Yield Management Strategies For Optimizing Hotel Profit: An Essay.

You have a choice of either a presentation or a reflective writing piece, the choice is yours however if you choose a presentation.

You are required to present a critical and in-depth analysis to your peers and tutor (in person). The presentation, should be supported by PowerPointslides, should outline the tactics and strategies you made to optimise your hotel profit anddemonstrate your developing communicative skills. You should discuss your approaches andexperiences by benchmarking your hotel performance against the year 2 targets, the year 1performance, other hotel teams and hotel industry performance (STAR) with supportingevidence from the HOTS simulation.

The Role of Yield Management in the Hospitality and Tourism Industry

Yield management is one of the key factors through which revenue and pricing strategy can be maintained in the hospitality and tourism industry. I have learned its important role in this industry where it is not easy to earn revenues. It is because there are a number of factors involved such as competition, political situation and holiday seasons among others which impacts the revenue rate. Hotel Sydney can provide the desired outcome only through the use of proper planning and utilization of correct resources that can be done with the aid of yield management.

The main focus of revenue and yield management is to access the number of rooms sold to the customers and the price charged for it. According to Josephi, Stierand and van Mourik (2016, p.255), yield management is identified to be a systematic approach through which numerous hotels can increase their revenue in accordance with customer demand. Therefore, I believe that it can help Hotel Sydney to address its existing problems and solve the issues accordingly. As it is incredibly difficult and expensive to increase a hotel’s capacity after its completion, the hotel management needs to work on the existing capacity to maximize its revenue.

There are two most important things that are needed to be considered while accessing revenue rate of a hotel. One is the price of a daily average of room rate and the other, revenue per available room or RevPAR. I have learned that Australian hotels have an occupancy rate of 74.5%. Among them, the average daily rate increased up to 1.5% while RevPAR increased up to 2% (thejournalofbusiness.org, 2018). The Sidney Hotel has experienced an increase in room per year income from $237,399 to $579,952 in 2018. Its revenue rate has also increased up to 2%, from $626,582 to $734,219 which justifies the annual growth rate of the hospitality industry (El Haddad, 2015, p.1799). However, the competition is pretty tough as more hotels are entering the market. I believe through yield management, Sidney Hotel can keep its position in the market as well as increase its demand.

According to the aspects of HOTS Simulation, past performance should be accessed in order to gain a successful outcome in future. As opined by Kimes and Wirtz (2015, p.42), yield management is a strategy based on the theory of supply and demand. I can understand that these two factors are interdependent on one another. Through the implementation of the appropriate strategy, Sidney Hotel can achieve the desired result as asserted in the business plan of the hotel. Through careful analysis of the hospitality industry, I have identified that demand of the market is the ultimate driving force behind yield management. I have learned that in order to implement yield management, market segmentation is a must on the to-do list. The Sidney Hotel can categories and group its customers by their references for market segmentation. As asserted by Pereira (2016, p.15), there are a total of three aspects of market segmentation.

Key Factors in Accessing Revenue Rate of a Hotel

The first is accessing and grouping of the customers, the second is an application of demand model through which the specific needs of customers can be accessed. The third component can be asserted as their willingness to pay. I have observed that yield management can be utilized as a boon for the Sidney Hotel. The strategy of a time-penalty approach can be integrated into the hotel through which the price range of its services can be increased at a slow but steady pace. I believe this would encourage customers to book in advance which can be included as additional revenue of the hotel. Therefore, in peak seasons, a higher price can be charged while this rate can be made lower during a slow time. Its impact can be felt on numerous tourists as they are the most important customers. However, in order to sell more rooms go customers, a hotel might offer it at a lower price. Although the rate of bookings is higher, the hotel might suffer loses. The aspect can be mitigated through appropriate utilization of yield management.

This aspect of yield management, however, consists of a lot of assessment. As per the view of Moro, Rita and Oliveira (2018, p.445), the price is an intangible item which fluctuates every day. As per the HOTs stimulation, I have understood that the rate of assets owned by Hotel Sydney can increase up to $20,491,358 from $19,391,012. Therefore, it is important to carefully access the strategies so that the hotel can use its resources at full potential. However, yield management consists of manipulation of the price range but many customers do not feel it as a fair practice. In order to solve the problem of alienated customers, I believe Hotel Sydney can put a high reference price to its customers followed by providing them with discounts. It would help the customers to perceive the opportunity as fair. In order to do so, Hotel Sydney should properly advertise its products in an attractive manner. It can be done with the aid of digital marketing which is the most popular in the 21^st century. Therefore, I can assert that through the use of STAR method which denotes taking action based on situation for gaining appropriate result. Through implementation of appropriate communication and sales strategies would help the hotel to live up to its set objectives.

There are multiple aspects of a hotel including food and beverages, other operated departments apart from its rooms. The revenue rate of the hotel has been observed to be $626,582 in the last year and it has currently reached $734,219. Therefore, I can say that the hotel is utilizing its resources in the correct manner because the scores are heading out towards the positive direction. However, the hotel of Rydges Sydney Central has also experienced 4% increase in revenue in 2017; therefore proper strategic implementation is necessary for Hotel Sydney to reach its objectives.

