Table of Contents
The definition of Revenue Management can be traced back to yield management. It is defined as “an articulated business process implemented in order to maximize revenue and profits” (Kimes & Wirtz, 2015). Notably, a process is engineered, and measured decisions as well as activities are designed to work together in order to accomplish a certain goal. As a result, proper application of strategic revenue management practices comes in handy towards the overall performance of the business which in this case focus is given to the hotel industry.
There are different strategies that can be applied in the revenue management of the hotel industry. These includes the different components of revenue management which include yield management. Predominantly, the latter methodology was basically a forecasting method that also focused on the management of capacity allocation. Notably, these were the former strategies that were employed in revenue management. These strategies have evolved with time. The systems that are employed today in revenue management have a more intelligent design (Wang & Brennan, 2014). They are also noted to be more sophisticated when it comes to their capabilities.
The current revenue management systems are basically founded on the principles of selling the right products, at the right price, to the right client, and through the best/right distribution channels (Kimes & Wirtz, 2015). Notably, what is guiding the process of revenue management is sophisticated computer models and intellectual capital. In this discipline, there is recognition that there is a difference between the clients and thus their needs might vary depending with the specific market segment under review. Through revenue management, hotels are able to utilize their sources of revenue through sale of food products, accommodation that they offer, meeting space, etc. (Legoherel, Fyall & Poutier, 2013). All this is now achievable thanks to the complicated contemporary revenue management systems.
Revenue Management in Hotel Chains
With the continual evolvement of revenue management, especially for the larger hotel chains, understanding the aspects of revenue management in such contexts is increasingly become difficult. Nonetheless, there are certain aspects of revenue management that are highly associated with hotels in the context of lodging services provision. These are:
Revenue Management and Distribution Channels
Operative as well as structural changes have impacted tourism distribution in a great way. This is associated with the affirmation that has been accorded to multi-channel distribution as well as the sensations of re-intermediation and disintermediation as well (Mauri, 2013). The management of the pricing policies has been made more complex by the sales environment that has been made multi-channel. As a result of the same environment, chances are high that conflicts are experienced between the channels. Matter of fact, managers are now concerned that they are not well able to have a ‘price parity’ which is the maintenance of a homogenous price rate for similar products (Kimes & Wirtz, 2015). On the other hand, they also have to deal with the challenge of websites that offer guests the opportunity to review hotels as well as metasearch websites.
Customer Relationship Management (CRM) and Revenue Management
Although it is clear that when revenue management tools are utilized there are high chances of the business being profitable, the relationship between customer relationship management and revenue management is complicated. Apparently, on a long term view, the issue is worth contemplating. Matter of fact, it is critical that the compatibility between the transaction-based revenue management practices with the customer relationship management practices (Abrate & Viglia, 2016). This would help to avoid perceptions that there is unfair play due to the actions that are being undertaken. This is actually critical in the context of the profitable and loyal clientele. It is very important that travel and hospitality services providers be more considerate of their client’s needs and wants. They should actually adopt customer-based strategy with integrated loyalty programmes (Mauri, 2013).
As noted by Erdem and Jiang (2016), a lot can be learned from the airline sector especially when it comes to the increasing of the effectiveness of the revenue management. In this context, the hotel sector can learn and as such invest in data mining. They should also invest in business intelligence which will help them understand better the customer characteristics, preferences as well as behaviors (Kimes & Wirtz, 2015). As a result of the application of these strategies, the hotels will then be in a position to increase their rate of customer retention. They will also be able to maximize on their potential to generate good revenue. In such a case, it is important that the business is able to access reliable and consistent data. It would also have to put into consideration the user-generated content and social media data.
Revenue Management and the Social Media
Notably, the process of revenue management can be affected by social media. Through social media, companies can get access to certain information about the customer which would be crucial in the management of the service and product deliver to the client. Information that can be acquired through the social media includes the customer’s willingness to pay for the product and the customer behavior. Notably, these factors are critical towards the definition of the price strategy to employ in the market as well as demand forecasting. With this kind of information, organizations including the hotel industry would be in a better position to improve on the personalization of the services being provided, differentiation, and segmentation (Aubke et al., 2014).
Notably, social media is becoming more relevant to the contemporary pricing strategies that are being applied by many businesses especially the hotel chains. Such hotel chains are in a position to offer coupons, special rates and dedicated rates to their members (Kimes & Wirtz, 2015). The hotel industry can also come across information about value for money at the social media since many people comment on this issue online. As such, other customers as well as prospective customers are likely to study the information available to them, compare between service providers and make decisions based on this information (Abrate & Viglia, 2016). As such, it is noted that social media offers a platform for revenue management by the hotel industry. However, there is need to integrated a strategic approach when utilizing the social media. The approach should involve all the department s and functions of the hotel.
