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Teaching Revenue Management at the Cornell .Pubs.Inf University School of Hotel Administration Vol. 9, No. 3, May 2009, pp. 109–116 issn 1532-0545 09 0903 0109 informs ® doi 10.1287/ited.1090.0024 INFORMS © 2009 INFORMS g. Transactions on Education orms.or Teaching Revenue Management at the Cornell .pubs.inf University School of Hotel Administration http://ite Chris K. Anderson, Sherri Kimes, Bill Carroll at School of Hotel Administration, Cornell University, Ithaca, New York 14853 le {[email protected], [email protected], [email protected]} ailab v he Cornell University School of Hotel Administration was one of the first in the world to offer a univer- a Tsity course in revenue management (starting in 1994) and currently offers five courses related to revenue is management: Yield Management, Restaurant Revenue Management, Managing Hospitality Distribution Strate- gies, Hospitality Pricing and Analysis, and Nontraditional Revenue Management. In addition, the school offers undergraduate and graduate concentrations and executive education courses in revenue management. In recent years, about 10%–15% of our graduates have obtained jobs in revenue management and distribution. In the fol- policies, lowing paper we discuss the evolution of the teaching of revenue management at Cornell providing descriptions of the courses we teach as well as insight into how this content may be delivered at other institutions. Key words: revenue management, yield management, distribution, pricing History: Received: May 2008; accepted: December 2008. This paper was with the authors 2 months for 2 revisions. permission and Introduction for RM grounded in economic and marketing princi- The Cornell University School of Hotel Adminis- ples (rather than algorithms). A few universities offer rights tration (i.e., The Hotel School), given its industry more traditional MBA-level courses focused on rev- focus, is in a unique situation as far as the breadth enue management. The Dynamic Pricing and Rev- and and depth of revenue management (RM) research, enue Management course taught by Ioana Popescu education, and industry contacts. RM instruction at at INSEAD provides a broad-based introduction to Cornell is distinct in both the content we deliver RM principles across numerous industries with a mar- material and the number of courses. We primarily train stu- keting, pricing, and operations focus. Topics include dents who in their future careers will be exposed demand estimation, pricing, and markdown man- to or will actively practice RM on a regular basis. agement in addition to traditional RM topics such Comparing Cornell’s RM offerings to other institu- as allocation. Courses similar in nature but differ- tions reveals some distinctions. RM course offerings ent in context and delivery are offered at Georgia at other institutions are typically more general in Tech by Anton Kleywegt; newer offerings are taught supplemental nature. Bell (2004) discusses the integration of RM at Lancaster (by Joern Meissner) and Columbia (by concepts in a general management science course, Costas Maglaras). Phillips (2003) provides a detailed with RM topics taking 3 out of 24 available 80-minute account of the pricing and RM course he developed luding classes at the Ivey School of Business (University and taught while visiting at Columbia. The course fol- inc of Western Ontario, Canada). Topics covered include lows a similar layout to Phillips’ (2005) book, which price optimization using deterministic demand mod- has been adopted in many RM courses. Phillips for- els, overbooking, and discount allocation. These three mally extends the concepts of RM into pricing and sessions are geared toward getting students to think revenue optimization (PRO). PRO extends RM con- Downloaded from informs.org by [128.253.125.134] on 30 October 2013, at 07:55 . For personal use only, all rights reserved. ormation, about RM concepts. Dutta (2006) describes the evo- cepts into general retail and nonoperations settings. inf lution of RM education at the Indian Institute of Netessine and Shumsky (2002), while not particularly Management at Ahmedabad (IIMA). RM education discussing an RM course, provide a review of the fun- at IIMA has evolved from the use of a single case damentals of airline seat allocation. We expect that ditional on American Airlines in 1998 to a full four-day pro- there are numerous other RM courses that we are Ad gram in 2005. The four-day course is team-taught by unaware of as well as several without detailed online several faculty members and develops a foundation syllabi. In the following sections we provide a brief 109 Anderson, Kimes, and Carroll: Teaching RM at the Cornell University School of Hotel Administration 110 INFORMS Transactions on Education 9(3), pp. 109–116, © 2009 INFORMS overview of The Hotel School and how our teaching course that was offered for the first time in 1996. Since g. of RM has evolved over the last 14 years. We dis- then, the course has been offered once or twice a year cuss the courses offered and comment on what we (depending on staffing) to 40–50 students per