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Introduction to Hotel Revenue Management

Discuss About The Considerations Implementing A Hotel Revenue.

Revenue Management is the process of applying the analytics for prediction the consumer behavior at the market level and maximizing the availability of products for increasing the growth of revenue. The main goal is to sell the right product to the right consumer at the right time in exchange of appropriate price with the correct packing which suits his needs. The concept attempts to comprehend the observation of the consumers about the value of the product. Furthermore, it tries to align the availability, positioning and prices of the product in targeted segments of the consumers (Willie et al., 2015).

In the hospitality industry, many hotels apply the concept of revenue management by analyzing the type of business the hotel can serve in the given market conditions. They also evaluate the rates which are applicable for each of the consumer segment. So, the various revenue management strategies applied in the hospitality industry are analyzed below along with identification of the key stakeholders. Different yield management strategies are also mentioned and explained to improve the performance of the hotel.

 Occupancy Rate is a key performance indicator (KPI) implemented within the hotel industry to analyze the performance of a hotel. It refers to the occupied percentage of the hotel. It calculates the number of occupied rentals at a given time in comparison to the total rentals available at that point of time in the hotel. It is one of the popular KPI in the hospitality industry which indicates the quantity of the space being utilized in a hotel.

Occupancy Rate: Number of Occupied rooms/Total Number of available rooms (Rest et al., 2015).

Average Daily Rate (ADR) is a metric which reveals the average rental income in connection to the occupied rooms per day. By calculating ADR, the owners come to know about the present operating performance of the hotel as compared to the other hotels.

Thus, it reveals the average rental income paid   for each occupied room in a particular time period.  However, complementary rooms and house use rooms are not added in the calculation of ADR.

The ADR is calculated as:

Revenue earned from rooms /Number of Rooms sold (Webb & Schwartz, 2017).

It is the abbreviation for Revenue per available room. It is used to assess the operational and financial performance of the hotel. Since it comprises of both occupancy rate and room revenue, so it is a crucial parameter of the overall performance of the hotel.

Key Performance Indicators (KPIs)

RevPAR measures the average daily rate of the hotel and its capability to fill the rooms. So, it consists of both occupancy rate and ADR. So it provides an idea about the present performance of the hotel and the value charged by the hotel for its rooms. Hence, hotels must endeavor to enhance their RevPAR.

The RevPAR is calculated by two methods:

RevPAR: Revenue of the Rooms/Availability of the rooms

RevPAR: Average Daily Rate* Occupancy Rate (STENDEN, 2016) .

The key findings regarding the performance of the hotel as compared to its competitors are:

  1. The occupancy rate of the hotel is better as compared to its competitors. On an average at the end of the week, the hotel’s occupancy rate is 91.8% as compared to 65.3% of that of its competitors. The percentage change in the index is 30.1 and occupancy rate is 39.1 which is a good indicator for the progress of the hotel.
  2. The RevPAR is less as compared to its competitors. The RevPAR of the hotel is 36.43 as compared to 45.32 of that of its competitors. The percentage change in index is 21.6 and RevPAR is 25.5 which indicate that the operational and financial performance of the hotel can be increased.
  3. The ADR of the hotel is low as compared to its competitors. The percentage change of the ADR of the hotel is negative which has an impact on the index. The percentage change of ADR is (9.8%)   which influences its index which is (6.6%). It means that the hotel is not able to earn its average daily income from the occupied rooms which puts it into danger zone. It can have an impact on the operational and financial performance of the hotel. It should revise its marketing strategies to trace the reasons for low performance and endeavor to increase its average daily rate (Wang et al., 2015).

The two worst performing days of the month are Thursday and Saturday. The RevPAR is worst on Saturday.   On Saturday the percentage change is (8.1%) as compared to (16.3%)  of the market index which can have a negative impact on the operational and financial performance of the hotel.

On Thursday the percentage change in ADR of the hotel is (11.0%) as compared to (6.3%) of the market index which is almost double of the market index. Since, Average Daily rate is average collection of the hotel as compared to its occupied rooms, so the hotel should attempt to increase its daily and overall revenue if   it wants to survive in the market.

