March 28, 2012 by ak879@cornell.edu

Revenue Management in the Golf Industry

Golf Industry Overview

Golf is a great sport! Why? Because it is one of the few sports that you don’t have to be in shape to play it and play it well! Just google John Daly and you’ll know what I mean. Golf is a very popular sport because it’s social and it requires as much mental ability and concentration and it does physical.

There are more than 35,112 (http://en.wikipedia.org/wiki/Golf) golf courses worldwide and many of them are located in resorts and tourist hot spots. Half of all golf courses are located in the United States and it probably has to do with the abundance of real estate in the country. But of course, like everything else in the world, the next big thing is golfing in China, which has exploded in popularity since its introduction to the country in 1984.

The National Golf Foundation (http://www.ngf.org/) and Golf Digest (www.golfdigest.com) offer plenty of information about the golf industry and its latest news.

Golf is popular amongst both men and women and there are plenty of professional tours around the world. The PGA and LPGA tours and the most popular for male and female professional golfers and they have some of the biggest prize purses in the industry. I think golf is the greatest sport in the world and I am biased because I’ve been playing it since I was four years old. But this is how I convinced a friend: I told him that if I was a famous professional athlete of any sort I would pick golf. Why? Because it’s the only sport where your professional career could last as long as a regular job. I can be a professional golfer until I’m retired! And after that I can even join the Senior PGA tour where I can still make a great living. Just ask Lee Trevino of Chi Chi Rodriguez.

The problem with golf and revenue management is that it usually charges a fixed price and it’s hard to control duration, which places it in Quadrant 3 of the RM levers. Since it is a social sport and depending on the size of the group, type of course and weather, it is very hard to estimate how long it’ll take a group to finish a round of golf.

Space in golf is pretty fixed and it is defined

This is how a round of golf is usually priced:

– The golfer pays a “green fee” that allows him/her to play a round of 18holes

– The time it takes to finish the 18 holes varies greatly depending mostly on the size of the group

– It is categorized as a “gentlemans” sport and it’s considered rude to hurry other players

Space

The golf industry defines space implicitly in that they are in charge of the space and they do not require to sell a specific part of that space but the whole course or golf range.

Golf courses divide their space up in different types, duration and distance for their holes. They also add other types of spaces like golfing ranges where they can get additional revenue from customers that don’t necessarily want to play a full round of golf.

They can also use the space to generate additional revenue, for example:

– They have the golf range that serves the golf course

– A golf pro shop to generate retail sales

– Professional services like gripping clubs

– Professional lessons (might not take space but generate additional revenue)

– Bars (19^th hole)

– Other F&B outlets like restaurants

Some creative solutions to generate additional revenue using the space could be:

– Offer spa and sauna services in their locker facilities if they have them

– The space could also be rented out for events, such as weddings and outdoor concerts

– They could do outdoor cinemas at night

– They could have summer camps at night for kids

Time

The golf industry uses time implicitly because it is very hard to know how long it will take a group to finish a round of golf and it is very hard to control it without annoying customers. There are things that can be done, for example:

– Discount if the group is done before X amount of time

– Charge for time and not for rounds (problems with slow foursomes)

Slower ones must be willing to let faster ones go through

– Charge different prices based on weather forecasts (a discount for a potentially rainy day, give they sign a disclaimer)

– Older people have to be 3 or less per group

– Field marshals to help ease the time pressures

– Use ball finders in certain holes to make finding the ball easier (reducing time). This could be very helpful in markets where labor is inexpensive

– Caddies for bigger foursomes (time controllers and sell them as free caddies or charge)

– Charge higher for “professional caddies” who will make play faster

Price

There are several rate fences that can be used in golf in order to charge different prices at different times or level of service. Some of them were mentioned in the previous point because they go hand in hand with time, but some additional examples are:

– Charge different prices

Morning vs afternoon
Weekday vs weekend

– Golf cart to have fences for bundling and other services

– Charge for time and not for rounds (problems with slow foursomes)

Slower ones must be willing to let faster ones go through

– Advanced payment to reduce no-shows and determine overbooking levels too

– Cancellation Fees for no-shows

– Booking curves in order to determine which days are the ones with the most demand

– BUNDLING

– Daily traffic curves to determine what time of days are the best tees (every half hour?)

– Pay extra to pass a slow “foursome”

– Charge different prices based on weather forecasts (a discount for a potentially rainy day, give they sign a disclaimer)

When it comes to Golf Ranges, which could be an add-on to a golf course or free standing, has a lot of RM opportunities too:

– Different prices for the bucket at different times based on Curves by time and day of week (with length of stay too)

– Offer unlimited balls for a pre-determined LOS instead of charging by the bucket… This way we know exactly how long they will last.

– Offer different quality of balls and charge more or less for them (makes hard to sort them but could be worth the effort)

– Charge more at night or day depending on demand

– Offer virtual ranges

– Time and price could also be enhanced by having some kind of set path:

10 shots at three different distances with three different clubs

– Be able to reconfigure the range and/or the booths where the players shoot the balls

There are many things that can be done with golf revenue management. But the most important thing to do before rolling out RM initiatives is to test it first. A new RM strategy might sound exciting but it could be a potential source of dissatisfaction with the customer and reduce revenue instead of improving it.

March 28, 2012 by al823@cornell.edu

Revenue Management in Nail Salon Industry: selling your time and space

What is the Beauty & Nail Salons Industry?

A nail salon or nail bar is a beauty services establishment that primarily offers nail care services such as manicures, pedicures, and nail enhancements. Often, nail salons also offer skin care services. There are approximately 9,900 nail salons (2010) in the U.S., up 23% from 2007 according to the “AnythingResearch Nail Salon report.”. (http://www.anythingresearch.com/industry/Nail-Salons.htm) The industry is estimated with a market size (includes all money spent in the salon on the services in the chart at the top right) of 6.6 million dollars in the year of 2011. (http://files.nailsmag.com/Market-Research/NAILSstats11-12.pdf)

Nail salons offer a variation of options for nail care. This includes acrylics, silk or fiberglass wraps, French manicures, polish, pedicures, etc. Some nail salons are offering one-stop beauty services. In addition to nail services, these one-stop nail salons offer facial treatments, waxing, and skin care.

Nail salon industry could be considered as a very typical industry that could use a lot of revenue management, regarding to : 1) the high fix costs and low flexible costs of producing, 2) the perishability of the inventory, 3) the easiness to control duration, and 4) the capability to manage demand by pre-selling and fencing rates.

However, based on my research, “time” has been an implicit pricing component for most of the nail salons inside of the U.S., and in most cased, price are still being decided based on techniques and materials applied for a certain service.

Industry Practice – Pricing Strategies

In the current industry practical, most of the prices are neither defined by space nor time. Instead, the price are defined by the service and material consumed. A widely accepted pricing method in the industry is that the product costs cannot exceed 6% of the service charge. To figure the minimum charge per service, multiply the product cost for each service by 16.5. The figure is the lowest possible price for a service.

For nail salons pricing base on technician, an “85% rule” are commonly accepted. The salon figure station occupancy by dividing hours booked by hours scheduled. For example, if the nail technician is scheduled for 40 hours per week and is pre-booked for 30 of those hours, she has a 75% station occupancy rate. When that technician is fully booked more than 85% of the time, the salon will consider raising her price. (http://www.nailsmag.com/article/92584/the-big-payoff)

Rate fences

Rate fences that have been being utilized in the industry are limited. Some of the nail salons have already started to use last minute deal and early reservation to fence the rates. However, for most of the salons, no rate differences or slight differences will be charged by making early reservation and walk-ins.

The good part is that selling the inventory ahead of the time by making reservations and bookings has already become an industry norm. The research shows that about 40% of the nail salons do not take walk-in businesses. Some salons are also using daily deals to fence their rate to the last minute businesses to spread the demand evenly, such as Polished Nail Salon (http://www.polishednailsalon.net/Special-Deals.html)

We can find some of the industry pioneers already moved their feet into the gate of revenue management and try to control its inventory by “selling” time or space, such as Isle Pedi. Even though no specific example was made, it has been said that some of the salons have already started to charge a flat “slot fee” plus an “add-on fee” for the services received. Several examples were selected to reflect the diversity of pricing policies and strategies.

