sha541 glossary en us v2

  SHA541:
 Price
 and
 Inventory
 Controls
 
School
 of
 Hotel
 Administration,
 Cornell
 University
 


 G lossary

 

 

 

Break-even

 


 

The
 point
 at
 which
 revenues
 equal
 costs.
 

Closed to arrival (CTA)

 


 

A
 type
 of
 availability
 control
 that
 does
 not
 allow
 new
 reservations
 to
 be
 taken

 for
 guests
 
arriving
 on
 this
 date.
 The
 only
 guests
 that
 are
 using
 inventory
 will
 be
 those
 arriving
 on
 
earlier
 dates
 and
 staying
 over
 on
 the
 said
 date.
 

Cold period

 


 

A
 period
 (a
 season,
 month,
 day,
 or
 time
 of
 day)
 when
 operating
 performance
 (demand)
 
is
 low.
 From
 the
 perspective
 of
 hotel

 revenue
 management,
 cold
 periods
 are
 times
 
when
 discounted
 rates
 and
 incentives
 can
 be
 used
 to
 try
 to
 increase
 occupancy
 and
 
improve
 RevPAR.
 

Demand-based pricing

 

 

A
 pricing
 strategy
 that
 sets
 higher
 prices
 for
 periods
 of
 high
 demand
 and
 lower
 prices
 for
 
periods
 of
 low
 demand.
 

Elastic demand

 

 

A
 result
 of
 higher
 competition,
 standardized
 services
 or
 luxury
 good
 nature.
 When
 
demand
 is
 elastic,
 consumers
 are
 more
 responsive
 to
 price
 changes.
 

Expected marginal revenue (EMR)

 


 

The
 estimate
 of
 marginal
 value
 given
 that
 demand
 is
 uncertain.
 EMR
 is
 the
 revenue
 
multiplied
 by
 the
 probability
 that
 we
 sell
 the
 unit
 (probability

 that
 demand
 is
 greater
 
than
 or
 equal
 too
 our
 supply).
 Revenue
 ×
 Probability
 of
 selling
 =
 EMR
 

1
 
© 2015 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.


 



  SHA541:

 Price
 and
 Inventory
 Controls
 
School
 of
 Hotel
 Administration,
 Cornell
 University
 

Fixed capacity

 


 

Inventory
 available–number
 of
 hotel
 rooms,
 seats
 on
 plane,
 etc.–owing
 to

 the
 nature
 of
 
these
 businesses,
 the
 number
 of
 units
 that
 can
 be
 sold
 is
 a
 fixed
 number;
 when
 they
 are
 
all
 sold,
 there
 is
 no
 more
 capacity.
 

Fixed pricing

 


 

A
 pricing
 strategy
 that
 does
 not
 vary
 prices
 according
 to
 demand,
 product
 
characteristics,
 or
 segmentation
 of
 markets.
 

Forecast

 


 

In
 revenue
 management,
 an
 estimate
 of
 the
 number
 of
 rooms/seats/rental
 cars
 that
 will
 
be
 sold
 for
 use
 on
 some
 future
 date.
 Accurate
 forecasting
 makes

 it
 possible
 to
 employ
 
the
 strategies
 of
 revenue
 management
 appropriately,
 according
 to
 the
 expected
 level
 of
 
demand.
 

Hot period

 


 

A
 period

 (a
 season,
 month,
 day,
 or
 time
 of
 day)
 when
 operating
 performance
 (demand)
 
is
 strong.
 From
 the
 perspective
 of
 revenue
 management,
 a
 hot
 period
 is
 when
 rates
 can
 
be

 set
 higher
 and
 length-­‐of-­‐stay
 controls
 can
 be
 used
 to
 improve
 RevPAR.
 

Inelastic demand

 


 

A
 result
 of
 low
 competition,
 highly
 differentiated
 services,
 or
 consumer

 staples.
 When
 
demand
 is
 inelastic,
 consumers
 are
 unresponsive
 to
 changes
 in
 the
 price
 of
 a
 product
 or
 
service.
 

Length-of-stay controls

 


 

All

 controls–internal
 and
 external–that
 regulate
 duration
 of
 use.
 

Marginal value

 


 

 

The
 incremental
 value
 of
 one
 additional
 unit–the
 value
 of
 having
 one
 more

 (or
 less)
 
room.
 Also
 referred
 to
 as
 Shadow
 price
 in
 the
 simultaneous
 decision
 making
 (SDM)
 
framework.
 
 

2
 
© 2015 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.


 

  SHA541:
 Price
 and
 Inventory
 Controls
 
School
 of
 Hotel
 Administration,
 Cornell
 University
 

Overbooking

 


 

The
 practice
 of
 accepting
 reservations
 beyond
 capacity
 in
 order

 to
 compensate
 for
 
cancellations
 and
 no-­‐shows.
 Overbooking
 is
 an
 essential
 element
 of
 revenue
 
management.
 

