Marriott Group Pricing Optimizer

In: Business and Management

Submitted By mmorookian
Words 1342
Pages 6
Marriot – Group Pricing Optimizer

Revenue management has been a system long used by the airline industry to optimize revenue on airline routes. Marriott implemented their own revenue management One Yield system twenty years ago to optimize individual guest room rates and allocation. One Yield is used in 97 percent of Marriott’s 3,300 hotels in 70 different countries to handle over 75 million individual guest room transactions per year. Recently, Marriott decided to move from One Yield to Total Yield so its revenue management system would include all revenue generation instead of just individual guest rooms. To develop this system, Marriott created a proprietary Group Pricing Optimizer (GPO) to help hotel managers decide on what rates to give to individual, group and outside catering events.

Marriott International’s One Yield revenue management system has optimized profit by utilizing demand forecast, inventory allocation, and seamless interface to the reservation system. Prior to One Yield, Marriott relied on the manual approach through historical rates. The problem with this approach is that the complexity of daily updates and rapid changes in demand over a very long booking horizon creates static rates. These rates do not reflect individual customers’ willingness to pay, do not reflect the potential for displacement, or the trade-off between a booking that might have higher value.

One Yield successfully linked requested bookings with forecasted demand, real time inventory and allocates the inventory to maximize the individual rates. Total Yield is an evolution on One Yield by pitting individual, group, and outside catering demand against each other for guest rooms and meeting space. These approaches to revenue management are similar to what we have discussed in class regarding linear programming and decision trees.…...

Similar Documents

Marriott Corporation

...Marriot Corporation [pic] Group 9 Timothy Muer Adnan Qureshi Valerie Schmidt Joshua Swartz December 16th, 2012 December 16th, 2012 Dan Cohrs Marriot Corporation Vice President of Project Finance RE: Marriott Corporation Consultant Summary Dear Mr. Cohrs, We are pleased to offer our consulting opinion in regards to the cost of capital, debt, and equity. We have reviewed and analyzed the industry and market data provided as well as heavily researched your industry to understand trends, risks, growth potential, etc. The attached report is a detailed summary of problems and decisions faced based on the method of calculating the cost of capital, cost of equity, and the cost of debt. We have focused our efforts to specifically outline the correct risk free rate, risk premium, hurdle rate, and beta to be used in those calculations. In addition to analysis of the problems, we have also outlined recommendations for the future. These recommendations include a 8.72% risk free rate, 7.92% risk premium, and 1.135 beta for the Marriot Corporate as a whole as well as individual risk free rate, risk premium, and beta for each division. Additional in depth analysis is provided within the report. Also included are detailed explanations for the recommendations referenced above. We look forward to witnessing your continued growth and wish you success in the future! Sincerely, Group 9 Problem Statement Marriott Corporation operates......

Words: 1398 - Pages: 6

Marriott

...respect that Marriott derives from customers, employees, and competitors goes far beyond its profitability and instead comes from the company’s commitment to running a company conscious of its ability to promote positive change in the world. As a result, environmental awareness has become very important for Marriott, and the company has implemented a multitude of initiatives on grand scale to improve sustainability and to reduce its environmental footprint. The Problem: While Marriott’s environmental push extends into many different areas, one way that the company saw immediate room for improvement was in the recycling universal waste items such as fluorescent lamps, ballasts, electronic waste, and the ever popular compact fluorescent lamps (CFLs) used in every room. If disposed of improperly, mercury and other hazardous materials can leak out into the environment, causing immediate and long-term health hazards, pollution, and public relations nightmares. However, fixing this problem proved difficult considering the size of the company, number of facilities, and the diverse waste needs of each individual lodging location, as well as the limited time and manpower that each hotel possessed. Marriott needed a solution that could be standardized across all locations and quantified for management review and program success. Our Solution: The implementation of Endeavor {draw:frame} , a suite of customized web-based services, was a big first step in helping Marriott meet......

