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Rooms Division
Management
Sem 2, 2015
Week 2
The Rooms Division: Structures
and Analytics
Mini-Lecture:
Hotel Characteristics,
Classifications and Concepts
Hotel Characteristics
Perishability
Rooms not sold tonight cannot be sold
tomorrow
Location
Fixed, changes value
Fixed supply, but varying demand
High fixed costs but low marginal sales costs
Capital / labour intensive
High fixed costs / low operating costs
Seasonality
Within year/month/week
Solutions to seasonality?
Hotel Classifications
Levels of service
Full-service, select-service, all-suites, extended-
stay
Hotel Classifications
Size
The number of available rooms
Class
Different“star” ratings systems in different
countries
By ADR / by level of amenities
Luxury,
Upper Upscale, Upscale, Upper Midscale,
Midscale, Economy, etc.
Plan
European Plan, Continental Plan, American
Plan, etc.
Demand Elasticity
Elastic demand:
Change prices – demand changes (dynamic)
As prices drop, demand rises
As prices rise, demand falls
Fewer people can afford it
Fewer people think it is worth it, even if
they can afford it!
True for most products and services
Certainly true for leisure travel
Demand Elasticity
Inelastic demand
Change prices – demand stays the same
(static)
Price goes up, demand stays the same
True only for a limited range of products
True for business travel to a large extent
Trip
to finalize a million dollar deal will not
be dropped if airfare rises by $1,000
True for medicines or surgery
Demand Elasticity
Important:
To find out how “elastic” demand is for each
of your market segments
How much can you increase prices before
the demand drops off?
As you will see in upcoming lectures, there is
a trade-off between occupancy (quantity)
and ADR (quality)
Youcould sell 100 rooms at $50 (=$5000) or you
could sell 50 rooms at $100 (=$5000)
Which is more profitable?
Demand Elasticity
Remember:
There is always a limit to price increases!
Thereis no such thing as a “captive”
market!!!
Increasesdrive customers to use substitutes or
do without!!
Question:
What is a substitute product for commercial
hotel accommodation?