Fixed pricing, variable duration
Why are restaurants suitable for Revenue Management?
Restaurants are perfect for Revenue management because they satisfy all required criteria. On one hand they have a fixed capacity due to the number of seats available in the restaurant, the kitchen size, the staffing levels as well as the menu design. Also, they have a perishable inventory where seat hours are sold, so if a seat is not sold during a particular time, revenue is lost.
Third of all, restaurants work with time-variable demand. Demand varies between different times of a day, days of the week as well as seasons. Some ways how to manage demand would be for example promotions, vouchers or special offers that are only available at certain times e.g. early bird specials. Flexibility in pricing as well as the possibility to segment customers allows revenue management to be applicable in restaurants.
Demand based pricing
Demand based pricing is not as much used in restaurants as in the rooms division. Even though special lunch menus, Christmas and New Years Eve menus as well as special promotions and vouchers offered in low season can be offered, most prices in a menu are fixed and change rarely.
It is very difficult to predict the duration of a client`s stay in a restaurant. The management in restaurants will on one hand have to try to control and if possible minimize the duration of a meal especially in hot periods. The reduction of variations is especially important if they are not due to the clients but operations.
Especially when looking at the time between the arrival and the seating of a client, the restaurant can minimize the duration of a client`s stay. With an increase in staffing or improvement of operations and communication the seating process can be fastened. The menu design can also play a big part in duration control. If the design is very complicated, clients will take longer to decide what to choose
Generally, only few rate fences are found in restaurants. The restaurant could, for example, introduce a certain price for a separate “VIP” room or discounts for groups with a certain number as well as when the reservation was done. Commonly, special discounts for certain market segments are found. For example clients working for a certain company or with a special membership could get a discount on their meals.
The steps to implement duration control and demand based pricing in restaurants are as follows:
When establishing a baseline different information needs to be collected. This information can be taken from various sources and then needs to be analyzed.
When trying to understand the causes, the management needs to find out which factors affected the RevPASH as well as the duration. This can be done through the use of service blueprints or for example fishbone diagrams.
The third step in implementing duration control in a restaurant and reduction in variability of service step duration would be the development of a strategy.
When implementing the new strategy, it is vital that the new standards and procedures are communicated to the employees as well as to the clients.
In the end, the results of the new strategy have to be monitored. This is vital for the motivation of employees as well as for possible corrective actions that might need to be taken.
Fixed duration, variable pricing
Why is function space suitable for Revenue Management?
Unfortunately, Revenue Management has not yet been systematically applied in hotel`s function spaces, even though they are very suitable. All requirements are fulfilled when looking for example at a relatively fixed capacity, variable demand, customers that can be segmented, different customer`s price sensitivity or perishable inventory. Other than hotel rooms for example, function spaces charge a fixed price for their rooms with a relatively predictable duration.
Demand based pricing
Hotels still have difficulties in forecasting demand for function spaces because it is very complex due to the fact that it often also affects the sales of the Room and Food and Beverage Division. In general, hotels and resorts in the golf industry work with the formula that the expected contribution of a group needs to be higher than the displacement of other clients who would create higher total revenue. It always needs to be considered that function space revenue management is effected by the demand and current reservations of the Room and Food and Beverage Division
Function Spaces have various different ways to control the rather predictable duration of a conference or meeting. By asking for pre-payment or a deposit, the possibility of no-shows, late shows or short shows are minimized. They also guarantee that the hotel rooms booked are picked up and not left early with loss of revenue by setting early departure fees or room prepayments.
In regard to duration control of the hotels operation, the turnaround time is an important factor to maximize revenue. Here, the balance between minimizing labor cost and turnaround time has to be evaluated.
Function Spaces are very suitable for the implementation of rate fences, which can be either physical or non-physical. Examples for physical rate fences could be for example higher prices for high-tech rooms or rooms with day light. Non-physical rate fences could be reduced rates for repeat customers, groups that have booked over the internet or that booked on a certain day of the week or in season with general low demand.
To Read Full StoryClick Here