Payment Terms
1. Sharon Cronin is the revenue manager for a hotel company that owns and operates fi ve full-service hotels operating under the Holiday Inn brand. Each is located on an
interstate highway exit, and the average age of the properties is 20 years. As newly built limited-service hotels located near her own properties have chipped away at the occupancy levels of the company hotels, Sharon is seeking to identify characteristics of travelers who still seek the amenities offered by mid-sized full-service properties.
A. List fi ve identifying characteristics of room buyers you believe Sharon should target as her potential rooms buyers.
B. Describe a distinct distribution channel you feel Sharon could use to communicate and sell to each of her targeted groups.
C. Do you believe Sharon should sell to these groups at room rates higher or lower than the rates offered by her newer limited-service competitors? Explain your answer.
2. Tom Rodgers is the director of purchasing of Dart Industries. Tom is responsible for booking 1,000 rooms per month in the city that houses his company’s corporate offi ce.
Tom approaches you, the DOSM/RM of the local Hawthorne Suites hotel, with a propo-sition. Instead of paying $159.99 per night; your hotel’s normal room rate for corporate travelers, he proposes the following rate structure:
A. Calculate the room revenue your hotel would receive if Tom booked:
I. 250 rooms in a month II. 350 rooms in a month III. 401 rooms in a month
B. Assume the variable cost associated with selling each room is $65.00.
Calculate the “after variable costs”
revenue your hotel would receive if Tom booked:
I. 250 rooms in a month II. 350 rooms in a month III. 401 rooms in a month
➠ APPLY WHAT YOU KNOW
Per Month Room Rate
1 to 100 $159.99
101 to 400 $139.99
401 to 600 $119.99
601 to 1,000 $109.99
Rooms Purchased
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A P P LY W H AT YO U K N OW 125
A. Calculate Sandy’s “distribution cost” for each channel.
B. Calculate Sandy’s “net round yield” for each channel.
C. Calculate Sandy’s “net revenue” for each channel.
D. Calculate the overall average “net round fee” for the 180 rounds of golf Sandy received during the week from these six channels.
E. Which channel(s) do you believe are Sandy’s best partners? Explain your answer.
4. Lara is the managing owner of the “The 1/2 Pound Char-burger” kiosk at Metro Airport.
Her menu is limited. She sells burgers, fries, and drinks. Last week, she served 1,000 customers. Most of her guests order at least a burger and a beverage. Some order a burger, fries, and beverage, while still others order only fries and a beverage. Sales data from last week are presented in the following table.
Source Standard Fee
Net Round
Fee Dist. Costs
Net Round
Yield Rounds Sold
Net Revenue
Comfort Suites $75.00 $69.00 40
Hampton Inn $75.00 $67.00 30
Hilton Garden $75.00 $65.00 30
Springhill $75.00 $61.00 20
Sheraton $75.00 $60.00 40
Hyatt Place $75.00 $59.00 20
Total $75.00 180
Fox Meadows Weekly Sales Recap:
C. As the DOSM/RM for the Hawthorne Suites, would you be in favor of this quantity discount program? Explain your answer.
3. Sandy Miley owns Fox Meadows golf club. The current greens fees for playing one round (18 holes) of golf on her course is $75.00 per player. To increase sales, Sandy partners with six different area hotels that have created golf packages marketed to their own customers.
Each hotel pays Sandy a different amount for the rounds of golf included in their package.
Sandy wants to calculate a net round yield for each hotel using the formula:
New Round Fee
Standard Fee 5 Net Round Yield Where:
Standard Fee () Distribution Costs Net Round Fee
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CH A P T E R 4 D I F F E R E N T I A L P R I C I N G
Item # Sold
Selling
Price Item Cost
Item Cont.
Margin
Total Cont.
Margin
Burger 822 $2.99 $1.45 $1.54
Fries 640 $1.49 $0.44 $1.05
Drink 972 $1.19 $0.22 $0.97
Total
“The Char-burger” 1,000 Customers Served
Item Contribution Margin (Item Cont. Margin) is defi ned as:
Selling price – Item cost = Item contribution margin.
Given the data presented, what is the lowest price at which Lara could sell a burger, fries, and a drink combination and still equal the “per customer” served contribution margin she currently achieves? Do you think she could sell the bundle for more?
Explain your answer.
5. Keith is the group sales manager at the 400-room full-service Tripletree Hotel. Carla is the front offi ce manager. Together with Leona, the GM, they make the revenue management decisions for their property. For the Saturday night that is just one week away, they have 180 unsold rooms remaining. Keith would like to accept an available group contract for the entire 180 rooms. “We’ll sell out,” he proclaims, “and have a great RevPAR.”
Carla would like to reduce the room rates to $159.00 per night; which is a $20.00 reduction from the hotel’s normal rate of $179.00.
“How many rooms do you forecast we can sell at that rate?” asks Leona.
“I believe we can sell about 120 of them,” is Carla’s reply.
“That means we’ll leave 60 empty rooms, and a lower RevPAR,” protests Keith.
