Function-space Revenue Management

Managing function-space revenue is more difficult than dealing with transient guest rooms because of the interaction of function space with room sales and food and beverage demand. While function space will reap most of its revenue management benefits from pricing, this is not to downplay the role of duration control.

Duration control

Duration can be managed in four ways: refining the definition of duration, reducing arrival uncertainty, reducing duration uncertainty, and reducing the amount of time between functions. Each is briefly described below:

1. Definition of duration: Most hotels define function-space duration by day part, but the definition and number of day parts varies by hotel. Since events can span multiple day parts or use only a fraction of a day part, we suggest that hotel function-space managers define duration as an hour. Most computerized systems track this information, but it may be difficult to retrieve.
2. Arrival uncertainty: Arrival uncertainty involves two factors: (1) the timing and quantity of requests, and (2) the no-show and cancellation rates of booked events. Determining the timing and number of requests from different market segments is a challenging task. Hotels still have a great deal of difficulty with forecasting their demand for group rooms, and most have not even attempted to forecast their functionspace demand. If a hotel can obtain information on the lead time and the amount of business of major market segments, it can make better decisions regarding the level of demand from key customers, when that demand will occur, and when to release space to other market segments.
3. Reducing duration uncertainty: This point has been removed as it was redundant.
4. Reducing time between functions: This point has been removed as it was redundant.

While hotels have a difficult time in forecasting function-space demand, they do a good job of reducing cancellation and no-show rates by requiring nonrefundable deposits and prepayments for function space. In some highdemand cities, hotels even require prepayment for the requested number of guest rooms connected to the function-space reservation. This practice protects those hotels from holding room blocks that no one picks up at the agreed-on rate.