organizations formed to limit competition by controlling the production, distribution, and pricing of a product or service (also known as trusts).
Department of Justice
The federal government entity with control over all criminal prosecutions and civil suits in which the United States has an interest. This department also enforces all federal laws.
Predatory pricing
The practice of a firm harming consumers by selling its products below costs or at a price developed with the intent of driving competitors out of the market, thus creating a monopoly and the ability to raise its own prices significantly in the future.
Collusion
A secret agreement between people or firms to do something illegal.
Price gouging
The increasing of prices, often in response to a natural disaster or emergency, beyond a level deemed reasonable by society.
S&P 500
A group of 500 very large, diverse, and mostly American, companies whose stock values are calculated daily to provide a benchmark, or baseline, comparison for the performance of other stocks. S&P stocks are traded on the two largest U.S. stock markets, the New York Stock Exchange and NASDAQ.
Dual entitlement (theory)
The idea that consumers feel they are entitled to a reasonable price, and businesses are entitled to a reasonable profit.
Reference price
The price perceived by consumers to be the normal price for a product or a service.
The implications of the importance of fairness perception to pricing and revenue optimization are several, and they dictate six important pricing concepts that RMs would do well to remember:
1. Prices should be presented fairly. Hidden or after-purchase charges will be perceived as unfair. 2. Buyers prefer rewards to punishments. Rewarding guests for buying more or more frequently, is preferable to penalizing them for buying less or less frequently. 3. Discounts are viewed more favorably then surcharges. 4. Price increases justified only by supply shortages (or even increased consumer demand) are likely to be viewed unfavorably. 5. Lower prices (when offered) should be available to all buyers willing to meet the low price criteria or fences established for them. When lower prices are offered to all, potential buyers can decide for themselves whether they wish to meet the qualifying criteria. 6. If they do vary from traditional pricing approaches, a seller’s pricing offer must be easily explained and understood. Deviations from traditional pricing approaches must be presented carefully and fully to consumers who must then perceive them to be fair.
Customer relations management (CRM)
A term applied to a variety of processes, often computerized, implemented by companies to handle their direct contact with customers.
RMs seeking continuous improvement in their revenue optimization efforts undertake the following steps:
1. Establish prices
2. Forecast demand
3. Manage inventory
4. Manage distribution
5. Evaluate results
Position description
A human resource (HR) management tool that summarizes a job position, lists the essential tasks holders of that position would perform, and identifies the skills required to do the job.
Full service (hotel)
A hotel that offers guests rooms as well as an extensive range of food and beverage products and meeting services.
Limited service (hotel)
A hotel that offers very limited or no food, beverage, and meeting services. Increasingly referred to as Select Service or Focused Service.
Reporting relationship
The person assigned to exercise power and authority over another.
Group room (sale)
Hotel room sales in which an individual reservation is part of a larger, multi-guest reservation.
Rooms manager
The individual in a hotel responsible for management of both the Front Office and the Housekeeping departments.
Transient room (sale)
A room sale made to an individual who is not part of a larger group.
Strategy meetings (revenue management)
Regularly scheduled and formal meetings in which the pricing and revenue management strategies and tactics of an organization are developed and evaluated.
DOSM
Short for director of sales and marketing. This is the individual responsible for managing the organization’s entire sales and marketing effort.
Price
Noun: A measure of the value given up (exchanged) by a buyer and a seller in a business transaction.
Two-tiered price
A pricing strategy in which the buyer must pay a price for the ability to make additional purchases.
Consumer rationality
The tendency to make buying decisions based on the belief that the act is of personal benefit.
Value
In a buyer or seller transaction, the amount of perceived benefit gained minus the price paid. Perceived benefit-Price=Value
Value proposition
A statement describing the good or service to be received and the price to be paid for it.
Marketing
The process of providing a seller’s value proposition to a market.
Market
The set of current and potential buyers for a seller’s product or service.
Oenology
The study of wine and winemaking.
Supply (law of)
The higher the demand for product, the more of it will be produced by sellers.
Demand (law of)
The higher the price of a product, the less of it will be wanted by buyers.
Equilibrium price
The point at which the amount of a product supplied and the amount of it demanded are in balance.
Cost
The price paid to obtain the items required to operate a business.
Cost accounting
The specialized branch of accounting that focuses on recording and analyzing the expenses incurred by an organization.
Break-even point
The point at which a firm’s revenues exactly equal its expenses.
Minimum sales point (MSP)
The revenue level required to achieve the break-even point within a specific time period.
Cost-based pricing
A pricing philosophy that involves summing product (or service) costs incurred, with a desired profit, to arrive at an item’s selling price. Also known as cost-plus pricing.
The cost-based (cost-plus) pricing formula is:
Expenses+ Desired profit= Selling price
Strategic pricing
The application of data and insight to effectively match prices charged with buyer’s perceptions of value.
Intangible (benefit)
Lacking material qualities, not able to be touched or seen, but nonetheless received.