Benefits of Yield Management for Hotel Sydney

In Hotel Sydney, the past expenditure as stated in the income statement has been observed to be $507,906 whereas in the present year it can amount to $557,793. I believe this is done in order to provide better service to the customers. According to the income indicator, the sales revenue of last year had been significantly positive and it is showing more scope in the present year. Hotel Sydney has been successful in achieving a 2% increase in revenue by keeping its expenditure rate in control. This shows that the hotel’s performance is also increasing. All the aspects of the financial statement indicate towards the gross profit or loss percentage faced by a company (Ferguson and Smith, 2014, p.226).

In the case of Hotel Sydney, the inventories amount to $12,854 which can be categories as products or services not sold yet. In order to main this inventory, the company has to utilize its cash flow in a careful manner so that its funds do not dry up. The company also holds $1,499.494 which is much more than last year. I think in order to avoid any significant loses; yield management is the best way through which these risks and financial areas can be accessed and monitored. According to Ortega (2016, p.672), ratio analysis gives a clear picture of the financial statement. Hotel Sydney is going at a steady pace in this respect. However, I think the hotel should implement a few more strategies in order to keep its customers and increase overall revenue. If these aspects are continued along with the implementation of the stated strategies, Hotel Sydney can increase rate up to 20% in the next two years. As asserted in the business plan of Hotel Sydney, increasing profits, whether it is half-yearly, quarterly or annually will make it more attractive towards the customers. I can access that it would not only help the old customers to come back but also attract potential new customers.

Integration of a customer relationship management or CRM software is a best possible way to customer feedback and formulates service to suit their needs (Zheng and Forgacs, 2017, p.239).

One of the major factors of hotels is its restaurant and bar operations (hospitalitynet.org, 2018). According to my assessment, this area has significant scope for improvement which would directly impact on the revenue rate of the hotel. Aspects such as function and social business can also affect the revenue of a hotel. According to me, by providing great customer service while keeping an attractive price-quality balance can provide the necessary outcome. As asserted by Abrate and Viglia (2016, p.127), yield management helps in the proper organization of pricing through which numerous aspects in a hotel can be expanded. Spa, as well as shopping facilities, can increase the demand of the hotel towards a positive direction. All these factors would significantly help in increasing of Revenue per Available Room which would lead to the increase in average daily hotel rate (ADR).  

The Importance of Market Segmentation in Yield Management

According to the assessment of Hotel Sydney, it is per month income is $532,746.84 in accordance to its per room in a month. I think the hotel is headed towards a positive direction and through the identification of the appropriate strategies. Sales index would significantly increase in Hotel Sydney through the implementation of yield management. Well trained staff members and a team of financial advisories would definitely add to the advantage of the hotel (Koupriouchina, van der Rest and Schwartz, 2014, p.107). I believe it would reduce employee turnover and sufficiently increase gross profit. Therefore, I can firmly state that Sydney Hotel would undoubtedly be able to reach up to its business plan for the future years. Of course, there is no guarantee of sudden problems like a change in market conditions. In these cases, the hotel should be prepared with its risks management policies so that the business suffers no loss and can keep on enhancing its productivity.

References

Abrate, G., and Viglia, G., (2016). Strategic and tactical price decisions in hotel revenue management. Tourism Management, 55(1), pp.123-132.

El Haddad, R., (2015). Exploration of revenue management practices–case of an upscale budget hotel chain. International Journal of Contemporary Hospitality Management, 27(8), pp.1791-1813.

Ferguson, M. and Smith, S., (2014). The changing landscape of hotel revenue management and the role of the hotel revenue manager. Journal of Revenue and Pricing Management, 13(3), pp.224-232

hospitalitynet.org, (2018), Yield Management by Distribution Channel, Available at: https://www.hospitalitynet.org/opinion/4084730.html [Accessed on: 24-09-2018]

Josephi, S.H., Stierand, M.B. and van Mourik, A., (2016). Hotel revenue management: Then, now and tomorrow. Journal of Revenue and Pricing Management, 15(4), pp.252-257.

Kimes, S.E. and Wirtz, J., (2015). Revenue management: Advanced strategies and tools to enhance firm profitability. Foundations and Trends® in Marketing, 8(1), pp.1-68.

Koupriouchina, L., van der Rest, J.P. and Schwartz, Z., (2014). On revenue management and the use of occupancy forecasting error measures. International Journal of Hospitality Management, 41(2), pp.104-114.

Moro, S., Rita, P. and Oliveira, C., (2018). Factors influencing hotels’ online prices. Journal of Hospitality Marketing & Management, 27(4), pp.443-464.

Ortega, B., (2016). Revenue management systems and hotel performance in the economic downturn. International Journal of Contemporary Hospitality Management, 28(4), pp.658-680.

Pereira, L.N., (2016). An introduction to helpful forecasting methods for hotel revenue management. International Journal of Hospitality Management, 58(3), pp.13-23.

thejournalofbusiness.org, (2018), Assessing the Benefits of Yield Management in the Hospitality Industry in the Kumasi Metropolis of Ghana, Available at: https://thejournalofbusiness.org/index.php/site/article/view/277/296 [Accessed on: 24-09-2018]

Zheng, C. and Forgacs, G., (2017). The emerging trend of hotel total revenue management. Journal of Revenue and Pricing Management, 16(3), pp.238-245