Words: 639 - Pages: 3

Marriott

...Case Questions Case #5 – Marriott Corporation: The Cost of Capital 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? 2. How does Marriott use its estimate of its cost of capital? Does this make sense? 3. What is the weighted average cost of capital for Marriott Corporation? a. What risk free rate and risk premium did you use to calculate the cost of equity? b. How did you measure Marriott’s cost of debt? 4. If Marriott used a single corporate hurdle rate for evaluating investment opportunities in each of its lines of business, what would happen to the company over time? 5. What is the cost of capital for the lodging and restaurant divisions of Marriott? a. What risk free rate and risk premium did you use in calculating the cost of equity for each division? Why did you choose these numbers? b. How did you measure the cost of debt for each division? Should the debt cost differ across divisions? Why? c. How did you measure the beta of each division? Case Hints and Suggestions The primary objective of this case is to show students how the CAPM is used to compute the cost of capital. Students learn to calculate beta based on comparable companies and to lever betas to adjust for capital structure. Students are asked to determine the appropriate risk-less rate and market risk premium. This case also encourages students to focus on the choice of time period to estimate expected returns and the difference......

Words: 3319 - Pages: 14

Marriott

...CHICAGO Marriott Corp. Spinoff (A) by Professors Robert Gertner and Steven Kaplan On October 5, 1992, the Marriott Corporation announced plans to spin off its profitable hotel management business leaving its real estate assets as part of the successor corporation. At first glance the deal did not seem very different from many other corporate restructurings. However, because much of Marriott's existing debt was to become an obligation of the real estate assets only, the default risk on that debt would increase significantly as a result of the spinoff. The spinoff announcement was greeted with an unusually large amount of resistance and controversy that had wide-ranging implications for the business, fiduciary, and ethical obligations of management, directors, shareholders, debtholders, and financial advisers. The Marriott Corporation The Marriott Corporation was founded in 1927 by J. Willard Marriott as an A&W root beer franchise. The company soon expanded into the restaurant, airline catering, food service, and hotel businesses. J.W. "Bill" Marriott Jr., who became president of the company in 1964 at the age of32, was the chairman and CEO in 1992. Despite having gone public in 1953, Marriott and his family still owned 25.8% of the company's equity. Marriott's use of innovative financing techniques permitted its rapid growth in the 1970s. Marriott's strategy was to build hotels, and then sell them offto investors, maintaining control through long-term management......

Words: 2177 - Pages: 9

Marriott

...Marriott Corporation 1. Strategies Manage rather than own hotel assets. This measure allows the company to be more involved in the management of their hotels. They have more control on how the money is used but also have more responsibilities concerning the customers and employees. Monitoring and controlling the performance of the hotels and also the expenses and resources will be easier. Not owning the hotel on the other hand will decrease tied capital that results of just holding each hotel as an asset. Invest in projects that increase shareholders values This objective secures the goal of investing properly. The company used discounted cash flow techniques to evaluate the effectiveness of an investment. Projects which would increase shareholder value can be formed with benchmark hurdle rates to ensure a return on projects which results in profitable and competitive advantage. Optimize the use of debt in the capital structure. Because of Marriott’s A Rating the company is able to borrow a lot of money to invest at a relatively cheap price. Taken into account they have solid revenues from operations and no liquidity problems ahead they should not disclaim leveraging their capital structure. Therefore, they should optimize the debt level. Repurchased undervalued shares. Repurchasing the shares when the price falls below the “warranted equity value” has two effects. First of all it is a sign to stabilize the stock price, hence shareholder value will increase. Also...

Words: 1828 - Pages: 8

Marriott Case

...Marriott Corporation - The Cost of Capital (Abridged) The Marriott Corporation is comprised of three major lines of businesses, lodging, restaurants and contract services. In order to decide which projects to take on in these divisions, each year a hurdle rate must be set which they use to discount a project’s cash flow to see if it will be profitable enough. We will conduct an analysis to calculate the hurdle rate for Marriott as a whole and for each division. We will use WACC as the hurdle rate. The results of our analysis show that Marriott’s WACC as a whole is 11,61 %. For lodging, 10,04% and for restaurants 13,03%. These should be the hurdle rates to use when valuating projects. The reason that these values differ is the difference in risk premiums and expected projects, and therefore financing and project lifetimes. We estimated a shorter project lifespan for restaurants than for lodging, since we believe lodging is a long term investment while restaurants and contract services are short term investments. The Marriott Corporation uses its estimate of the cost of capital to select investment projects which would increase the shareholders value by using the appropriate hurdle rates for each division. As is stated on page 2 of the case, a key element of their financial strategy is to invest only in projects that increase shareholders value. This practice makes sense as each division has a different level of risk associated with it and hence the cash flows involved should......