According to Enz & Thompson (2011) a competitor can be any hotel which provides goods or services to the same targeted consumers as compared to the hotel. It may comprise of the same commercial activities which appear to be in different business segments but provide similar goods and services as the business does. So the analysis of the competitors can be done through assessing their market share and turnover by evaluating their annual reports.

Firstly, the competitive advantage and key competitive strategies of the competitors of the hotel should be assessed. The perception of the choices of consumers would be compared in the context of goods and services provided by the hotel and its competitors to assess the core competitive strategies and key performance indicators.

The productivity of the competitors will be assessed by analyzing the processes and infrastructures which achieve monetary benefits through sales. The competitiveness pertains to productivity growth and analyzing the differences in the quality, prices and costs related to production and distribution. Also, the effectiveness of marketing and distributive systems of the competitors would be analyzed (Yeoman, 2016).

Secondly a SWOT analysis should be executed by the hotel to evaluate the strengths, weaknesses, opportunities and threats for itself and its competitors.

Occupancy Rate

Strengths: If the cost of production is affordable and the hotel is situated at an easily accessible location by the consumers as compared to its competitors, it can be strength for the hotel.

Weaknesses: The weakness can be high taxes payable by the hotel or employee turnover ratio.

Opportunities: The hotel can be tourists attraction and mega events organized by the hotel which attract large number of people.

Threats: The competitors adopting advanced technology with low cost alternatives can be a threat to the hotel (Göral, 2015).

The five yield management strategies to improve the productivity of the hotel are as follows:

  1. Competitive pricing strategy: The hotelier must track the top competitors executing their commercial activities in the local area and formulate the pricing strategy accordingly. It helps in placing the hotel in direct competition with its core competitors. In this way, prospective customers would also be able to identify the available options which the hotel offers to them at competitive prices.
  2. Value added pricing strategy: In this, the hotelier should set the prices of the rooms at higher rates as compared to its competitors thereby adding more facilities with the basic package. It creates an illusion  to the consumers that the  hotel is offering   superior facilities to them  instead of offering just low rates (Legohérel et al.,2013).
  3. Discount pricing strategy: It is appropriate for a slow travel season when the demand for the occupancy rate is low. In this case, the hotel provides discounts on the prices of its rooms as it is more important to get low prices on its bookings rather than having a vacant room. With the help of discount pricing strategy, the price of the rooms is kept as low as possible for a short time to create extra business in the sluggish market.  
  4. Middle market pricing strategy: The hotelier provides the superior rooms at the same prices as that of the basic rooms which are provided by its competitors. It will help the hotel to attract the middle market who are looking for hotels providing the rooms at reasonable prices with  good facilities (McGuire,2016).
  5. Providing more facilities than the competitors: The hotelier must create a grid of all the key drivers which he can provide to the customers such as free drinking water in the rooms, parking and wifi facilities inclusive of the prices. He must conduct a research regarding the facilities sought by the consumers by conducting an online research or survey to know how the hotel is positioned as compared to its competitors (Ivanova et al., 2016).

The three stakeholders are Shareholders, key managerial personnel and promoters. They can be communicated through formal meetings, conference calls and newsletters. The information provided would be the data related to the marketing strategy of the competitors by   presenting the comparisons of key metrics viz. scores of trip advisor and ranking, Facebook likes and involvement of the consumers and twitter participation (Riasi et al., 2017).  

The assistance sought from them would be their valuable suggestions regarding the implementation of the yield management strategies for the long term growth and development of the hotel. It is essential that strict monitoring activities are adopted by the stakeholders to maximize the revenue and leverage analytics .They should be in consistent contact with all the departments of the hotel and balance their competing interests to increase the profitability (Tranter, Hill & Parker,2013).

The areas of implementation of yield management strategies other than the rooms are that the hotel can focus on other segments which are equally profitable. The untapped areas should be evaluated and a plan should be formulated to tap the same. For example, the hotel can divert its business towards tourism and restaurants. It can adopt the discount pricing strategy where it can provide promotional discount offers for specific working days like Tuesday as they are the toughest nights for a restaurant. It can also open a small shopping complex to attract the tourists (McGuire, 2015).

