Introduction

The primary objective of revenue management is to maximize a business’s revenue. While businesses often focus on minimizing costs to boost profits, this approach may not be effective for those with significant fixed costs. In such cases, implementing revenue management strategies is crucial for optimizing revenue. Since American Airlines pioneered revenue management in the mid-1980s, it has become increasingly essential for businesses. Despite the availability of many books offering strategic insights, there is still a strong demand for understanding and practicing these strategies due to their complex mathematical and economic foundations.

This book utilizes graphs based on the Cobb-Douglas utility function to demonstrate how to maximize revenue within various constraints, offering practical solutions drawn from real-world scenarios. The book is structured into six chapters, covering an introduction to revenue management through linear algebra and calculus, theoretical foundations, detailed mathematical methods, and practical applications with illustrative examples.

In Chapters 1 and 2, readers will gain an understanding of the mathematical logic behind revenue maximization by using graphs to explore key concepts such as revenue, supply, and demand, along with their interrelationships. Additionally, readers will learn to analyze the seasonality of essential hotel industry metrics, such as average daily rate (ADR), occupancy (OCC), and revenue per available room (RevPAR), using trigonometric functions like tangent, cosine, and sine.

Chapters 3 and 4 examine the tactics and strategies of revenue management. In the tactical approach, slopes are assumed to be constant to examine the effects of changes in position. Excel will be used to calculate competitive set, market share, and yield indices, highlighting their relationships. These insights will guide the development of revenue management tactics, including cost allocation, duration control, capacity management, and displacement analysis, using key terms like hurdle rate, stay-through, close-to-arrival, minimum stay, and displacement. In the strategic approach, positions are assumed to be constant while slopes are analyzed. Readers will learn strategies for pricing, product planning, branding, distribution, personal selling, advertising, promotion, packaging, display, servicing, segmentation, and analysis. 

Chapters 5 and 6 focus on game theory and contemporary revenue management software. The application of tree diagrams based on Bayes’ theorem is explored within game theory, covering best response, dominant strategy, and Nash equilibrium. These software tools will be explained through illustrations, emphasizing their role in long-term hotel revenue management strategies, particularly in adjusting demand and supply through group bookings, transient business displacement, and food and beverage services for meetings and special events within the marketing planning process.