No time component + Mostly Tech oriented

AVALON Hair & Nail Salon (http://avalonhairandnailsalon.com/services.html)

Crystal Nail Salon (http://www.crystalnailsalon.com/pricelist.html)

Partially time + Partially Tech oriented

Gaia (http://www.gaiasalon.com/waxing-and-nails.html)

— Some, especially high end, salons would charge by nail instead of by hand, based on the costs of each nail and provide more variety in design.

Mostly time oriented pricing

The Emerald Door (http://emeralddoorsalon.com/treatments.html)

Isle PediSpa (http://www.islepedispa.com/pedicures.htm)

Demographic component pricing

Berkshire (http://www.berkshiresalondayspa.com/nails)

Potential solutions

People have been trying out new stuff and reaching out beyond the industry to get inspired. I spotted a lot of good practices in setting rate fences, such as by gender and age, which are all very well accepted by the customers. Also some of the salons are taking good advantages of group selling by providing “manicure/pedicure parties” and therefore add more value in the service by providing princess/night club costumes and other entertainment services.

A good example would be Manicure/Pedicure Group Party – R2C Kids Spa (http://rotten2thecorekidzspa.vpweb.com/Party-Packages.html)

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Industry Practice – Define Space and Time

Space

Selling space explicitly or implicitly?

Most of the nail salons are selling space implicitly. The price is decided mostly basd on the labor and material spent on a certain service. For example, one customer who received “polish changes” and “Gel” will not pay less than two customers who receive these two services separately, even though the latter requires two “slots” and the former requires one.

Practices to define space and other possible solutions

Normally nail salon would separate the space into: reception desk, waiting area (both for drying the nails and for waiting for the next available tech); manicure area; pedicure area; and massage area/private room. Some, especially high end, nail salons also have retail area.

Among those areas, manicure area, pedicure area, private rooms, and retail area are considered revenue generating areas. To implement revenue management, the salon could define its inventory as “slot” and focus on improve “revenue per slot”, or as “square feet” and define the performance metric as “revenue per sq”. The latter one makes more sense to me, seeing as it includes the gross booth area into consideration and reflects the overall profitability of the salon.

To divide the space into different layers could be a crucial approach to fence the price and maximize the profit. A higher scale salon requires bigger space for each “slot”, while a bigger “slot” should be charged with a higher premium to compensate the cost of space. As what we applied in restaurant revenue management, the space allocation should be balanced between the functionality and the profitability. Therefore, nail salons should not only divide the space by function, as what most of the nail salons are doing, but also should divide the space by service scales based on its customer mix and needs.

One interesting finding is that, catering to the special needs of the “girls’ collectivism”, a lot of nail salons designed conjunction seats. (http://www.nailsmag.com/article/94720/one-of-a-kind-spa-expands-to-three) As you can find in the picture, this seat conjunction is called “purple princess suite”, specially designed for two girl friends / couple/ parent-kid who would like to share their pedicure time with each other. The conjunction seats not only save space and therefore increase unit space revenue, but also cater to the certain clienteles’ special needs. You will not get one of those hot babies without making a reservation.

Additional revenue generate space

Retail area could constitute a major additional revenue generate space for nail salons. A goal of comprising 15% of the total revenue is realistic for the nail technician and profitable for the salon. (http://www.nailsmag.com/article/92584/the-big-payoff)

For example, Isle Pedi Spa had 2,700 square feet space and allocated 400 square feet to its retail section, which features over 600 different shades of high-end polish to purchase. Also available are candles, bath bombs, nail care products, neck wraps, flip flops, sandals, and all of the salon’s house-blended products. (http://www.nailsmag.com/article/94720/one-of-a-kind-spa-expands-to-three)

Another large source of income could be from gift certificates. Clients will love them because they’re already packaged nicely so they make great and easy gifts. Gift certificates are the best advertising because they get someone new through the door.

Time

Selling time explicitly or implicitly

Yes and no. Nail salon industry has been selling the inventory ahead by making reservations yet traditionally the industry does not sell its inventory explicitly by time.

Practices to sell time and other possible solutions

As it has been listed above, different practices have been implemented to sell the time. Take Isle Pedi as an example, services around 45 minutes belong to one rate layer while services around 60 minutes belong to another time layer.

Actually, a lot can be done to make the business more profitable once the business owners start to focus on utilizing their limited operation time on hand more efficiently. Therefore, the profitability efficiency can be measured by “revenue per half hour” or “revenue per hour”, whatever the smallest time unit is. By clearly defining and controlling the service duration, the business owners can make accurate forecast and sell the inventory by chunk with prices adjusted by demand. The suggestion is to study the history record made by your salon. How many customers you get by the Day of the Week, and how many reservations you got for each day compare to the walk-in businesses. Then we can implement the hotel room revenue management application into the forecasting and pricing for nail salon industry, to decide how many walk-ins to take, with what rate and alike.

By realizing the significance of the time component in profitability, the business owners can also try to fill up the waiting gap in the process of service to improve the performance of revenue per time unit. A great example would be Le Posh (http://www.salonleposh.com/just-for-her/posh-packages/) As it is shown by the picture, Le Posh is providing manicure service while the clients are getting a perm.

However, whether this application is acceptable totally depends on the client tail. In the case of Chi&Ki Sister Nail Salon, they figured that with an affluent clientele, folks would want to slow down and be pampered. However, as it turns out, even these clients are generally on the run. So, Chi has an ad hoc set up for mani-pedis to be done together. But at Ki, comfortable manicure tables were built into the custom pedicure benches from the start. (http://www.nailsmag.com/article/94592/on-the-road-ki-nail-bar-organic-spa-los-angeles)

Explicitly example

Isle PediSpa (http://www.islepedispa.com/pedicures.htm)

Worth to mention, Isle PediSpa did a great job with its pricing structure design. Everything is derived from a basic “45 min/$38 rate” service. Packages providing different callus work are priced with 5/10/15 dollar premium to the basic rate; also a quick 30 min variety, a kids variety, and a male variety are provided with slight price differences from the basic service; another price layer is the “1 hour” packages that are priced with slight differences around 60 dollars.

Non-traditional Revenue Management Practice in Nail Salon Industry

Selling the Time and Space in a better way

A better rate fences: providing different booking windows, “good only when combination with”, or time limited deals. An even better idea would be a reservation center that collect all the demand and supply on a single platform, just like expedia.com for hotel industry.
Time Range Bookings: Offer some guests the opportunity to receive a reduced rate if they can be flexible with the time they take their treatment.
Last Minute Deals: Drive impulse and walk-in business to these times and turn what would have been idle labor expenses into reduced rate treatments.
Controlled Discounting: Instead of charging a premium during the busy times, establish higher prices overall and provide variable discounts.
Controlled Availability: Create booking rules to encourage high margin treatments during high demand periods.

Combination Menu

The key to revenue management for nail salon is how to do balance between price, space, and time to be in line with perishable inventory and variable demand. Therefore, as we discussed previously in this article, there could be a lot of combinations of practices to price the time and the space.

A lot of experiments and researches are waited to be done to find out the best practice. Will it be better to sell time explicitly while selling space implicitly? Or will it be better to sell both of them explicitly? The answer may surprise us when it comes to the real world in different market segments and different geographic locations.

2. Concerns of acceptance level and perceived fairness

A “small” nail business could get pretty complex in the terms of pricing. Therefore to find out a way to deliver and explain the pricing structure to the customers is very important. I suggest the business owners to design a menu like the menu in a restaurant: for red curry base, you could have tofu, beef, seafood and chicken with slightly different prices; if you want brown rice instead of white rice, pay extra. In nail salons, we can have 45 minutes base and slightly different priced options; if you want celebrity brand instead of private brand, then pay a little bit of extra.

Also, charging the customers by the space they take still sounds a little bit avant garde. It may raise the complexity of the pricing structure and hard to acquire acceptance from customers. Customers in a restaurant will be outrageous if they were asked for a “slot fee”, a “food fee” and a “service fee”. What we can do is to provide customers bigger and more comfortable chairs/sofa only when they choose to purchase a longer service and/or more expensive services, until the perceived fairness of being charged by space raised to a safe threshold.

March 28, 2012 by pwm42@cornell.edu

Tennis Center Revenue Management

The Westin Diplomat Resort & Spa’s Tennis Center

The Westin Diplomat’s Tennis Center offers 10 clay courts and a pro-shop. 6 of the 10 courts have lights for evening games and one court has stadium seating for up to 1,500 spectators. This tennis center is ranked 24^th in the world among tennis resorts.