Brand Portfolios and Proliferation
Revenue management is used by hotel groups and chains. In this multi-unit ad multi-brand approach, revenue and pricing management is critical and apparently a headache. According to Aubke et al. (2014), most of the brands in the hotel industry also own a lodging section. Apparently, most of them also own a variety of brands. This influences how the business is managed and run and more so how the revenue is managed.
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Notably, there has been a metamorphosis in the hotel sector which has seen the death of single unit hotels and the rise of multinational owned hotel groups. The industry has also been dominated by institutional investors. Notably, as a result of the development of new market and product combinations, there has been an increase in the competitiveness between the hotel groups. This is indicative that there are new competitors in the sector. It could also be as a result of the rise in competition from former competitors that have decided to take up a similar path of investment as the other competing hotels in the industry. As a result of the above scenario, a multimarket competition is developed between the hotels (Aubke et al., 2014). This increase in variety is helpful in that it leads to the development of complex pricing strategies that are founded on price discrimination with the intention of attracting more consumer surplus.
Notably, the abovementioned scenario is as a result of:
- The ability to engage in better segmentation strategies as well as customized pricing strategies.
- The availability of an opportunity to accomplish better consistency between the hotel’s destination and the hotel brand.
- The opportunity to face one’s competitors on a basis of multi-point competition.
Nonetheless, there are some disadvantages that are associated with brand portfolios which include:
- The high likelihood of brand cannibalization: this is the overlapping of the brands due to exaggerated hotel brands. This can also lead to the cannibalization of the market share of certain brands in the market and more so products that are from the same company.
- Brand portfolios can bring about confusion: the client might be confused, and even frustrated at times by the different brands that are presented to them. Also, they might become immune to the differentiation of the brands thereby going by any brand.
- There is the risk of the loss of brand consistency: there is a high likelihood that a brand will lose its consistency whenever it is being managed by a franchise. If the management is by a company that is independent of the parent company of the hotel chain, the brand can be changed.
Revenue Management System
In hotel chain decision making, it is important to have a system that will facilitate the process. It is common to have a discussion on the application of technology in the management of hotel chains. More so in the context of revenue management. With the challenge of continuous new developments in the information technology (IT) sector, more and more technologies are being developed. As such, IT resources are now more available than they were even online over the internet (Mauri, 2016). For instance, with the innovation of the cloud technology, now databases and application systems can be available to anyone that is connected online all over the world.
Within the hospitality industry’s groups and corporations, revenue management is carried out using expert software. These software have sophisticated and automated optimization and demand forecast capabilities (Mauri, 2016). There are decision revenue management systems as well as recommendation systems. Both systems are being used in the hotel sector. The decision systems give decisions on the steps to take in revenue management after it has processed data. On the other hand, the recommendation system offers recommendations that the revenue managers can decide then to make use of or to ignore and implement their own decisions. Nonetheless, it is critical to note that human judgment cannot be done away even with the incorporation of these systems in the decision-making process. Several software modules can be incorporated into a revenue decision management system.
Case Study: Revenue Management at El Cortez Hotel and Casino
The revenue management strategy at El Cortez is adapted to the changing consumer paradigm. Notably, the hotel struggled after it experienced an economic downturn in the year 2008 which led to the low casino revenues (Cuddeford-Jones, 2013). Interestingly, as a result of the downturn, the spending pattern of the casino customer changed permanently. As such, El Cortez had to adopt to the new environment.
El Cortez started collaborating with revenue management consultants with the intention of generating incremental cash. El Cortez intended to accomplish this using the wholesale and transient channels (Cuddeford-Jones, 2013). The hotel installed a cloud-based revenue management system. The system was designed to deliver market intelligence, pricing recommendations, forecasting, and any historical data for comparison. The application also tracked the hotel booking engine with the intention of monitoring any lost business (Cuddeford-Jones, 2013). As a result, the collected data could then be used by the management to analyze how their pricing strategy was affecting their conversion rate.
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The hotel employed a new pricing approach which did not entail the increasing of the prices across the board. Data that was acquired from the revenue management system indicated that there was demand for rooms that had lower rates especially during the weekdays. This would improve on the hotel’s competitiveness. Nonetheless, it was also clear that there were certain high-pressure periods where it was okay to hike the prices. From data that was acquired from the system, the management reassessed the discount policy. The policy was changed to do away with the discounts in periods when the hotel could still achieve capacity without them. Nonetheless, the discounts were still run through the third party. As a result, the hotel was able to achieve a rise in the cash average day rate at an increased occupancy by 6.3% (Cuddeford-Jones, 2013).
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