Seller’s view of a sale:
Selling price-Costs=Organizational profit (a tangible benefit)
Buyer’s view of a purchase:
Perceived value (an intangible benefit)- Selling price= Personal profit
Reimbursable expense account
An arrangement in which a buyer is fully reimbursed by another entity for agreed upon purchases that have been made by that buyer.
Meeting planner
An individual responsible for securing the meeting space, sleeping rooms, food, and other services required by those attending group meetings.
Quality
The degree of excellence of something as measured against other similar things. Examples include the USDA grade assigned to a cut of meat or the thread count of bed sheets.
Service
Intangible activities or benefits provided to buyers either alone or in conjunction with the purchase of a product.
Essential RM Term Four Is of Service
Four unique characteristics of services. These are:
1. intangibility
2. inconsistency
3. inseparability
4. inventory.
Idle production capacity
The condition that exists when a service is available but there is little or no consumer demand for the service offered. One example is the time period between lunch and dinner in a foodservice operation that is open continually from lunch time until dinner time.
Fixed pricing
The practice of a seller charging the same price to all buyers. This is sometimes referred to as flat or single pricing.
Inventory management
The process of allocating and modifying the number of products available for sale at various prices and through various distribution channels.
Branded (hotel)
Industry jargon for a hotel affiliated with a national chain.
Consumer surplus
The difference between the amount a buyer would be willing to pay for a product or service and the amount they are charged.
FOM
The individual responsible for administration of a hotel’s front office/front desk area. This is an industry term for front office manager.
Arbitrage
The nearly simultaneous purchase of a product at a low price and reselling of it at a higher price with the intention of keeping the difference in price.
Price fence
The specific requirements that describes who is and is not eligible for a special pricing offer.
Rewards program
A formalized system of granting special pricing or other benefits for a company’s best customers.
Revenue optimization
The application of disciplined tactics that predict buyer response to prices, optimize product availability, and yield the greatest business profits.
Demand (customer)
The number of potential buyers with the interest and ability to purchase the products sold by a business at the specific price offered.
Capital improvement
An addition to a property that will enhance its value or increase its useful life. Examples include roof replacement and the purchase of new furnishings.
Trailing period
A data collection method characterized by the act of discarding the oldest piece of data in a data set when the newest data are added, thus updating the set’s information while keeping the set size constant. Data contained in a trailing period are often used in calculating a rolling average.
Fixed average
An average calculated by using historical data generated during a specific and unchanged time period.
Rolling average
An average calculated by using historical data generated during a changing time period.
Group rooms pace report
A summary report describing the amount of future demand for a lodging property’s group rooms and the rate(s) at which that group business has been captured. Also referred to as a group rooms booking pace report.
Request for proposal (RFP)
An official request by a potential rooms or space buyer that a hotel quote, in writing, its rates and contract terms in response to the buyer’s specifically identified rooms or space needs.
Rooms inventory
All of the unique forms of guest room products offered for sale by a lodging facility.
DD room
The common CRS and PMS code for a guest room containing two full-sized (double or queen) beds.
Close out
To remove from sale or to stop selling.
Room code
A property-specific, shortened description used to identify a specific room product in a hotel.
Real time (inventory update)
The term used to identify rooms inventory availability that is designed to be updated in the CRS/PMS immediately upon the taking or canceling of a room reservation.
Third-party resellers
Intermediaries that purchase hotels rooms for resale to their own customers. Current examples include intermediaries such as hotels.com, expedia.com, and Travelocity.com.
Top down (selling)
A selling approach that seeks to sell an entity’s highest priced items prior to the sale of its lower priced items.
Bottom-up (selling)
A selling approach that seeks to sell an entity’s lowest priced items prior to the sale of its higher priced items.
Attrition
The difference between the purchases a group pledges to make and the purchases it actually makes. Also referred to as wash, wash down, or slippage.
Run of the house
A contract stipulation that permits the hotel to apply its contractually agreed on rate to any room of its own choosing, determined at the time a contracted guest arrives to claim his or her reservation.
Act utilitarian
A theory of ethics that states that the morally correct action is one that results in the greatest good for the greatest number of people.
Rate code
A property-specific notation used by a hotel’s PMS to specify the price of a unique room product. Also known as a rate plan.
CTA
Short for closed to arrival. A date on which guests are not permitted to begin their hotel stays.
Ray sold 100 rooms on Monday at an ADR of $150.00. He sold 150 rooms on Tuesday at an ADR of $200.00. What was his ADR for the combined days of Monday and Tuesday?
$180.00
What is one consistent characteristic of desirable rooms revenue?
It leads to higher GOPPAR levels
What are the three steps to Revenue Management
Forecast, Set Controls, Monitor
What is included in the forecast stage?
Predicting demand, revenue and price to some % of confidence
What is included in setting controls?
Set price, allocate units to distribution channels at certain prices
What is included in monitoring?
To test whether the control was successful, is the forecast accurate