Westin Diplomat Tennis Center

Most of the information on the tennis center is in the following link. I also utilized another tennis center in Daytona to compare the two.

http://www.diplomatresort.com/tennis

http://www.floridatenniscenterdaytona.com/

Most tennis centers offer services per person for court rentals, supply rentals, lessons, tournaments, and programs. Time is defined in many ways: daily, hourly, or by day part. Space is defined per court.

Space

The Westin Diplomat tennis center sells their space implicitly in that the tennis center is split into courts, a pro shop, and locker rooms. The courts are divided up into different types of courts: normal courts, evening courts with lights and a court with stadium seating. Also, the pro shop works very well with the tennis courts because customers are able to rent racquets and shoes, tune up their own equipment, or even by other supplies such as water and snacks for the tennis courts. In addition to these two parts of the tennis center, there is an elegant locker room for customers to utilize before and after using the tennis courts.

Additional revenue is earned at the tennis center from private lessons, programs, group outings, tennis camps, clinics, and the pro shop. The tennis center does not only provide the space and equipment to play tennis, but also great services that allow customers to learn how to play tennis or have games supervised by pros who can give helpful tips to customers’ tennis swings. These pros may provide private lessons or clinics. In addition to the smaller-scale services, the tennis center holds tennis camps during the summer months that will use up most of the courts for most of the days. Group outings can be organized so that a business group or a social group can rent out a few courts to play among themselves or hold a tournament among them. Finally, the pro shop has rentals, newest tennis equipment, and a repair shop that will complement customers when they come to play at the courts.

Tennis camp for children and adults

A creative idea I had for the tennis centers was to add indoor courts and maybe have a massage center in the locker rooms. There would be more opportunity to gain revenue from the massage centers after players have a long day out in the sun. Similarly, the indoor courts could also be used to avoid the scorching sun in the middle of the summer.

Time

Tennis centers typically sell time explicitly: either by the day, the hour, or by day part. However, the Westin Diplomat tennis center sells time in both explicit and implicit ways. It sells its unused courts explicitly at a certain rate per day per person; however, it sells its lessons, clinics, camps, and programs by event.

Tennis center sells lessons at the academy

As explained, the tennis center at the Westin Diplomat uses explicit and implicit time for different services. This tennis center can actually shorten the explicitly defined time. Instead of renting the tennis courts out by day, it can be rented by hour which will help the tennis center predict duration better and have more customers in a single day.

Price

Some physical rate fences that are used by tennis centers are the use of ball machines or pro player tips. Also, rate fences may exist between indoor and outdoor tennis courts. Some nonphysical rate fences that are used by the Westin Diplomat tennis center is hotel guest versus non hotel guests. Some other tennis centers have rate fences between children and adults.

Some extra creative fences that can be used by tennis center are season passes or membership. These passes or memberships can allow customers have a discounted price for using the courts, but it may encourage the player to come play at the tennis center more often. Also, if the tennis centers have rate fences between times of day, they will be able to charge higher during peak periods and charge lower at nonpeak periods.

March 28, 2012 by nla9@cornell.edu

Revenue Management at Ski Resorts

Ski Resort Industry Overview

In the US, the Ski Resort Industry is consists of over 300 companies, generating roughy $4 Billion in annual revenue. Aside from selling lift tickets and season passes, ski resorts generate revenue through their associated hotels, restaurants, bars, and other attractions. This analysis will focus on strategies for managing revenue from ski mountain lift ticket and season pass sales. Also, most ski mountains supply of space exceeds the demand that would be needed to reach “capacity” at a given time

Space

The size of a ski area is typically expressed as number of skiable trails or in total acres. The skiable area is an explicitly defined space which customers rent for use. Purchasing a lift ticket or season pass entitles the purchaser to use the space for a specified time, but the space is shared among all patrons utilizing the space at a given time. In order to maintain safety and in some cases to provide the luxury of limiting lift lines, space capacity can be considered fixed. On the other hand, many resorts have difficulty predicting demand due to its corellation with the weather, which can result in long lift lines, and crowded slopes.

The overall space can be categorized by skiing terrain, ski lifts, maintenance areas, F&B Outlets, retail and equipment shops, lodging, and ticket sales. The Skiing Terrain space at most ski resorts is divided into trails which follow a rating system ranging from beginner to expert terrain, as shown below.

The terrain of a ski mountain is mostly determined by the natural slope, along with obstacles and snow conditions.

The following trail maps are examples of how ski resorts manage their space:

1.Greek Peak Ski Resort, Cortland, NY

2.Park City Mountain Resort, Park City, Utah

3. Heavenly Ski Resort, South Lake Tahoe, CA

4. Vail Mountain, Vail, CO

Additional Revenue

Aside from lift ticket sales, Ski resorts are able to generate substantial revenue through their on-mountain rental programs, F&B outlets, retail stores, and other attractions.

Some examples:

Waffle Haus at Sugarbush, Utah

Mid-Mountain Lodge at Alta, Utah

Ice Bar at Steamboat, ColoradoSki Lesson at Heavenly, Lake Tahoe

Some creative ideas on how ski resorts can increase revenue:

Offer hot beverages next to lift queue
Install camera coverage throughout mountain and sell videos
Create a first-class section of the mountain with well maintained conditions and limit the quantity of tickets sold (physical rate fence)

Time

Ski resorts sell time explicitly, due to limited hours of lift operation, which is usually during the day, sometimes at night with lights. Traditional Season Passes allow for unlimited use of the mountain terrain during operating hours. Many resorts are now offering passes that can be used on certain days, or for a specified number of days per season. Lift tickets are normally sold for an entire day(8 hour), multiple consecutive days, half day, or hourly. Holiday Valley is an example of a resort that offers flexible lift tickets, meaning that if you buy a half-day (4 hour) pass, the 4 hours begins when you board the first lift. Greek Peak, on the other hand only offers half day passes that begin after 3 PM, which may limit their potential to attract customers during slow off peak week day mornings. In order to increase demand, many resorts also offer reduced rate beginner only lift tickets that are good for a limited number of lifts servicing beginner terrain. A creative approach to the current method of offering beginner only lift tickets would be to offer intermediate or expert only tickets. The big issue with such a division of space would be monitoring and regulating the different types of passes. It also may be less attractive for people within groups, but if the trails had physical barriers there may be an opportunity to increase revenue by offering access to expert terrain only at a reduced rate, which could attract back-country skiers who may be more price sensitive than a family on vacation.

Price

Non-physical rate fences are used by most Ski resorts to determine lift ticket and season pass rates. Some resorts have created Physical rate fences to maximize revenue, mostly through learn to ski/ride programs which include a lift ticket that is limited to beginner trails. Some non-physical rate fences used include:

1. Age

2. Student

3. Military

4. Local Resident

5. Rewards program member or season pass holder discounts

The Canyons resort in Park City, Utah offers all of the above listed rate fences and many more, which include teachers, honor role students, local students, police, and firefighters.

The following Lift ticket and season pass rates illustrate how resorts have set non-physical rate fences:

Heavenly Lift Ticket Rates

Greek Peak Lift Ticket Rates

Killington Season Pass Rates

Greek Peak Season Pass Prices

The lack of physical rate fences is due to the unconstrained space and a lack of barriers to separate areas that could be sold individually. If resorts want to create more physical rate fences, they would need to devote a lot of resources to build barriers and monitor traffic between the different areas. As you can see in the Greek Peak rates above, they offer a discounted daily rate for chair 3 only, due to the fact that it has parking lot access and a variety of trails. At larger resorts, the use of physical rate fences or a pay-per-use system may be feasible, but I think customers would be weary to be charged every time they want to ski down a trail on a per run basis. It’s also difficult to analyze the value and popularity for each run if such a system were to be implemented, due to limited technology. However, many resorts scan passes and tickets at the lift line, which could be further analyzed to determine not only demand by time of day or week, but by location.

March 28, 2012 by lqz2@cornell.edu

A Revenue Manager’s Point of View on Hospitals

INDUSTRY OVERVIEW

Definition
A hospital is a healthcare institution that provides complete medical care ranging from diagnostic services, to surgery and nursing longterm care. There are many different types of hospitals that all specialize in different types of patients. For revenue management purposes, we will focus on General Hospitals in the United States – which is set up to deal with diseases and injuries along with immediate and urgent threats to death. Hospitals typically have two types of patients: inpatients and outpatients. Inpatients are patients who stay overnight and seek long-term care. Outpatients are patients who stop in for a day and leave once they are treated. Most hospitals also have their own ambulance services.

