The Challenges and Benefits of Applying Revenue Management Techniques to Drive Ancillary Revenue

By Stefan Wolf Senior Vice President Revenue & Distribution Strategy, Onyx Hospitality Group | September 16, 2012

The idea to apply revenue management principles beyond rooms to increase the revenue generation of food & beverage, spa, meeting space and other revenue streams is not new and gets a renewed focus at every economic downturn, but it has compared to rooms revenue management not been successfully implemented in the lodging industry.

During extended low demand periods there is a need to capture more share of wallet of the reduced number of customers and so a quick solution is seen in doing some form of revenue management for restaurants & spas, but this mostly results in heavy discounting without any analysis of demand or price elasticity.

Once the demand for rooms stabilizes the higher profitability of this segment takes the focus again away from other revenue streams before any meaningful strategies could have been implemented in the first place.

Before proceeding further into the details of a total revenue management strategy the historical development of the revenue management discipline should be explored.

Marriott International is recognized as one of the pioneers to adapt a technique, called "Yield Management" in the airline industry, for the lodging industry as capacity constraints, fluctuating demand, variable price elasticity and changing supply are very similar (Cross et al 2009).

Yield management in the airlines industry is defined as the process of understanding, anticipating and influencing consumer behaviour in order to maximize yield or profits from a fixed, perishable resource (Nettesine and Schumsky 2002).

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