It costs $35.00 to prepare, sell, and clean (prepare for resale) a room at the Triple-tree. Review the data and then answer the following questions:
Room Sold ADR RevPAR GOPPAR
Keith’s Plan
220 $179.00 $ $
180 $109.00 $ $
Total $ $
Carla’s Plan
220 $179.00 $ $
120 $159.00 $ $
Total $ $
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A P P LY W H AT YO U K N OW 127 a. What will be the hotel’s occupancy % under each of the plans?
b. What will be the hotel’s ADR under each of the plans?
c. What will be the hotel’s RevPAR under each of the plans?
d. What will be the hotel’s GOPPAR under each of the plans?
e. If you were Leona, whose plan would you support?
f. The Tripletree is a full-service hotel. Would your position change if the hotel were a limited-service property? Explain your answers.
KEY CONCEPT CASE STUDY
“If anyone should be able to afford our regular rates, it’s seniors,” said Adrian, the rooms manager at the 480-room Barcena Resort.
“You’re our revenue manager, don’t you follow economic trends? People today have more money when they get older, not less. And with the Baby Boomers starting to turn 60, they’re going to have even more to spend than previous generations. All I’m saying is that I think a senior discount for this package just leaves money on the table.”
Adrian was having coffee in the resort’s restaurant with Damario, the resort’s revenue manager. They were discussing an idea Damario had presented at the last Strategic Pricing and Revenue Management Advisory Committee. Essentially, Damario had worked with the hotel’s sales and marketing department to devise a “thru-the-week”
package targeting active senior travelers.
Adrian wasn’t convinced it was a good idea.
“I’m at the desk when they check in,” continued Adrian. “Those folks do have money.”
“You’re right,” said Damario. “Senior travelers are typically among the wealthiest of all the markets that we target.”
“Then why offer them special discounts?”
asked Adrian.
“Because we have empty rooms,” replied Damario. “Seniors have money, but they have something even more important to us. They have time.”
“Time?” said Adrian.
“Time. They have worked all their lives and have had longer to save, so they have more disposable income. That’s still true, even after the most recent economic downturn. And lots of them love to travel. Of course, seniors also love discounts. Every group does, and that includes those with plenty of money. But seniors are also in a position to book with us at the last minute. They can vary their travel plans. They have no kids to worry about taking out of school. No limit on when they can get off work, because they already are off work.
Permanently. And weekend travel is nice, but weekday travel is just as nice for most of them.” They have the freedom to choose. Let me ask you, when is our hotel least used?”
said Damario.
“Weekdays,” replied Adrian. “We’re booked solid most weekends. You know that.”
“O.K. When do we need fl exible date travelers?”
asked Damario.
“Through the week,” said Adrian slowly. “Now I get it.”
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CH A P T E R 4 D I F F E R E N T I A L P R I C I N G
For Your Consideration
1. Assume Damario is successful in “selling”
the idea of a discounted thru-the-week package for seniors to the rest of the revenue committee. What specifi c fences would you recommend he construct to optimize the hotels’ revenues from this program?
2. Assume the hotel also hosts senior travelers currently paying full price for their visits. Some visit on the weekend, but others visit during the week. What specifi c actions could the hotel undertake to ensure these full-paying guests felt they also received excellent value for each travel dollar they spent at the Barcena?
3. Assume you were Damario. What are specifi c price differentiation tactics you could implement in regard to this specifi c discount program? Explain why each tactic you selected was chosen.
4. Prices strongly communicate to customers the value a company places on its own products and service? In some cases, prices that are too low can cause some customer perceptions of quality to decline.
How can Damario ensure the customers he targets do not respond to his value proposition with the thought that his new package is “too cheap” to truly represent a good value?
E N D N O T E S
1. For texts related to the variously mentioned hospitality-related topics, visit: www.wiley.com/
WileyCDA/Section/id-300834.html.
2. Robert Reid and David Bojanic, Hospitality Marketing Management, 4th ed. (Hoboken, NJ: John Wiley and Sons, 2006), 547–558.
3. YUM Brands, Pizza Hut offer. In effect 2/15/2008 shown at http://www.pizzahut.com/pizzamia/.
4. Hyatt Hotels Senior Citizen Travel rates. In effect 2/15/2008. http://www.hyatt.com/hyatt/specials/
10. Confi rmed as of 2/18/2008.
11. Reed and Bojanic.
12. Kimberley Tranter, Trevor Stuart-Hill and Juston Parker, An Introduction to Revenue Management for the Hospitality Industry: Principles and Practices for the Real World (Upper Saddle River, NJ: Prentice Hall, 2009), 325.
13. James Kotler, Philip Bowen and John Makens.
Marketing for Hospitality and Tourism, 4th ed.
(Upper Saddle River, NJ: Prentice Hall, 2005), 918.
14. http://thinkexist.com/quotation/any_change-even_a_change_for_the_better-is_always/
220763.html. Retrieved 2/21/08.
15. Kevin Freiberg and Jackie Freiberg, Nuts!
Southwest Airline’s Crazy Recipe for Business and Personal Success.(Austin, TX: Bard Press 1996), 49.
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