For a more in-depth overview, go to http://en.wikipedia.org/wiki/Hospital#Modern_era.

Funding
Hospitals get their funding from a variety of sources; however, they can usually be grouped into two different categories (for profit and nonprofit). For profit hospitals are funded by shareholders and their main purpose is to gain more return for their shareholders. Nonprofit hospitals can be funded by a variety of sources (government, religious denominations, etc.) and they use their revenues to improve the hospital’s inner workings rather than as profit for shareholders.

Employees
Perhaps the most unique aspect of a hospital is the numerous different types of staff. A single patient can require a personal primary physician, multiple residents and interns, nurses, social workers, transport staff, dietitians, administrative staff, laboratory staff, special service providers (therapy/rehap), pharmacists, and many more depending on the reason for the visit. Due to the immediate needs and unpredictability of emergency patients, the staff usually works long shifts (48 hours at a time).

Customers
Also unlike the hospitality industry, customers usually don’t choose to come to a hospital. They usually visit a hospital when they are in need and have to be served immediately. Each customer is also different in their diagnosis and treatment because no two customers have the same internal physical attributes.

Unique Aspects of Hospitals Pertaining to Revenue Management

Lack of flexibility in service requirements – unlike restaurants where any server can serve any guest, patients at hospitals have to go to a specific doctor based on their disease/injury and the doctor’s specialties and skills.
Unplanned hospital visits – hospital patients only go to the hospital when they are sick; therefore, it is difficult for hospitals to forecast or control their demand.
Transparent variable pricing – hospital patients are often charged based on the services they receive (blood test, MRI scan, etc.) and the doctor’s time spent on the patient. Because most of the patient’s treatment options are dependent on what type of disease/injury they have, how much they will pay during the course of their stay is fairly predictable for the hospital.
High occupancy and constant queue – hospitals are always busy at all hours and there is usually a line waiting for a doctor; thus, revenue management would focus more on how to increase the throughput rate of customers through the hospital system rather than how to attract more customers.
Low competition, if any – depending on the size of the city, hospitals could have very few or no competitors; therefore, profit improvement would be more affected by speed than service level.
Control of transportation to and from the hospital – most hospitals have control of their own ambulances and helicopters to bring customers to and from.
Customer satisfaction as an afterthought – while doctors do take into account bedside manner, in terms of revenue, customer satisfaction takes a back seat. Most patients would want to avoid a hospital visit if they can; therefore, improving the patient’s mood from “content” to “extremely happy” usually contribute to improvements in revenue.

Hospitals typically define their space as Revenue Per Available Hospital Bed Per Hour. Hospitals practice price discrimination by charging for equipment used, who the doctor was, and the amount of the doctor’s time the service took. Similar services (such as the common cold, stitches, etc.) are usually charged at a similar price. Hospitals usually practice price discrimination by charging at an absurdly high prices for services and then accept different levels of payment on them. (http://www.medscape.com/viewarticle/521175_3). Value definition in hospitals are also tricky. While patients who require more long term care (ex. chemotherapy) are charged more, they also tend to default more on their payments; thus, charges for simple hospital visits such as stitches in the ER are purposely overpriced to make up for the payment defaults. The following photo shows a typical treatment cycle for patients.

SPACE IN HOSPITALS

Hospitals sell their space implicitly – they only have a certain amount of hospital beds and patient care rooms. Hospitals typically divide their space by type of service provided (radiology, ER, ICU, etc.). Each department or “wing” is divided by specialty and necessity to formulate the most efficient paths for doctors and nurses to their patients. Space is also tricky with hospitals because they have to leave a certain amount of beds open for emergency situations. Below are four different floor plans of hospitals.

Hospitals use space to generate revenue in a number of different ways. The following are examples of how hospitals use space to maximize revenue:

Efficiency of Movement – Hospitals group their space by services rendered and necessary machinery needed so doctors can stay within their wing of the hospital to service all their patients.
Differentiating Room Quality – Some hospitals offer larger rooms with better views for patients who are willing to pay more to be upgraded.
Cafeteria Food – Due to the length of stay of some patients, hospitals offer food and beverages to the patient’s visitors.
Include Different Revenue Generators – Different revenue generators such as a pharmacy or a gift shop are also a good use of space in hospitals.

Creativity in Space Definitions
A hospital’s space creativity must always be centered around the best care for the customer. Ways hospitals have been creative about dividing up space includes:

Building an offsite lounge for visitors to reduce crowding in the main hospital building.
Placing departments that utilize the same machinery close to each other.
Changing the number of patients per room based on each patients needs and preferences.
Using the waiting rooms as a source of advertising for their current doctor’s professions – hospitals sell their physician’s skills rather than service. Thus, using the waiting room to sell books/reports written by their physicians is a good way to advertise themselves to receive more customer referrals and to build customer confidence in their skills.

TIME IN HOSPITALS

Hospitals typically define their time implicitly by customer treatment. Each patient requires a different treatment and thus has a different treatment and recovery time. Although hospitals define time implicitly, there are also certain practices of explicitly defined time:

Fee per bed per hour – most hospitals price their customers based on how long they use the treatment bed per hour.
Meals – meals are often served and charged to patients based on the amount of time they stay. For example, if a patient is there for 6 hours they would be served and charged for two meals.
Hospital Recovery Limitations – as stated in Strategic Levers of Revenue Management, certain hospitals have put a max number of hours new mothers can stay in a hospital after giving birth.
Internal Time Management – Hospitals can also have internal incentives that specify how long a certain procedure should take and then train their employees on meeting those standards. (ex. stitches should take no longer than 10 minutes).

Revenue in a hospital is directly linked to service time. Thus, creativity in improving efficiency is a major focus for hospitals. Ways hospitals could improve their service time includes:

Upgrading all medical record keeping to electronic to speed up information sharing between doctors.
Disciplined process management that is focused on maximizing teamwork efficiency and decreasing employee downtime.
Use customer waiting time to have customers fill out surveys about their needs and wants to better know the customers.
Use statistical analysis to forecast the demand every day

Other improvements can be found at http://blogs.hbr.org/ashkenas/2011/01/hospitals-can-work-better.html.

PRICE IN HOSPITALS

Hospitals are the masters of variable pricing. Almost every patient pays a different price for their treatment. These different prices comes from both physical and nonphysical rate fences. Some physical rate fences includes:

Room Quality – inpatients can sometimes pay more to stay in a bigger room with a better view.
Machinery Used – different types of machines used will different amounts for patients.
Transport Services – customers who are transported to the hospital via ambulance or helicopters will pay more than customers who found their own methods of transportation.
Tests Taken – like machinery used, customers who decide to take more tests (blood, etc.) are charged more money.

Some nonphysical rate fences include:

Doctor’s Skill – some doctors are more knowledgeable or more famous than others. These doctors would generally cost more money to see.
Time – the length of stay of a patient would affect the rate that he/she pays.
Ability to Pay – Most hospitals have absurdly high prices for their services because they don’t expect every patient to be able to meet the full amount. They will charge high prices for wealthy patients and accept payments that are less than the full amount from patients who are less financially well off.

Some creative ways hospitals can implement rate fences are:

Partnering with restaurants and charging a premium for patients who want something other than cafeteria food.
Cheaper prices for patients willing to share their rooms with more people.
Implement higher prices for patients who need to take a longer time to pay their hospital bill (loan to maturity model).

March 28, 2012 by hy366@cornell.edu

Revenue Management–Theme Park Industry

Industry Overview

Theme parks, primarily engaged in operating a variety of attractions, such as mechanical rides, water rides, games, shows, theme exhibits, refreshment stands, and picnic grounds, are physical locations for the enjoyment of a large group of people.

During the Gilded Age, many Americans began working fewer hours and had more disposable income. With new-found money and time to spend on leisure activities, Americans sought new venues for entertainment. Theme parks, set up outside major cities and in rural areas, emerged to meet this new economic opportunity. These parks reflected the mechanization and efficiency of industrialization while serving as source of fantasy and escape from real life.

