Chapter 6: Essential Skills in the E-distribution and Revenue Management Classroom

Ramesh Srinivasan is a professor at Humber College in Toronto. He teaches a course called E-distribution and Revenue Management in the Hospitality (Hotel and Restaurant) Management Program.

Ramesh teaches his students the Essential Skills of Critical Thinking and Decision Making in the Rate and Inventory Control Unit of the course.

The course titled E-distribution and Revenue Management is a third semester (2^nd year) course in the Hospitality (Hotel and Restaurant) Management program. The pre-requisite for this course is Rooms Division, in which students are taught the operational aspects of a lodging operation.

Revenue management (RM) or also referred to as yield management, looks at revenue optimization in several travel and tourism related industries. The primary objective in offering this course is to introduce students to situations in hospitality operations that require the use of strategic/critical thinking and decision making skills that have a direct impact on revenue maximization. The industry today seeks employees at all levels that can make contributions to the profitability of the operation. Companies are making significant investments in human resources by empowering employees to make several on-the-spot decisions that are directly related to the practice of effective customer relationship management.

Students are required to complete an in-class activity in the topic of rate and inventory management, either individually or in small groups. The concept is to pick the best available booking options that lead to maximizing room revenue. Hotel bookings are generated by a variety of market segments, for which the price of the room is the differentiating factor and thus managers are looking to target those customers who stay the longest and also spend the most during a given stay.

There are two scenarios in this activity:

1. The first scenario has a monkey in the role of a reservations agent who processes reservations requests for this two-room hotel equipped with a standard room and a higher priced executive room on a first-come, first-serve basis. In this simplified exercise, both rooms are operational from Friday through to Tuesday. The monkey’s approach is to sell the rooms as the calls are received. A stream of reservations requests is provided and the students fill out the room blocks based on the above approach. Once a room is blocked, it no longer becomes available for sale. The potential room revenue is then tallied. The objective of putting a monkey on the reservations desk is to demonstrate the limited revenue earning potential of an employee who is not empowered and hence not encouraged to use their critical thinking or decision making skills.

2. In the second scenario, an employee trained in revenue management is put in charge of the reservations function. Using this approach, the students are required to use their critical thinking skills and make decisions on which bookings to accept or reject with the objective of maximizing the revenue earning potential. This approach makes the assumption that hotels seek to attract the best customers – in terms of price paid and number of nights stayed. Here students are also allowed to upgrade rooms for their customers and look to maximize the occupancy of the hotel. Students are encouraged to fill every room without any deviations from hotel’s standard operating policies. The room revenue is then tallied.

The students are then asked to share the results to the class. The results are checked for accuracy and the student (s) with the highest revenue earned is recognized and a small reward is generally provided. A comparison is then made between the results obtained by an untrained employee (monkey) and the employee who understand the value of practicing revenue management.

This has proved to be an extremely effective teaching strategy in which students create a competitive atmosphere where a heightened sense of participation and interest in observed. Students demonstrate a high degree of motivation once they learn that there is a reward for the best results. Students have commented how this exercise has clearly introduced them to the essence of revenue management.

This exercise confirms various studies that have shown that companies who practice revenue management have seen their revenues increase between 3% - 9%. In the above example, I show how a two- room hotel can increase its revenues by 16%. They are then asked to consider the impact on room revenue for a popular downtown hotel with 1400 rooms! At Humber, we make a concerted effort to teach, reinforce and evaluate these essential employability skills that have become an integral part of their college education.