Perishable inventory

 


 

Inventory,
 that
 if
 not
 used

 within
 a
 timeframe,
 is
 lost
 revenue
 opportunity.
 

Price discrimination

 


 

An
 approach
 to
 pricing
 that
 introduces
 variations
 in
 price
 not
 associated
 with
 
differences

 in
 the
 quality
 of
 the
 product
 or
 service
 nor
 with
 the
 cost
 of
 production.
 

Rate fence

 


 

A
 tactic
 used
 to
 segment
 customers
 into

 market
 groups
 based
 on
 their
 willingness
 to
 
pay,
 their
 purchasing
 behavior,
 or
 their
 needs.
 In
 revenue
 management,
 the
 following
 
rate
 fences
 may
 be
 used
 as
 part
 of
 a

 variable-­‐pricing
 strategy:
 physical
 rate
 fences
 
(location,
 view,
 amenities),
 product-­‐line
 rate
 fences
 (top
 of
 the
 line
 vs.
 bargain),
 
controlled-­‐availability
 rate
 fences
 (coupons,
 those
 who
 ask),
 and
 buyer-­‐characteristics
 
rate

 fences
 (seniors,
 kids,
 group
 membership).
 

Reference price

 


 

The
 price
 customers
 think
 a
 service
 (or
 product)
 should
 cost.
 Reference
 prices
 may
 be
 
based

 on
 the
 price
 last
 paid,
 the
 price
 most
 frequently
 paid,
 the
 price
 other
 customers
 
say
 they
 paid
 for
 similar
 offerings,
 or
 on
 market
 prices
 and
 posted
 prices.
 

RevPAR

 


 

Revenue
 per
 available
 room-­‐night.
 This
 hotel-­‐specific
 variation
 of
 RevPATI
 can
 be
 
calculated
 in
 two
 ways:
 a)
 by
 dividing
 the
 total
 nightly
 room

 revenue
 by
 the
 number
 of
 
rooms
 available
 or
 b)
 by
 multiplying
 the
 average
 room
 rate
 by
 the
 actual
 percentage
 of
 
occupancy
 on
 a
 given
 night.
 This
 measure
 is

 used
 in
 revenue
 management
 to
 analyze
 a
 
business's
 ability
 to
 utilize
 its
 revenue
 capacity.
 

3
 
© 2015 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.


 



  SHA541:
 Price
 and
 Inventory

 Controls
 
School
 of
 Hotel
 Administration,
 Cornell
 University
 

RevPATI

 


 

Revenue
 per
 available
 time-­‐based
 inventory
 unit.
 RevPAR
 and
 RevPASH
 are
 industry-­‐
specific
 variations

 on
 this
 all-­‐inclusive
 measure,
 which
 is
 calculated
 differently
 in
 
different
 contexts
 and
 is
 used
 in
 all
 applications
 of
 revenue
 management
 to
 analyze
 a
 
business's
 ability
 to
 maximize
 its

 revenue
 capacity.
 

Segmentable markets

 


 

Markets
 composed
 of
 heterogeneous
 customers
 –
 customers
 that
 can
 be
 separated
 into
 
various
 classes,
 differentiated
 by
 how
 much

 they
 are
 willing
 to
 pay
 for
 a
 product
 or
 
service,
 by
 age,
 by
 frequency
 of
 purchase,
 or
 by
 affiliation
 with
 potentially
 profitable
 
groups.
 

Simultaneous decision-making (SDM)

 

 

A
 modeling
 approach
 for
 settings
 where
 prior
 decisions
 affect
 the
 outcomes
 of
 current
 
decisions,
 and
 therefore
 decisions
 are
 best
 made
 simultaneously
 rather
 than
 
sequentially.

 

Time-variable demand

 


 

Uncertain
 demand
 that
 varies
 temporally
 by
 time
 of
 year,
 day-­‐of-­‐week,
 time
 of
 day,
 etc.
 

Unconstrained demand

 

 

A
 measure
 of
 the
 demand
 for
 a
 particular
 service
 or
 product
 that
 is
 the
 sum
 of
 all
 
consumers
 who
 have
 purchased
 or
 would
 purchase
 that
 product
 at

 a
 particular
 time.
 
"Unconstrained"
 refers
 to
 the
 elimination
 (in
 theory)
 of
 the
 constraint
 of
 availability.
 

Warm period

 


 

 

A
 period
 (a

 season,
 month,
 day,
 or
 time
 of
 day)
 when
 demand
 is
 neither
 high
 nor
 low.
 

4
 
© 2015 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.