You can learn the theme park history from link below:

http://en.wikipedia.org/wiki/Theme_park

There are about 1305 currently operating theme parks in the world that have at least one roller coaster. In U.S. along, there are 267 operating parks. Theme Parks will offer great relaxation for everyone from small children to old people. Those who want to take a world trip can get great fun and enjoyment by visiting the best theme parks around the world. Here are some of the top theme parks around the world:

Magic Kingdom Park at Walt Disney Word:

Epcot, Olando U.S.

Tivoli Gardens, Danmark

Ocean Park, Hong Kong

The stability of the theme park industry is a function of many different factors that affect attendance rates and admission prices. Theme park admission prices are influenced primarily by attendance rates, which vary according to the quality and amount of marketing, product and software additions, competitors’ actions, weather, economic conditions, gasoline prices, and government regulations, among other factors.

Space

Theme parks usually have both the direct revenue generating methods (e.g. the admission to the rides and attractions) and the indirect revenue generating methods (e.g. restaurants, retail stores, picnic areas, etc).

Generally speaking, theme parks sell spaces implicitly.

Theme parks sell admissions to customers not by the size of the spaces that customers will occupy. Customers will get access to all the attractions which admission fee covers, freely.
Theme parks divide up the whole spaces into attractions, F&B areas, shopping areas, convention areas, etc. Unlike hotels sell rooms and airlines sell seats, parks don’t sell specific divided space to their customers. However, those function areas are all revenue streams to parks.

Theme parks use their space to generate revenue from different streams. For example, admission to access to the attractions, in-park restaurants, shops, recreation such as fishing, golfing, picnic area and party place. To attract corporate business, some theme parks even have decent convention centers. For example, The Thorpe Park of Surrey, England, is the best water ride park in Europe and one of the leading business convention center in Britain.

My suggestions to theme park is:

Develop on-site accommodation. Disney resort shows a good example to the industry to attract customers stay more days at park and to enhance theme park experience by accommodate customers on-site. Also, on-site accommodation will be an effective way to attract conferences and corporate business to the park.

Time

Theme parks sell time explicitly.

Usually, theme parks sell tickets based on the length of time. Selling the time explicitly gives parks the control of service duration. The length could be by days, by week, or even by year.

For example, SeaWorld Orlando has “single day with 2^nd visit free” pass

http://seaworldparks.com/en/seaworld-orlando/Book-Online/Tickets/Tourists/Single-Park

Walt Disney Theme Parks Orlando offer different passes with length of 1 day to 10 days for one single park or all four parks.

http://tickets.visitorlando.com/Walt-Disney-World-Resort/?s_kwcid=TC|10370|disney%20world%20tickets||S|e|9657284354

You can even get an annual pass from Disney World if you are a super fan of Disney or you live in the neighborhood of those parks.

http://disneyworld.disney.go.com/tickets-passes/

Depending on length of ticket purchased, the average price per day for a 7-day Magic Your Way Base Ticket is less than half the price of the same single-day ticket. It’s like saving over 50%.

Other than selling the time explicitly, I would suggest theme parks to think of splitting time by below ways:

Seasonality. Theme parks’ hot seasons are normally on the spring break and summer break when children are out of school. Selling school break pass will attract more attendance from the family section.

Performance/events time. For those who don’t want to spend a whole day at park, but are attracted by certain performances/events, selling a performance time to them will be a good way to satisfy them and increase revenue.

Price

The price of admission to amusement parks generally includes access to rides and attractions, as well as live entertainment. Customers pay extra money for services such as concessions, arcades, specialty rides/attractions (e.g. bungee jump), and merchandise, including t-shirts and toys.

An admission rate is an all-inclusive price paid to gain access to all rides, attractions, and live entertainment offered by the sample unit. These rates are typically tiered for different types of buyers (e.g. child, adult, senior, family).

To justify price discrimination, theme parks have both the physical and non-physical choices.

Physical rate fences include different admission packages based the type of amenities and inventory, such as one day ticket plus shuttle, combo ticket for two (or more) parks, admission with food packages, and admission with accommodation and food, etc.

See how universal studio charges for different packages:

http://www.universalstudioshollywood.com/tickets/type/special-offers-outer/

SeaWorld Orlando’s “All day Dinning” pass

Non-physical rate fences includes rates for different time of usage (e.g. annual pass, 7 days pass, 3 days pass and one day pass), family packages (e.g. SeaWorld Orlando provides “buy two adults tickets get one kid ticket free”).

See how Disney prices annual pass with different restrictions:

I would suggest theme parks justify price discrimination by using more creative physical and non-physical rate fences. For example, VIP pass to give priority to customers who want to avoid waiting lines by paying more. Private guide pass will offer customers private tour guide service if they want to pay more.

March 28, 2012 by rck97@cornell.edu

Casino Revenue Management

Industry Overview

The casino industry is well-known for its use of revenue management techniques. Because there are a multitude of services offered within a casino, there are many different opportunities for revenue management practices, from the restaurants to the rooms to the spa to the casino floor itself. Additionally, many casinos rely heavily on CRM systems/loyalty programs to create the forecasts upon which their revenue management is based. This gives casino operators a great deal of non-rooms data to draw upon which assists in their non-traditional revenue management tactics. Overall, I would place casinos in Quadrant 2, with individual components existing in Quadrant 1 (convention space, concert/sports arenas) and Quadrant 3 (restaurants, golf courses, etc.). This blog post will focus on casinos in the United States.

http://en.wikipedia.org/wiki/Casino

Space

In most cases and for most services, casinos define their space implicitly. In the hotel, space is divided into rooms and suites, in the restaurants, space is divided into tables, in the spas, space is divided into treatment rooms, in the event areas space is divided into seats or conference rooms, banquet halls, etc. There are some services associated with the casino that define their space in what could be viewed as a combination of implicit and explicit. For example, the casino floor is divided into different areas where different types of games are available, but games can be moved, and games are not sold by the space to the consumer; any guest has access to all games on the floor at any given time. Additionally, spaces like nightclubs and pools have both explicit and implicit space (the main dance floor or pool is available to everyone, but tables or cabanas are defined and sold on an individual basis).

Casino Floor at New York, New York in Las Vegas, NV

Suite at The Bellagio in Las Vegas, NV

Tryst Night Club at Wynn Las Vegas

Tryst Nightclub Las Vegas

Of course, because casino properties are expansive, even after accounting for the gaming floor, the restaurants, the nightclubs, the event spaces and the hotel rooms, there is a large amount of additional space that can be used to generate more revenue. One of the primary sources of revenue is alcohol sales. There are bars located throughout the casino, independent of the clubs and restaurants, that provide a space that is separate from the main gaming floor for guests to relax and have a drink (or many drinks). Many of these bars have additional table games or slot machines, so there is always the opportunity to get more money out of guests, even when away from the bulk of the tables/slots. Furthermore, drinks are offered on the casino floor, most of the time at no cost to those guests who are gambling, but many casinos charge for drinks at lower-limit tables or at the slot machines. Encouraging guests to drink, especially when drinks are available at a low price compared to the bars and restaurants nearby, not only brings in a consistent supply of revenue, but also lowers guests’ inhibitions and can lead to riskier behavior on the part of the gamblers.

Another source of revenue is the rent collected on retail space that exists in the casino. Often, to fill the empty space between the parking structure and the main lobby, or the elevators to the guest rooms and the casino floor, or the walking distance between various restaurants and night clubs, casinos will create retail space for various vendors. Guests don’t even have to leave the casino to find high-end products to further fill their suitcases. Because the casino can guarantee a constant flow of potential customers, these retail spaces are highly valuable, so the property owner can charge a premium for leasing agreements.

Casino Bar, above the gaming floor, MGM Grand in Las Vegas, NV

The Forum Shops at Caesar’s, Caesar’s Palace in Las Vegas, NV

Suggestions for Space Division

Though many casinos have expertly divided their space, and have done so in a way that makes it somewhat difficult for guests to easily navigate, there are some opportunities to creatively split up the existing space within the property. First, the casino floor itself provides a unique opportunity to capitalize on additional revenue through space utilization. From the massive amount of data that is available, casino reservation and loyalty systems can predict which loyalty guests will be on property on any given day, and can track which games these guests play most frequently. In order to have the appropriate table mix on the floor, to ensure that guests will have the chance to play what they want when they want, instead of waiting to get a seat at a table, casinos can use the data to determine what percentage of the total floor space should be dedicated to each specific game.