The second area of implementation would understand the expectations of the consumers. The hotels should comprehend the expectations of the consumers and must cater to them according to their preferences. For example, the customers having an inclination towards authentic personal experience rather than automated services must be treated accordingly. The strategy of the implementation of upselling and cross selling should be adopted. The focus should be on offering more personalized services and charging suitable amount for them (Mahesh, 2015).

Average Daily Rate (ADR)

The third strategy adopted to enhance the yield management can be use of the underutilized spaces. The efficient utilization of the spaces which don’t seem to be much use can be of great opportunity to introduce  additional  services for example a spa or massage  for the guests (Kimes,2017).

Conclusion

Thus, to conclude, it can be said that efficient revenue management can be helpful to estimate and enhance the demand of the consumers. It can assist in optimizing inventory and price availability for maximizing the profits. Through the adoption of the revenue management strategies, the hotel can analyze the consumer behavior and the various distribution channels which can be tapped to increase the occupancy rate and hence RevPAR. The revenue management team should adopt a proactive approach in the selling procedures as well as implement suitable strategies to attract the consumers by providing complementary services to them

References

Enz, C. A. & Thompson, G. M. (2011). The Hotel Competitor Analysis Tool (H-CAT): A strategic positioning tool for managers. Cornell Hospitality Tools, 2(3), 6-12.

Göral , R.(2015). Competitive Analysis of the Hotel lndustry in Konya by Using Porter's Five Forces Model . European Journal of Economics and Business Studies,3(1),106-115.

Ivanova, M., Ivanov, S. & Magnini, V.P.(2016).  The Routledge Handbook of Hotel Chain Management. Routledge.

Kimes, S.E. (2017). The Future of Hotel Revenue Management. Cornell Hospitality Report,17(1), 1-12.

Legohérel, P. , Fyal, A. & Poutier, E.(2013).  Revenue Management for Hospitality and Tourism. Good fellow.

Mahesh, A.(2015). Considerations for Implementing a Hotel Revenue Management System. Retrieved May, 3rd 2018 from https://digitalscholarship.unlv.edu/cgi/viewcontent.cgi?article=3598&context=thesesdissertations

McGuire, K.A.(2015). Hotel Pricing in a social world. California: SAS Institute Inc.

McGuire, K.A.(2016). The Analytic Hospitality Executive: Implementing Data Analytics in Hotels and Casinos. John Wiley & Sons.

Rest, J.P.V.D., Wang , X.L., Schwartz , Z.,  & Koupriouchina , L.(2015).  Hotel Revenue Management: from theory to practice. International Journal of Contemporary Hospitality Management. DOI: 10.1108/IJCHM-03-2015-0108.

Riasi, A., Schwartz, Z., Liu, X. & Li, S.(2017). Revenue Management and Length-of-Stay Based Room Pricing. Cornell Hospitality Quarterly,58(4),393-399.

STENDEN(2016). Research in Hospitality Management. AIHR, 6(2), 113–118.

Tranter ,K.A., Hill, T.S. & Parker, J.(2013). Introduction to Revenue Management for the Hospitality Industry. Pearson Education Limited.

Wang , X.L., Heo , C.Y., Schwartz , Z., Legohérel , P. & Specklin , F.(2015). Revenue Management: Progress, Challenges, and Research Prospects. Journal of Travel & Tourism Marketing, 2015. Retrieved May, 3rd 2018 from https://okina.univ-angers.fr/publications/ua12613/1/2015_revenue_management_progress_challenges_and_research_prospects.pdf

Webb, T. & Schwartz, Z.( 2017). Revenue management analysis with competitive sets: Vulnerability and a challenge to strategic co-opetition among hotels. Tourism Economics,23(6),1206-1219.

Willie, P., Clarke ,R. & Chandra, R.(2015). Revenue Management in the Hotel Industry: Comparing US and Canadian Properties. Journal of Business Studies Quarterly,7(2),169-184.

Yeoman, I.(2016).  The history of revenue and pricing management – 15 years and more. Journal of Revenue and Pricing Management,15(3-4),185-196

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