REVENUE MANAGEMENT Essay Example

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3Revenue Management

REVENUE MANAGEMENT

Performance Metrics

In the hotel industry, there are three key performance metrics known as occupation rate, ADR and revPAR. Occupancy is the rate which measures the utilization of a hotel’s property or rooms at a particular time and over a given period of time. Occupancy rate helps the management to ascertain the number of rooms that are available for occupation, and also in determination of the revenue per available room. The RevPAR, also known as revenue per available room is a performance metric which shows the amount of average revenue collected in every room that a hotel has. Whereas occupancy rate is calculated by dividing the total number of rooms occupied divided by the total number of rooms available, the revPAR is calculated by multiplying the occupancy rate with the average daily rate (ADR). In addition, revPAR is also arrived at by dividing total room revenue in a given period by the number of rooms available within that period. Average Daily Rate is the average room income per occupied room in a given period. The following is a summary of the formulae of the above mentioned performance metric.

 Occupancy Alternatively:

Competition Analysis

The hotel’s average occupancy rate and the average percentage change indicate that it is performing better than its competitor. The Comp set has an average occupancy rate of 65.3%, which is much lower compared to My property. Besides, there is a significance difference in the average percentage changes in occupancy levels. This indicates that My property has been attracting and retaining guests during the period under review. The hotel is thus, more competitive than its rival.

The hotel’s occupancy level can be attributed to the ADR that is charged to guests. From the analysis of the report, it is crystal clear that the competitors’ average daily rate per room is higher than My property’s. Form the report, the ADR ranges between 40 and 42, whereas the competitors’ ADR ranges between 50 and 70. The average ADR for the competitors is at 69.39 and 58.9 for Comp set and Index respectively, whereas MY property records an ADR of 40.79. Since guests are usually attracted to low rates, it is for this reason that the hotel is receiving more guests than its competitors.

The hotel does not perform well if the analysis is based on the revenue per room available. RevPAR is determined by various variables such as occupancy, number of rooms, number of employees and market conditions (Sainaghi, 2011, p.297). Even though My property has the highest occupancy level, the revenue it collects is much lower compared to the competitors’. The total revPAR for My property is 36.43 and the highest value is recorded for Index, which has a revPAR of 82.2. For the Index, the high revPAR is due to its high occupancy and high ADR. For the hotel, lower ADR affects the entire equations be reducing the impact of high occupancy rate.

The two worst performing days of the week are Monday and Thursday. During Monday, many hotel guests’ end their reservations so as that they can embark into their businesses and jobs. For Thursdays, guest prepare for the coming weekend which begins of Friday since most corporate guests usually use their weekends to explore and have fun with their families.

Another way to analyze the competitors is the performance at the stock market. When there is an improvement in the performance of the stocks in the stock market, it indicates that a hotel is generating much revenue and is able to sell its stock at affordable prices. Importantly, the quality of services that a hotel provides also measures its competitiveness. Hotels that have a reputation of providing high quality services have a competitive edge over of its rivals.

5 Yield Management Strategies

Demand forecasting

The management of the property has to forecast demand by tracking the number of reservations within certain periods. It is important to note that having more rooms does not guarantee that the number of visitors will increase immediately and significantly. In fact, the more rooms a facility have the more the variable costs. The right demand forecasts will help the hotel in price determination. The market conditions are a significant determinant of high pricing categories (Hung, Shang and Wang, 2010, p.378). Therefore, there should be a tracking system that monitors reservations so that it would be easy to use the demand and supply technique to determine the price. The system should allow the management to access historical data regarding occupancy, room type, length of stay, time it takes to book in advance and days when demand was higher than supply. By doing this, the Property is likely to be able to determine appropriate prices for their rooms. Consequently, there would be an increase in revenue. Besides, understanding the customers is also critical in this case. For instance, integrating customer segmentation strategies in revenue management will facilitate demand forecasting and value-based pricing (Noone, Kime and Renaghan, 2003, p.7). Therefore, various strategies can be used to enhance demand forecasting and meet the pricing requirement of the hotel.