There may also be the potential for multi-use space, that can be adjusted as trends change. For example, there is currently a huge food trend of trucks and carts that serve gourmet food on the street, quickly and easily, to passing customers. There is so much space in a casino, along hallways or outside nightclubs, that could potentially house a “food truck”-esque space to capitalize on the demand for quick and relatively inexpensive meals. Not only does this utilize empty space, but it may also keep guests on the gaming floor longer, if they are not taking an extended break to go eat at one of the higher-end dining establishments. As trends change, these spaces can be altered to meet different demands, at minimal cost to the company.

Time

The casino industry sells time both implicitly and explicitly, depending on the service. Rooms, of course, are sold explicitly, based on length of stay, and spas sell by treatment period. However, there are many other services sold implicitly, like meals in the restaurants, admission to a night club or entertainment event, and the time spent on the casino floor. The casino floor is in a unique position, as there is no real cost for admission (at least in US casinos), but guests are constantly “paying” for their experience through the bets placed at the tables or at the slot machines. Though the casino is not getting a rate or fare from the guest, it is clearly making a great deal more in revenue because of the rates/amounts at which people gamble.

Reservation Page, Cosmopolitan Las Vegas

https://www.cosmopolitanlasvegas.com/book-a-room.aspx

Massage Services Menu, Red Door Spa, Harrah’s in Atlantic City, NJ

http://www.reddoorspas.com/spaservices/servicelisting.aspx?catid=25

Invite to Hyde NYE Party, The Bellagio in Las Vegas, NV

Suggestions for Time Division

Due to the high volume of demand for both rooms and club entrances, there are a couple of ways in which casinos could more creatively split up their time. However, the practicality of these suggestions is debatable. First, because there are many guests who come to cities with a large number of casinos, like Las Vegas or Atlantic City, and perhaps only come for a brief trip (in Atlantic City especially, guests may only be on property for a few hours before returning home), there is potential to further split up the time spent in the hotel rooms. Currently, most casinos rent rooms by the night. However, in properties with several thousand rooms, there is certainly a possibility that, during the day, many of these rooms will be unoccupied. The rooms division could potentially rent these rooms in short blocks, by the hour, so that guests will have a place to leave their things, take a break from the activities on the floor, etc. If this practice does not throw too much of a wrench into housekeeping and reservations, it could be a way to generate additional revenue (especially because so many rooms are comped and earn the hotel no money whatsoever). Second, there is also great demand for the night clubs and pools that are housed in these casinos. Often, people wait on line for hours just to get inside for a chance to party. On top of charging high admission prices, these clubs rake in money on alcohol sales. One potential way to better split up the time is to have multiple “seatings”, to use a restaurant term, so as to maximize the amount of people that can potentially come in and out of the club in a given night. I would think that one early “seating” and one late “seating”, with the exact same performance or entertainers, could be made available. In that way people can choose which time period they would like to attend, and can attend multiple parties in the same night, instead of being miserable on a line for hours on end.

Price

Most of the rate fences currently utilized in a casino are similar to those utitlized in a hotel. For physical rate fences, we have premium pricing for nicer rooms, rooms with better views, rooms with access to specific lounges, etc. There are also packages, that come with discounts or freebies, like spa or restaurant gift certificates, but these are essentially built into the price of the room. In terms of nonphysical rate fences, many casinos will charge a cancellation fee for less than 24 hours notice, will reduce rates during the week or during slow periods to drive demand, or will set rates based on reservation forecasts. The major difference between a typical hotel’s rate fences and a casino’s rate fences is the loyalty program, which is based on how much a person gambles. Loyalty tiers create an entirely different set of rate fences, based on revenue generated for the casino outside of the rooms division (as would be the case for loyalty guests in a typical hotel). The more a person spends gambling, the more perks they are entitled to from the casino, like comped rooms and meals, free tickets for shows, transportation to and from the casino, etc. One company that runs their loyalty program particularly well across their portfolio of casinos is Caesar’s Entertainment.

https://www.totalrewards.com/e-totalrewards/content/pages/overview.html

Suggestions for Rate Fences

One suggestion for an additional type of rate fence would be to change the way drinks are sold on the casino floor. In many cases, drinks are free, which loses money for the casino. I would suggest creating physical regions on the floor, based on the limit-level of the tables or the slots, and charge for drinks based on those limit-levels. Drinks should still remain cheaper (by quite a bit) than at the bars, in order to keep patrons on the casino floor, but drinks at the penny slots should be the most expensive, followed by the nickel slots, and up the chain until you arrive at the high limit tables where drinks remain complementary. Depending on how this rate fence psychologically affects an individual person, it may keep them at the lower-limit games, paying more for drinks, or push them to the higher limit tables, where they eventually end up spending much more money (but less on drinks!).

March 28, 2012 by Ga-in (Jenny) Lee

Sports Stadium RM

Revenue management of sports stadiums are rather challenging due to several obvious reasons. Events/games are only held once a week, once a month, or even just couple times per year depending on the location and the functionality of the stadiums, which is why it is very important to implement sophisticated pricing strategies in order to maximize revenue on the days when events are held. Also, major sports teams’ stadiums are rarely rented out for purposes other than its own sports games (i.e. basketball, baseball, soccer…etc). Whereas other stadiums are used for various events such as music concerts and award ceremonies from time to time.

Sports stadiums general info: http://en.wikipedia.org/wiki/Sports_stadium
Stadium guides: http://www.stadiumguide.com/

There are significant differences between RM of sports stadiums compared to the more traditional sectors such as the airline industry. Whether you sit in the 10^th row or the 20^th row in Economy have minimal difference (there are, of course, differences between Economy and Business class). However, whether or not you sit in the far back row with limited view to the sports ground creates a world of difference to your overall experience when watching a sports game. Flying on a plane may be a part of your necessity to travel from A to B, but watching a sports game in a stadium is about the “experience,” and therefore the perceived value depending on the location of the seats vary immensely.

Implicit Use of Space

How are the space divided in sports stadiums?

By location of seats
Regular seats vs. Enclosed suites with multiple seats
By supporting team

Club-level seats

What are the common sources of additional revenue?

Souvenir shops selling team-specific sports gears
Most of the premier league soccer teams’ stadiums have museums and tours: visitors even come to the museum on non-game days as well. High numbers of tourists visit the museums in Western European countries
Dining places (concessions)
By renting the space for music concerts-picture (per event)
By holding other sports events (i.e. Olympics)
Media access charges
Advertisement

Chelsea Megastore within Stamford Bridge stadium

Chelsea Museum located within Stamford Bridge stadium

: Sports stadium being utilized as a concert venue

How can companies split up the space differently?

“Quiet” vs. “Loud” seats: I noticed that some sports supporters prefer to sit throughout the game whereas some people like to stand and cheer actively for their teams. Setting aside few rows in each section to those more reserved supports may be effective.
Create more seat classes: frequent visitors (fans) are likely to be less sensitive to the ticket price, so companies can create more club seats (even create another class between the club seats) and add more varied classes depending on the location and the view from the seats.

Implicit Use of Time

How can companies sell the space explicitly?

Selling tickets with time limits: This strategy can be very attractive for tourists visiting well-known stadiums or important games such as the World Cup. It would work quite well especially for soccer games. For example, customers will buy tickets for the first-half or and second-half o f the game which will be 45 minutes each. If the full-time ticket is $80, companies can charge $50 for customers purchasing 45-minute tickets.
Companies can sell a specific seat at a certain stadium by year, month, or season (leasing private seats)

Price

What are the physical rate fences in sports stadiums?

Location of the seat: proximity or the angle of the view to the sports ground
Rates for suites differ based on the physical size of the space (maximum capacity): http://www.executiveclub.manutd.com/en.aspx (You’ll notice that almost all executive suites are sold out for this season despite the high rates)

What some of the non-physical rate fences?

Purchases of tickets via third party sellers: http://www.worldticketshop.com/tickets/chelsea_tickets
On-line vs. Ticket office purchases
Club Membership status
Season ticket holders
Importance of events: For example, the average seat price for premier league games are more expensive compared to championship league games
Performance of the teams
Stadium’s location (accessibility) and the age of the facilities

How can companies generate additional revenue by using creative rate fences?

