Profit Optimisation Strategies
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The document discusses strategies for profit optimization in the hospitality industry, emphasizing the importance of understanding consumer demand and pricing strategies in different periods. It highlights issues such as revenue dilution and profit erosion due to distressed inventory and offers recommendations for improving long-term profitability through various tactics like pricing, technology, and channel management. Additionally, the text suggests analyzing transaction profitability to identify profitable customer behaviors and optimize inventory allocation.
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Profit Optimisation Strategies
- 1. Linking RM to Profit Optimisation Kate Varini Senior Lecturer Profit Optimisation Training & Development Services
- 2. RM Definition Tell me when you want to come and I will tell you the price Tell me what you are willing to pay, and I will tell you when you can come Tell me who you are, and I will tell you the price A focus on what maximization of opportunities in different demand periods
- 3. High Fixed - Low Variable (Marginal) Units
- 4. Definitions I nventory is d istressed when expected to remain unsold thus generating zero revenue R evenue D ilution is caused by customers buying inventory at a price (much) lower than their forecasted willingness to pay P rofit E rosion occurs when profits from busy times have to be utilised to cover fixed costs in low demand periods
- 5. Opportunities Surveys show that consumer confidence is on the rise Leisure demand is rebounding and is mostly comprised of price aware, value driven consumers who spend more time looking Only 16% of customers already know what they want Social Media is becoming important Online Travel Agencies can promote profit if used intelligently
- 6. Discounting Issues Distressed inventory causes…. …… significant profit erosion. To alleviate this… Promotions are put on the market causing ….. … (significant?) revenue dilution…causing ….. … .frames of reference to change…….and then prices go back to normal and…….. Customers question fairness and ultimately…. … . the lack of marked difference between products (no star and 5 star products)
- 7. A 26-sq.-metre room / Modern furnishings / Work desk, A bath with ecologically friendly shower, fast-fill tub and hot towel rail. Complimentary amenities: mini-bar, local phone calls Wired and wireless Internet access and bath robes . Windows that open Eames chair and Jacobson lamp Iron and ironing boards available 25 inch flat screen TV Video on demand / iPod docking station Dual line telephones with Voicemail and Speakerphone Individual air conditioning and heat control Express checkout / Morning newspapers Rollaways upon request / Hairdryer / 24-hour room service Cable/satellite TV channels / Satellite Radio High-speed Internet access / Safe / Bathroom toiletries ?
- 8. Optimisation of Long-Term Profitability…. Increase revenue Increase price and/or volume Decrease costs Technology / channel strategies / product development Get into the consumers evoked set SEO / channel strategies / Price Online reviews to upsell Add value
- 9. Customer Profitability Analysis or Transaction Profitability Analysis?
- 10. Transaction Profitability What we know How they buy/book Length of stay, play Number in party Price / Product Inclusions Booking costs (commissions, fees etc.) Total spend Method of payment
- 11. How much value customers add Do they cause displacement or ….. proce minus cost of production Auxilliary – What else do they contribute? High demand Vs. low demand Which transactions consume more and contribute less? Which transactions consume less and contribute more? Transaction Profitability What we don’t know
- 12. Research - Step 1 Identify transaction types Identify if patterns exist Spending Booking behaviour Consumption of resources Contribution to Short/longterm profitability Brand image … anything else?
- 13. Profit Optimisation: Objectives Raise willingness to pay Save inventory for customers with higher contribution Use price signalling to help customers know when to purchase
- 14. Analysis Analyse the data and provide evidence to show transactions that are: Most profitable Least profitable Take into account opportunity cost & contribution from room rate auxilliary spend …………………………………… ..Other?
- 15. Channel Strategy What type of strategy for different forecasted demand periods? How should it be monitored When should the strategy be put in place How can relationships with partners be managed?
- 16. Direct Web The channel that promotes profitability? Only if the traffic generated/conversion exceeds the cost of maintaining an attractive website Which type of business should not invest in an interactive ecommerce website?
- 17. Innovative products – Control Costs High (Hotel) Cost inclusions Signature (Premium) breakfast Personalised transfer Fitness Premium service Room service Unlimited Food & Drink Amenities Linen change every day Upgrade to Executive Room Service Low (Hotel) Cost Inclusions Assigned room Electric Bike (sunk cost) Internet, Minibar Garage Room size/view 24 hour stay Change checkin times for diff booking types Early bird booking Cxx policies, pay in advance, non refundable etc. Limited food & drink Luggage storage Upgrade to superior
- 18. Analyse data on future business Understand the trends Look for high LRV early on to determine strongest days Pricing/ Channel strategy should be determined by LRV floors In low demand periods, encourage no-shows especially from channels with high commission When charging high prices, improve price-value perception When offering inclusions ensure costs can be controlled To Do List
- 19. Linking RM to Profit Optimisation Kate Varini Skype : kvarini www.youtube.com : rmprofessional Linkedin : kvarini Twitter : kvarini [email_address] [email_address]