Market Segmentation

Market segmentation is an integral part of revenue management. Segmentation is crucial since customers show varying behaviors, which if not taken into account can impact negatively the performance of a hotel. Through market segmentation, the property’s management will be able to know the nature of trips for various guests, length of stay, booking lead time and all the other vital information necessary for facilitating pricing. Yield management decision must incorporate cost implication of customers’ mix and guest ancillary spend (Noone, and Griffin, 1997, p.75). For instance, there are customers who are likely to carryout bookings through the internet, and those whom are not likely to do so. Are they supposed to be charged similarly? Also, some customers’ booking lead time are greater than others, are both supposed to pay similar prices? It should be noted that customers’ behavior is dynamic and it changes depending on information available to them. If you opt to charge a constant price for internet bookings and traditional bookings, while another hotel offers a lower price to internet booking, then it is likely that the Property’s market will shrink. Therefore, there is need to understand what each segment of the market wants, and what price are they willing to accept for particular services.

Analyze the Booking Curve

There is need for monitoring the data since revenue management is all about data and information. The booking curve provides critical information of the patterns of demand during certain periods. Booking information such as low bookings during specific periods is an indication that the hotel cannot charge similar prices to those charged during high seasons. Therefore, the management should develop a tool which allows for booking comparisons, so as to understand how their pricing strategies will work at particular periods.

Price Positioning

Price positioning is a key factor that affects yield. The positioning of the price dwells around the pricing strategies during periods. The management has to identify whether their position of their price is higher than the competitors. Besides, the hotel’s management is also supposed to look into the need for offers and who competitive they are compare to its competitors. Importantly, price positioning is also affected by variable costs. Contextual variable costs should be taken into consideration especially during short-term pricing (Abrate and Viglia, 2016, p.123).

Product Differentiation

Product differentiation allows the management to use inbound logistics to arrive at a price. The rooms should be differentiated based on their characteristics and different prices attached to them. If the room has high-end features, then it must be quite expensive than a normal hotel room. Product differentiation is important in facilitating the justification of lower and higher rates that the hotel offers.

Stakeholders in Yield Management

Management

The management oversees the operations of the entire organization and thus, anything relating to yield management should be communicated to them. The issues that I will communicate to the management are those that relate to forecasting and monitoring. It is the management that has the capacity to use its available tools to carry out demand forecast and monitor the booking pattern and other performance metrics. The senior management will received strategic information such as the overall analysis of performance of Property hotel. The middle managers will receive detailed information about how to overcome the challenges to increase revenue. The assistance that I would need from both levels of management is support to implement the strategy.

Employees

The employees are those who work for the hotel in other positions that are outside management. In this case, they are those people who conduct the day-to-day operation of the hotel. The pricing strategies should be communicated to them because they are the implementers and it is important that they understand what is being implemented. I will communicate to employees the information regarding various prices that will be attached to rooms once the pricing strategies are approved. They will also be informed on how to use the system to do bookings and reservations so as to increase the efficiency of the revenue management system.

Visitors/ Guests

The guests need information concerning the nature of rooms and various prices attached to them. The yield management strategy outlines the types of rooms their respective justifiable prices. Therefore, guests will only need information that pertains to room charges and the features such rooms offer.

Conclusions

Hotels can manage their revenue by adopting yield management strategies. There are various combinations of factors that influence the prices of rooms and services that are offered. Therefore, it is the management’s task to identify which combination suits their operation. In order to measure the performance of a hotel and to asses discrepancies, three metrics are used; occupancy, ADR and revPAR.

References List

Abrate, G. and Viglia, G., 2016. Strategic and tactical price decisions in hotel revenue management. Tourism Management55, pp.123-132.

Hung, W.T., Shang, J.K. and Wang, F.C., 2010. Pricing determinants in the hotel industry: Quantile regression analysis. International Journal of Hospitality Management29(3), pp.378-384.

Noone, B. and Griffin, P., 1997. Enhancing yield management with customer profitability analysis. International Journal of Contemporary Hospitality Management9(2), pp.75-79.

Noone, B.M., Kimes, S.E. and Renaghan, L.M., 2003. Integrating customer relationship management and revenue management: A hotel perspective. Journal of Revenue and Pricing Management2(1), pp.7-21.

Sainaghi, R., 2011. RevPAR determinants of individual hotels: evidences from Milan. International Journal of Contemporary Hospitality Management23(3), pp.297-311.