Implement bundle selling: price per seat would be more expensive when purchasing one ticket compared to purchasing two or more tickets
Early reservations should be entitled to discounts
I believe that companies can start utilizing extensive Customer Relations Management (CRM) in the sports industry by using the personal data gained via increase in on-line ticket purchases and use direct marketing. Companies should implement other rate fences possibly based on the different personalities and characteristics of the customers.
Companies can upsell those customers reserving suites by offering extensive catering options & extended time before and after the game for extra fee (most stadiums offer the suites per event currently)
When the time gets closer to the actual day of the game, odd 1 seats that are left in between other reservations can be sold at more friendly rate

March 28, 2012 by Ingrid I-Ning Su

Revenue Management Application on Karaoke Industry in Taiwan

Industry Overview
The Karaoke culture is popular in East Asia. Unlike the karaoke in bars/clubs offered publicly, the karaoke style here I want to discuss is the one has private rooms for different size of parties, and that is why the concept of Revenue Management can be applied broadly in this industry. I will specifically focus in Taiwan, because the karaoke culture in Taiwan is mature, and the company even expand the business to other countries.

The word “Karaoke” is originated from Japanese, so is the culture. Karaoke is firstly developed in Japan in 1970’s and then expanded to other countries in Asia in 1980’s, but the origin of the idea is obscure. Reference: http://en.wikipedia.org/wiki/Karaoke

In Taiwan, karaoke plays an important role in people’s nightlife. It’s the place for family, friends, colleagues, and even doing business. The karaoke industry in Taiwan is dominant by one company which has two different brands, one for higher class (more expensive) and the other one for lower class (cheaper). Higher class brand charges more with its glorious and hotel-look lobby, fancier private room decoration, more delicious food, and convenience (in-room restroom). There is another premium venue of that company that doesn’t see as a brand but more like a status, because it is limited to members, and joining the membership is by invitation (http://www.cashboxvip.com/viprespect.html). Thus, people start to consider going to karaoke as a luxurious entertainment, not to mention it seems to be a trend for the hotels in Hong Kong and Macau to design presidential suites with an “entertainment room” when we visited last June. Since people can easily spend hours in karaoke, the revenue can be generated in many ways. I will discuss the application based on my observations and experiences in Taiwan, and karaokes in Taiwan also do a better job than karaokes in Singapore on applying revenue management.

(Website of karaoke in Singapore:

a. http://www.partyworldktv.com.sg/promotion-29305210352041938144.html

b. http://www.kbox.com.sg/StaticContent.aspx?u=6)

The following are the overview of basic levers applied in Taiwan:

Space: (not applied in Singapore)
Karaoke has limited capacity, as the number of private rooms are fixed. Also, the size of the private rooms usually vary from small for 3 to 4 people to party size, 18-20 people, or even super party size for up to 35 people.

Time:
The time slot is limited, but the minimum consumption unit vary as the size of private rooms. Usually the rack rate is charged by hour, but promotion packages are charged based on 3-hour consumption, and you can extend by hour as the basic unit.
Also, karaokes apply dynamic pricing according to peak/off-peak hour and high/low season. The prices are differentiated by time of day, day of week, and month of year.

Occupation: (not applied in Singapore)
In Taiwan, students and senior are privileged for cheaper price. People older than the age of 55 are able to enjoy senior discount, as 55 is the minimum age to retire in Taiwan. The reasons may be students are more price-sensitive, but they also have more free time to spend in karaokes, and seniors also have more free time once they retire.
(Unfortunately, the website of the dominant company is in Mandarin, but I think you can still figure out how variable their prices are! Variable pricing charged by per person: http://www.cashboxparty.com/ktv/web_ktv/web_ktv.asp
Rack rate charged by hour per room: http://www.cashboxparty.com/ktv/map/price/kp17.html)

The Levers
SPACE
The inventory unit for karaokes is private room. A karaoke can be as big as a maze with narrow hallways and unorganized directions so it can utilize the space to its maximum. Karaokes define the space implicitly, because the size categories vary according to the space of each branch. Likewise, the capacity of private rooms varies in different branches. The following are the different private room sizes of the biggest karaoke branch in that company:
Small – 2 to 7 people
Medium – 8 to 10 people
Medium big – 10 to 12 people
Big – 12 to 15 people
Super big – 15 – 18 peope
Party size (“Presidential Suite”) – 18 – 35 people

Other utilizations of space:
a. Other than the main revenue generator, private rooms, karaokes utilize spaces for a major human need, food. Consumers not only can order in-room dining in a la carte style, but also can go to buffet area for all-you-can-eat service. Of course the delicacy level is depending on the class of the brand.

b. Another space utilization for karaoke is to selling company-branded products, such as stationary or products signed by famous singers, but it accounts for a very little part of the revenue.

c. In one of the signature karaokes of this company, there is a restaurant serving Cantonese Dim-Sum inside the karaoke. It is a rare but a brilliant concept. For people who go to karaoke but is not that into singing, they may go to that restaurant so they can eat food at the table with more comfortable height. Also, after an all-night singing, people in Taiwan like to have either a late night snack or early breakfast before dawn. The idea of the restaurant can attract people who bother which restaurant to go to. http://www.cashboxparty.com/ktv/cashboxdining/

Karaokes tend to save spaces for private rooms, as the more parties they can accommodate, the more revenue it can generate. To increase more revenue by using space, both brands may consider charging private rooms according to the distance to buffet area. The closer to buffet area, the more expensive the room rent, since people can save more time on going back and forth for food and drinks.

TIME
Karaoke sells time explicitly. The prices are either charged by per private room per hour, or by per person per certain time slot (ex. by per person for 3 hours). The pricing differs as follows:
a. Hour – separate a day into 5 different slots: (http://www.cashboxparty.com/ktv/map/price/kp17.html)
07:00-10:59 – the cheapest
11:00-15:59
16:00-17:59
18:00-19:59
20:00-22:59(Sunday to Thursday) 20:00-01:59(Friday and Saturday) – the most expensive
23:00-06:59(Sunday to Thursday) 02:00-06:59(Friday and Saturday)

b. Day of week
As what I mentioned above, Friday and Saturday are considered as “peak season”, and Monday to Thursday are “off-peak season”. The pricing for Sunday is slightly higher than weekdays but much lower than Friday and Saturday.

c. Month of year
This pricing differentiation is specially catered to student groups. Since students in Taiwan have winter vacation (3 to 4 weeks long in January and February) and summer vacation (8 to 9 weeks long in July and August), it is less often for students to go to karaokes with friends or classmates.

d. Special holidays
Public holidays are considered as peak season for karaokes, such as Christmas and spring break (can last from 3 – 5 days to celebrate Tomb-sweeping Day and Children’s Day)

Apart from the above explicit specifications of time, I suggest karaokes can consider to charge implicitly by the number of songs. It is not uncommon that the time we pay for the private room is about to end, but my favorite song is not played yet. If people can pay by songs, then such situation can be avoided and customers can also leave without pity.

PRICE
Karaoke uses physical and non-physical rate fences to differentiate its pricing, but the application of physical rate fences is far less than non-physical.
a. Physical rate fences are the size of private rooms, minimum charge for party size private room, and location of the karaoke branch. It is obvious that karaoke locating in downtown business area or in prime cities can charge higher than other locations. (Minimum rental list for Presidential Suite: http://www.cashboxparty.com/ktv/act/1001118_17/)

b. Non-physical rate fences are occupation (student), age (senior and birthday discount), membership (membership of karaoke and certain credit card holder), and time.

Other non-physical rate fences that I think is doable are advanced reservation and distance to buffet. To manage inventory more efficiently, karaokes can consider charge slightly higher for walk-ins in peak hour or hot season. Also, as what I have mentioned, it is possible for people to pay more for a private room which is closer to buffet area.

March 28, 2012 by ma746@cornell.edu

Department Store Industry

1: INDUSTRY OVERVIEW: DEPARTMENT STORES

Department stores are large retail outlets that contain numerous individual shops, providing a wide range of product lines. Department stores most oftentimes consist of the following product categories:

1) Food

2) Cosmetics

3) Shoes and Accessories

4) Clothing

5) Interior Décor

6) Restaurants

Depending on the type of department store, department stores can offer a much wider range of products, including furniture, toys, electronics, books, etc.