Words: 2574 - Pages: 11

Marriott

...bonds after them dropping below investment grades, that’s their own rule/policy, which should not have any impacts on Marriott management team’s decision making. The transaction is consistent with management responsibilities. Because: First, the Chariot project give MII opportunity to invest in more profitable opportunities, since it can maintain investment grade without old debt burden and could access the capital market by borrowing with lower cost. Second, this Chariot transaction gives shareholders a better opportunity to benefit from the firm’s upside potential. In brief, although in short term shareholders may suffer a small loss due to the waste of tax credit generated from HMC’s operating loss, the shareholders can benefit in long-term with MII’s investment in more profitable project and HMC’s properties value appreciation. Third, if management doesn’t do this Chariot transaction, the entire Marriott may enter a “vicious cycle”, i.e., the firm stuck in the not great situation of low profits and prohibition from accessing the capital market, and the stock price may further go down. 4. In your opinion, should Mr. Marriott recommend this project to the board? Be prepared to defend you opinion on class. Our group suggest Mr. Marriott recommend this project to the board, mainly on two major reasons. First, by splitting current Marriott Corporation into MII and HMC, they are able to focus on each of their core business competencies. For MII,......

Words: 895 - Pages: 4

Marriott

...shareholder value, to optimize the use of debt in the capital structure, and to repurchase undervalued shares when necessary. Marriott’s growth objective is to become the preferred employer and provider in lodging, contract services (such as catering), and restaurants, and to be the most profitable company in their industry. By choosing to manage hotel properties instead of owning them Marriott lowers their accounting assets on the books, therefore increasing their return on assets as compared to owning the properties outright. This strategy also effectively shares the risk that comes from the properties, and lets Marriott operate with more liquidity, offering them the opportunity to relocate their hotel or restaurant operations without the need to sell properties, for instance. Marriott can analyze potential projects and discount the future cash flows to determine which projects will have a higher net present value, and ultimately which will be most profitable to Marriott at the present time, therefore increasing shareholder wealth. Balance sheets reflect all company debt, so by reducing debt Marriott can decrease their Debt to Equity ratio, becoming more attractive to new and existing shareholders. Marriott’s plan to repurchase shares when they are undervalued can positively affect share price and therefore shareholder value, but it is not directly in line with their project-based growth objective. By repurchasing shares, they are removing shares from the market. As......

Words: 2988 - Pages: 12

Marriott

...GROUP 2137 YEKATERINA POLYNCHUK ULIANA KOSTIEVA YULIIA KRYVONOS MARKETING STRATEGY PLAN FOR MARRIOTT U.S.A. EXECUTIVE SUMMARY Marriott USA is a leader in the global lodging industry in that area. With numerous properties in USA and countless achievement awards, they are not only a wellknown but also a well-liked brand. The global financial crisis hit the hotel and lodging industry hard because of a sharp drop in business and leisure travel. Regardless of the steep drop in profitability over recent years, Marriott USA has plans to focus on driving incremental revenue by cutting costs at the property level. It also addresses opportunities Marriott USA has to further capitalize on their strengths by extending their expansion plans into the mid-level hotel segmenting the USA to take advantage of the industry’s fastest growing population and by utilizing low-cost, high-impact promotions to allow room rates to remain competitive and continuously evaluate market conditions as the world gradually climbs from this economic downturn. VISION & MISSION OF THE COMPANY The majority of the market shares is still in the United States. Marriott operates the global leading timeshare brand known as Marriott Vacation Club International. Marriott’s portfolio includes 3,420 lodging properties in 68 countries consisting of a total 595,461 rooms as of year-end 2009 and over 500 locations worldwide. The...

