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HOTL 203 : Yield And Revenue Management

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HOTL 203 : Yield And Revenue Management

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Course Code: HOTL 203
University: Centennial College

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Country: Canada

Question: 

In the last few years there has been a rapid development in the application of revenue management to the hospitality industry, and this can be supported by the amount of materials published in this area. There are also several success stories of industry examples using the revenue management concept.
In an essay format, discuss the main developments of revenue management in the hospitality industry using examples from the academic literature and industry applications. For example, you can describe the concepts and the technologies available to apply revenue management in a hotel organisation. In your assignment, you need also to highlight the advantages and problems of using revenue management, especially in terms of its positive and negative effects on hotel customers. You can support you discussions with graphs and pictures from hotel websites or any other relevant academic or industry sources. You are welcome to use examples based on your work experience to any hospitality related property.

Answer: 

The term revenue management is a very important concept with respect to the hospitality industry. It allows the owners of the hospitality industry to gain the best financial results. With the usage of disciplined analytics in revenue management, the owners can predict the behaviour of the consumers in order to maximize the growth of revenue. The main aim of the revenue management is to sell the right product at the correct time to the right customer at that price which will be highly profitable ( Board and Skrzypacz 2016). It predicts the demand for consumer in order to optimize the inventory to gain the maximum revenue.
Concepts and technologies
Revenue management is also quite similar to the business analytics which is used in other industries. The price strategies are made by analysing the trends of the sale and by forecasting the results. The revenue management deals in optimizing the price which is generally based on the demand forecasted, competitive rates and price elasticity. One of the concepts of revenue management includes displacement cost, through which a hotel can accept a booking of group business (El Haddad 2015). Revenue management also uses the concept of controls in order to optimize total revenue. Another concept includes rate tiers which suggest that hotels which are revenue management enabled usually have multiple rate tiers. The hotels also make compensation of incentives based on the idea of RevPAR. There is a great usage of data analytics in the field of revenue management. It has gained importance in the recent times as a result of discriminating pricing policy offered to the customers. There are a lot of ways in which revenue can be earned more through revenue management. The tools of this kind of management can help in promote the products through which it can increase its profitability (Dzhandzhugazova et al. 2016). Using information technology boosts revenue management system a lot. Data from Customer Relationship Management, consumer behaviour and supply chain management in order to forecast the demand of consumers. Using the DBMS system the revenue system has increase profitability.
It is also known as yield management which is used for understanding and for anticipating the customer actions. Revenue management also provides companies a better understanding of the customers’ expectations. The research involved with the revenue management helps to the preferences of the customers. It also helps the companies create a competitive pricing strategy that will give the company an edge over the competitors ( Cetin, Demirçiftçi and Bilgihan 2016). Revenue management also helps to inform the companies about the different company divisions. The marketing and sales department should also develop programs in order to reach out the customers. Revenue management also introduces the company the segments of the market that are available. In a competitive system of hotel management revenue, rare parity is an extremely important concept. Rare parity is a process in which particular room or product of the hotel is kept at a consistent rate.  The rate parity used in hotels also stop the website of the hotels during booking process.
                                                   
                                                                         Issues revenue managers focuses on
                                                                            (Source: Hotel-online.com. 2018).
The picture above shows that rare parity has been the biggest dilemma in the hospitality sectors. The graph shows the major issues where the revenue mangers wants focus upon in order to maximise profits.
Advantages and disadvantages
There are many advantages of using revenue management in the hospitality industry. Developing a proper revenue management system requires a lot of things like information on current bookings, booking patterns historical data and correct predictions about the bookings. It is extremely crucial for implementing revenue management system for a hotel as it a very dynamic industry. Using revenue management helps to increase revenue and also helps in pricing strategically. By implementing it, hotels can also lower their cost. Revenue management helps the hotels to implement a revenue strategy in periods of low and high demand of hotels because the rates of   differs from season to season depending on many circumstances( El Haddad 2015). Therefore, in order to avoid unnecessary costs the hotels can plan ahead. In order to attract new guests or ideal guests for the hotel, implementing revenue management is very necessary. It also helps them to identify the right guests which will give it a long term value by evaluating the spending activities of the customers. In some cases the hotels might not earn profit despite the fact that it is fully booked because it might also mean that the hotels have sold rooms at a very low price. Revenue management system also helps in branding (Cetin, Demirçiftçi and Bilgihan 2016). It is quite useful in order to increase the bottom line of the hotel. It helps to increase the occupancy along with the fact that it makes sure that the rooms are sold at the maximum price and also generates the highest RevPar at all times. Using a right revenue management can be a very powerful tool for any kind of hotel. The Marriott International offers all its hotels an exclusive designed revenue management efficiency system. A proper revenue management has helped Marriott to aftermath weather recession. Marriott has also increased its revenue by implementing revenue system. It has increased its revenue by implementation of group pricing optimizer.
                         
                                                              (RevPar index opportunity of Marriott versus Westin)
                                                                       (Source: Schwartz,  Altin and Singal 2017)
However there are also some disadvantages of implementing revenue management system in the hospitality sectors. There are many challenges of revenue management system which states that the role of revenue management requires sets of specialized knowledge and skills.  It is quite difficult to always find people with proper skill sets. Therefore it is very important for a revenue manager to attain the right set of skills. Many hotels despite of having a very good revenue management system faces problems with technology. There can be some issues like the expensive technology might not communicate well with each other. The job then will turn out to be very manual if the right tool is not used. Therefore, implanting a proper revenue strategy will require huge investments in technology.
Therefore in order to conclude it can be said that revenue management has both advantages and disadvantages in the market. Implementing a proper revenue management system is very important for the hotels in order to achieve the maximum profit.
Reference:
Board, S. and Skrzypacz, A., 2016. Revenue management with forward-looking buyers. Journal of Political Economy, 124(4), pp.1046-1087.
Cetin, G., Demirçiftçi, T. and Bilgihan, A., 2016. Meeting revenue management challenges: Knowledge, skills and abilities. International Journal of Hospitality Management, 57, pp.132-142.
Dzhandzhugazova, E.A., Kosheleva, A.I., Gareev, R.R., Nikolskaya, E.Y. and Bondarenko, A.P., 2016. Business administration in hotel industry: problems and solutions (by the example of the Russian Federation). International Journal of Applied Business and Economic Research, 14(14), pp.651-660.
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.
Hotel-online.com. (2018). New Research Finds Rate Parity is still the Biggest Dilemmafor Hoteliers; Ecole Hôtelière de Lausanne reveals anongoing struggle to maintain rate parity forcing hotels to rethinktheir distribution mix / June 2012. [online] Available at: https://www.hotel-online.com/News/PR2012_2nd/Jun12_RTResearch.html [Accessed 26 Aug. 2018].
Kimes, S.E., 2016. The evolution of hotel revenue management. Journal of Revenue and Pricing Management, 15(3-4), pp.247-251.
Noone, B.M., Enz, C.A. and Glassmire, J., 2017. Total hotel revenue management: A strategic profit perspective.
Phillips, P. and Moutinho, L., 2014. Critical review of strategic planning research in hospitality and tourism. Annals of Tourism Research, 48, pp.96-120.
Schwartz, Z., Altin, M. and Singal, M., 2017. Performance measures for strategic revenue management: RevPAR versus GOPPAR. Journal of Revenue and Pricing Management, 16(4), pp.357-375.
Shaw, S., 2016. Airline marketing and management. Routledge.
van der Rest, J.P.I., 2016. Pricing and revenue management in the international hospitality industry (Doctoral dissertation, College of Business, University of Denver).

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