year. would focus on if we could only offer one RM course, The course currently covers forecasting, optimiza- as is typical at other institutions, rather than the tion methods, overbooking, pricing, distribution man- five courses offered at Cornell. An appendix includes agement, training and management issues, and an abbreviated course outlines for the five RM related overview of the various hotel RM systems in use. courses we currently offer. A variety of articles (primarily nontechnical) are assigned and discussed. Guest speakers are scheduled The Hotel School two to three times per semester; past semesters have included speakers from Marriott, IDeaS, Starwood, The School of Hotel Administration, one of Cornell’s Priceline, Disney, Harrah’s, and Expedia. seven colleges, has approximately 850 undergraduate The course is project-based, and students work and 60 graduate students. Founded in 1922 as the in groups of three or four to develop a function- nation’s first collegiate course of study in hospitality ing Microsoft Excel ®-based RM system for a 200–300 management, the Cornell School of Hotel Administra- room hotel with three to four rate categories and three tion is recognized as the world leader in its field. The different lengths of stay. Students are given simu- Hotel School is located at the center of Cornell’s cam- lated daily booking and overbooking data for a three- pus in Statler Hall, which contains classrooms, offices, month period. and a computer center. An adjacent 150-room hotel The project is broken into three parts: (1) forecast- and conference center serves as a learning laboratory for hotel school students. ing, (2) availability controls and overbooking, and The Hotel School offers five different courses in (3) a final model that integrates the first two parts into RM: Yield Management (with a concentration on a functioning Excel-based system. Each part will be hotel applications), Restaurant Revenue Management, described below. Managing Hospitality Distribution Strategies, Hospi- Forecasting tality Pricing and Analysis, and Nontraditional Rev- In the forecasting project, students develop detailed enue Management. The Yield Management course and permission policies, is available at http://ite.pubs.informs.or daily forecasts for each length-of-stay and rate- focuses on the application of RM for hotels with category combination for the next 60 days and mea- an emphasis on forecasting, overbooking, and alloca- sure the associated forecast error. The project also tion. Restaurant Revenue Management highlights the entails summarizing the results in a written form unique nature of applying RM to restaurants. Man- that is easily accessible to managers. Clear written aging Hospitality Distribution Strategies focuses on and oral communication of technical results is an inte- marketing and emphasizes how hotels use multiple gral part of the course, and the message that we con- distribution channels (e.g., phone, travel agents, Inter- stantly reinforce is that the way results are conveyed net, etc.) to implement an RM strategy. Hospitality matters as much as technical accuracy. Grossman et al. Pricing and Analysis has a strategic focus (versus the (2008) provide further support for the need to equip tactical approach of RM) on pricing. Nontraditional students with the ability to communicate technical Revenue Management focuses on newer areas of RM material in a nontechnical fashion. application within hospitality (e.g., spas, event man- agement, and entertainment). In addition, The Hotel Availability Controls and Overbooking School offers both undergraduate and graduate RM In the second project, students use the results from concentrations. The RM courses usually have a mix their forecasting project to develop bid prices (using of senior undergraduate and graduate students, with a simple optimization model) for each day in the no special accommodations made regarding evalua- planning horizon and use these bid prices to develop tion or workload. Similar to most business schools, rate and length-of-stay controls. The students also prior to taking any of our RM courses, students have use data on no-shows to develop appropriate daily introductory statistics and operations courses cover- overbooking limits for the hotel and adjust the hotel ing probability, regression, decision analysis, simula- capacity to account for overbooking. Again they must Downloaded from informs.org by [128.253.125.134] on 30 October 2013, at 07:55 . For personal use only, all rights reserved. tion, and optimization. The RM courses and concen- summarize the results in a way that managers can trations will be discussed below. understand. The written portion of the project is par- ticularly challenging for students because they are Yield Management not allowed to use technical terms (such as linear At Cornell University’s Hotel School, the first RM programming, shadow price, or bid price) but must Additional information, including supplemental material andcourse rights was offered in 1994 as a 10-person special top- instead explain what they did in managerial terms.
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