Words: 1787 - Pages: 8

Marriott

...Marriott Corporation Marriott International is the current leader in the hotel/lodging industry. Founded in 1927, by J Willard Marriott, and his wife Alice, it had its beginning as the first A&W Root Beer franchise. By 1957, Marriott made a historic move into the hotel industry, opening their first hotel in Arlington, Virginia, under the management of their son, Bill Marriott. (Marriott International, 2015). Between 1957 and 1985, the Marriott Corporation had expanded into Mexico, began providing lodging for the cruise industry, and debuting the first Courtyard hotel. Between 1986 and 2011, they acquired several more hotels, including Fairfield Inn, Residence Inn, Renaissance, Executive Stay, and 49% of the Ritz-Carlton Hotel Company. By 2012, Marriott had added an additional five hotels after acquiring Gaylord Hotels Brand, bringing the current number of properties owned by the corporation to 4,300, in 81 countries (Marriott International, 2015). Most of its current properties are franchised, with the Marriott family owning about 30% of the corporation (Yahoo Business). Marriott International, Inc. is one of the leaders in lodging, and is currently headquartered in Bethesda, Maryland. They have made their mark worldwide, as operator, franchisor, and licensor of hotels and timeshare properties. Under its current model, the hotels are typically franchised, rather than owned. “At year-end reporting, in 2014, of the total number of hotels available......

Words: 1405 - Pages: 6

Marriott

...Marriott International implemented its Group Pricing Optimizer (GPO), a group pricing sys- tem that helps its sales force price hotel rooms for group customers. The system uses price-elasticity models for each statistically derived market segment to recommend an optimal rate and negotiating range. To assist the sales manager during the negotiations, GPO also displays additional data, including avail- ability of sleeping-room inventory, potential displace- ment of more valuable business, probability of the customer accepting the rate, and evaluation of alter- nate dates. In its first two years of operation, GPO has met its objectives to drive profitable revenue and improve the sales process for both the customer and the sales manager. Marriott International Marriott International, Inc., a leading hospitality com- pany with more than 3,300 hotels in nearly 70 coun- tries and territories, operates and franchises hotels under the Marriott, JW Marriott, The Ritz-Carlton, Renaissance, Residence Inn, Courtyard, TownePlace Suites, Fairfield Inn, SpringHill Suites, and Bulgari brand names. It also develops and operates vacation ownership resorts, operates Marriott Executive Apart- ments, provides furnished corporate housing through its Marriott ExecuStay division, and operates confer- ence centers. Headquartered in Bethesda, Maryland, the company has more than 140,000 employees worldwide. Marriott’s heritage can be traced to a root beer stand that J. Willard and Alice S. Marriott......

Words: 593 - Pages: 3

Marriott Group Pricing Optimizer

...Distribution Channel Relationship With E-Wholesalers: Hotel Operators' Perspective, Journal of Hospitality Marketing & Management, 18:8, 811-828, DOI: 10.1080/19368620903235837 To link to this article: http://dx.doi.org/10.1080/19368620903235837 Published online: 09 Oct 2009. Submit your article to this journal Article views: 387 View related articles Citing articles: 3 View citing articles Full Terms & Conditions of access and use can be found at http://www.tandfonline.com/action/journalInformation?journalCode=whmm20 Download by: [Computing & Library Services, University of Huddersfield] Date: 16 December 2015, At: 08:17 Journal of Hospitality Marketing & Management, 18:811–828, 2009 Copyright © Taylor & Francis Group, LLC ISSN: 1936-8623 print/1936-8631 online DOI: 10.1080/19368620903235837 Managing the Distribution Channel Relationship With E-Wholesalers: Hotel Operators’ Perspective Downloaded by [Computing & Library Services, University of Huddersfield] at 08:17 16 December 2015 Journal 1936-8631 1936-8623 WHMM of Hospitality Marketing & Management, Vol. 18, No. 8, August 2009: pp. 0–0 Management E. Myung the Distribution Channel Relationship With E-Wholesalers Managing et al. EUNHA MYUNG and LAN LI School of Family, Consumer, and Nutrition Sciences, Northern Illinois University, DeKalb, Illinois, USA BILLY BAI William F. Harrah College of Hotel Administration, University of Nevada, Las Vegas, Las Vegas,......