Department stores come in a wide range of qualities and prices. There are such things as “high-end department stores”, which would focus purely on offering high-profile brands and products, while there are more mass-market targeting department stores, which are more likely to include a wider range of products, including practical household products.

That said, department stores will oftentimes try to cater to specific types of market segments. Particularly in the case of department stores in large cities, each department store will try to position itself differently from its direct and nearby competitors: some will try to cater to younger generations, while some will try to cater to the older generations. Some will try to cater to those interested in mainstream brands, while others will focus more on boutique, independent brands.

In the US, the department store industry includes approximately 20 companies operating roughly 3,500 stores. Major department stores in the US include: Sears, JCPenney, Macy’s, and Dillard’s. The industry earns an annual revenue of around $60 billion USD, 95% of which is earned by the largest 8 companies in the industry.

Some links about the industry:

http://en.wikipedia.org/wiki/Department_store

http://vspages.com/mall-vs-department-store-5580/

http://en.wikipedia.org/wiki/Shopping_mall

http://www.hoovers.com/industry/department-stores/1529-1.html

SPACE

2a: Implicit or Explicit?

From the department store owner’s standpoint, I would say that space is often sold explicitly, as they would charge the tenants per the size of the lease space. On the other hand, for stalls or booths set up in more open areas of the department store, space may be considered more implicit, as these spaces may be sold with less correlation to the exact size of the space.

2b: Ways of Splitting Space

Department stores have different types of spaces within the building that cater to their customers. The most typical type is the space split by fixed walls into one unit, and can usually be shut off or closed by a door or a shutter. These spaces cannot easily be adjusted in terms of size and layout without investment of significant time and money. These fixed spaces are generally leased out to a specific brand or company, such as Zara, Coach, Burberry, etc.

Then there is the semi-fixed space, such as the department store areas dedicated to selling cosmetics or shoes. These are oftentimes open areas in which a specific brand or merchandising line take up certain spaces, but are not divided up by physical walls or entryways. These areas are much more flexible in terms of changing the products being handled, given that one area can easily be changed to carry one brand/line from another; however, certain fixtures used for the displays will be fixed, and hence less flexible to change from a layout perspective.

There is also open space, in which temporary booths or stalls are built to sell a smaller line of products or services.

Different from other uses of store space is the use of space to purely focus on selling experiential services. For department stores, the focus generally remains on selling physical products. However, there are rare instances when space is allocated to selling services—one case being when department stores are attached to movie theaters.

2c: Creating Additional Revenue

One of the most standard ways for department stores to create additional revenue is by holding major seasonal sales. Because the product life cycle of clothes tends to be fairly short, many stores have inventory left over by the time they have to replace old products with new products. Having a highly publicized sale allows for these leftover products to be sold, be it at a lower price than its retail value.

One key to making people spend more money is to convince people to stay out shopping longer. A way to do this is to provide adequate opportunity for people to take a break from shopping and rest. Many department stores provide these venues by creating food courts—or in high-end places by providing patisseries or coffee shops at which people can recharge before going back to shop some more.

I also think one of the more creative ways in which department stores have used their space to create additional revenue is through creative use of its open space. Another approach department stores can use to bring people to their stores is to provide an additional incentive to go to that location. A common approach used to achieve this in the U.S. has been to create playgrounds in the open areas of the department stores. This service often incentivizes families to go to a department store, simply because it allows an opportunity for their children to play.

One more approach commonly used in Japanese department stores to bring more people to the site is to host certain “festivals” or special events in their open space. For example, department stores would often host weekly “mini fairs” on either the ground floor or the top floor, in which one area of the department store would be devoted to hosting jewelry/clothes/food from brands and shops that usually were not represented at the department store. The content would be changed frequently, and the department store would often be able to bring new people into the store by publicizing new, limited-time genres of offerings at their store.

2d: Potential New Ways of Splitting Space

There are several different directions department stores could potentially go in terms of splitting space differently. One direction would be to use space to create more personalized services to customers. Many of the spaces in department stores are “public”, but allocating a portion of space at high-end stores to allow for “private” space may allow for varying experiences for customers. Customers would be charged a premium for making use of these private spaces.

Another potential use may be to make the spaces more flexible. Instead of sticking with a model that leans heavily toward having “fixed” spaces, changing to a model in which it would be much simpler, cheaper, and quicker to change tenants may be an attractive approach for department stores that are pursuing a more trendy, up-to-date feel.

3: TIME

3a: Implicit or Explicit?

Department stores generally sell time implicitly: this is because the product being sold generally isn’t associated with a particular time limit. For example, it is not like a massage, where you are buying 60 minutes worth of service. The transaction is associated with a physical product unattached to time.

3c: Selling Time Explicitly

Time is currently being sold explicitly at certain department stores, although these cases are generally not a reflection of its overall business model. For example, some department stores may include shops that offer time-explicit services. Some department stores have massage shops, which are time-based service sales.

As another example, some department stores in Japan have small football fields on their rooftops, which people can rent out on an hourly basis.

(http://www.futaba-sp.com/omiya/2010/03/post-23.html)

Some department stores also include game centers for children—some of these entertainment options include machines that run for a set period of time per game.

Department stores will often have restaurants on one of their floors. These restaurants can often choose to set time limits to each group of customers (ex. 2hr limit) to be able to take in more customers during peak times.

(http://www.mitokeisei.co.jp/shop/10_skygarden/11keizan.html)

3d: Creative Things to do with Time

There are a couple things that could be done creatively with time—some of which may already be being done to varying lengths at department stores. One might be to offer some sort of benefit if a certain amount of time is spent within the department store. For example, if a customer was to receive certain benefits if they stayed for 5 hours at a department store on an off-peak day, this could incentivize customers to spend more money during their wait time, and this could also help to improve the image of the department store by maintaining more customers.

Another thing they might potentially consider doing is to include shops that provide rental services. Some shops may already do tuxedo/dress rentals, which would be time-based; they could potentially take this further by doing time-based rentals of other high-end luxury clothes and accessories.

4a/b: Physical and Non-Physical Rate Fences

Below are several examples of physical rate fences (owner-tenant relationships are more likely to be involved with physical rate fences than the tenant-customer relationships)

(Owner-tenant POV) Depending on the size of the space being rented, owners can choose to increase or decrease the rates
(Owner-tenant POV) Certain areas of a department store are likely to be more popular/convenient; hence an owner can charge more depending on the location of the space within the store (http://www.ehow.com/facts_6313023_average-retail-lease_.html)
(Tenant-customer POV) For services such as restaurants within the department store, tenants can set rates by charging differently between open areas and private rooms

In terms of non-physical rate fences, I would say that there are many opportunities to create rate fences, depending on the type of service/product the store sells. There are also several opportunities within the owner-tenant relationship:

(Owner-tenant POV) Depending on the lease period, the owner can set different rates to charge the tenant
(Owner-tenant POV) Depending on the credibility/attractiveness of the tenant, the owner can set different rates
(Tenant-customer POV) Depending on the quality of the product, functionality of the product, or time/length of the service, rates can be set differently. There is an enormously wide range of examples of this in department stores. A Gap outlet, for example, may sell a tank top for $10, while a Burberry outlet would sell a similar styled tank top for $150. Similarly, a cell phone with 3G functionality may sell at a cell phone provider outlet at a certain price, while a phone with 4G functionality would sell at a much higher price.

4c: Creative Ways to Set Rate Fences

Some ways I can think of setting rate fences creatively is to perhaps offer more intangible services—rather than just the physical products. For example, an I Love Bangkok t-shirt may only cost $5 at the actual retail shop, but if the customer already knows what he/she wants, but doesn’t want to make the trip up 7 floors and 5 minutes of walking to get there, the store could potentially charge an extra $1 to have the t-shirt brought down to the concierge desk of the department store for a quick pick-up.

Revenue Management in Action

See how different industries use RM principles.

Revenue Management in the Golf Industry

Revenue Management in Nail Salon Industry: selling your time and space

What is the Beauty & Nail Salons Industry?

Industry Practice – Pricing Strategies

Industry Practice – Define Space and Time

Non-traditional Revenue Management Practice in Nail Salon Industry

Tennis Center Revenue Management

Revenue Management at Ski Resorts

A Revenue Manager’s Point of View on Hospitals

Revenue Management–Theme Park Industry

Casino Revenue Management

Sports Stadium RM

Revenue Management Application on Karaoke Industry in Taiwan

Department Store Industry