Words: 7372 - Pages: 30

Marriott

...Harvard Business School 9-289-047 Rev. April 1, 1998 Marriott Corporation: The Cost of Capital (Abridged) In April 1988, Dan Cohrs, vice president of project finance at the Marriott Corporation, was preparing his annual recommendations for the hurdle rates at each of the firm’s three divisions. Investment projects at Marriott were selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division. In 1987, Marriott’s sales grew by 24% and its return on equity (ROE) stood at 22%. Sales and earnings per share had doubled over the previous four years, and the operating strategy was aimed at continuing this trend. Marriott’s 1987 annual report stated that: We intend to remain a premier growth company. This means aggressively developing appropriate opportunities within our chosen lines of business—lodging, contract services, and related businesses. In each of these areas, our goal is to be the preferred employer, the preferred provider, and the most profitable company. 40% 30% 20% profit rate Cohrs recognized that the divisional hurdle rates at Marriott would have a significant impact on the firm’s financial and operating strategies. As a rule of thumb, increasing the hurdle rate by 1% (for example, from 12% to 12.12%), decreased the present value of project inflows by 1%. Because costs remained roughly fixed, these changes in the value of inflows translated into changes in the net present value......

Words: 3934 - Pages: 16

Marriott

...Introduction The goal of this research paper is to recognize and apply the principles of the marketing planning process, develop contemporary marketing management issues by analysing if the marketing mix of the organisation in this case Marriott Corporation with their Birmingham represented hotel Forest of Arden, A Marriott hotel and Country Club, satisfies their target market’s needs. Threats and opportunities will be detailed from caring a PEST analysis and by recommending marketing mix changes in line with the target markets needs and wants. Target market and marketing mix Marriott’s target marketing strategies have been enhanced in its several categories of segmentation through the various brands. The different flagships of Marriott’s brands support the overall target segmentation by the hotel. The various facilities like Marriott’s Hotels and Resorts, Courtyard by Marriott, Renaissance Hotels, Fairfield Inn and several others form the core brands that serve customer needs in the various target market segments according to Marriott.com. Being part of the brand Marriott’s Hotels and Resorts the Forest of Arden focuses on business, leisure or group events. Location can be a way to target a certain market; this hotel is located just 4 miles from Birmingham Airport and International train station within easy access of the M6/M42 and M40 so a great part of their target market is represented by business customers Considering the close proximity to the NEC, UK's largest...

Words: 2596 - Pages: 11

Marriott

...answer the questions revolving around the Project Chariot, the Spin-off that allowed Marriott to separate its business activities in its world famous hotel management business and a separate real estate business in 1994. This project involves the splitting up the company into two separate entities, Marriott International Incorporated (MI) and Host Marriott Corporation (HM) in order to minimize the debt burden and improve the financial health of the company after severe effects from real estate market crash and the slowdown in the business in early nineties. The description of Marriott Corporation, key issues faced by the corporation, details about the proposed Project Chariot and the alternatives and consequences of implementing Project Chariot is reported in the following sections. 1) The first analysis is the impact assessment for the parties and stakeholders of Marriott: According to the reorganization plan MI would operate hotels and include Marriott’s service businesses. It would also own Marriott’s trademarks, trade names, reservation and franchise systems. HM would own Marriott’s hotel properties and undeveloped real estate. It would also operate food, beverage, and merchandise concession in airports and toll-road rest areas. Impact Assessment for: a) Shareholders: the project would give each shareholder one share of the new Marriott International Inc. (MI) for each share of Marriott, so since no cash would be exchanged/transferred. It would have the beneficial......

Words: 1098 - Pages: 5