revenue management 7
The hospitality industry is one of the mostcompetitive industries in the global market. However, this particularsector operates differently from other sectors like the bankingindustry, education, farming, and logistics (McGuire,2016). Hotels have an allocatednumber of rooms, which are required to accommodate guests. Like mostindustries, the hotel and resort industries have peak season and lowseason. The profit of a hotel is limited to the number of rooms, itspricing, and the client. The lack proper management can result inextensive losses for a business with perishable services. As such, itis essential to have a comprehensive understanding of revenuemanagement. Revenue management is a system introduced to enhance thesales of a hotel by maximizing on its strengths and limiting therisks (Hayes& Miller, 2011). Thepaper provides an elaborate discussion on revenue management and itseffects on the hospitality industry and the economy as a whole.
Revenue management is “selling the rightroom to the right client at the right moment at the right price onthe right distribution channel with the best commission efficiency”(McGuire,2016). Hence, hotel managers haveto understand the industry in terms of the perishable nature of thehotel room, the limited rooms of the particular hotel and, the typeof client who can increase the hotel revenue. Notably, during highseason, the hotel rooms are often full and the hotel has no way ofdoubling the capacity of the rooms to accommodate more clients. Onthe other hand, during how seasons, the hotel resources areunderutilized hence the business does not meet its financialrequirements. Revenue management educates managers on how to make theappropriate predictions by analyzing demand against capacity, andinvesting in resources that improve the hotel sales. With thissystem, companies in the hospitality industry can remain relevant inthe competitive market (Crystal,2007).
In the hotel industry, hotel, condominium, andresort management of the annual income is essential. Hotel ownershave to manipulate the pricing system by increasing prices duringhigh season and reducing prices during low season. Apart from this,hotels have to understand the way in which their performance affectsthe microeconomics and macroeconomics today. To get a betterunderstanding of this notion, one has to learn about the history ofrevenue management and its growth to other industries over the years(McGuire,2016).
History of (YieldManagement)
Revenuemanagement is a concept adopted by the hospitality industry in theearly 90s. Airlines such as Marriot international were the firstcompany to invest in this concept hence making them capitalize ontheir annual earnings at the time. Hotels rely heavily on hotelhistory, company data, and market analysis to ensure that they makeproper predictions. Below is a list of the factors to take intoconsideration:
General hotel sales
Previous occupancy rates
Market share of the hotel in question
Customer segmentation (Hayes & Miller, 2011)
Apart from learning these factors, the hotelhas to understand external influences such as competition,performance of other industries, weather patterns, emerging andexiting hotels, and airline operations. The success of the yieldmanagement strategies by the airline industry applied to companies inthe same sector. Hence, one of the beneficiaries of this system washotel owners and franchises who face challenges of a perishablegood/service (Verret,2008).
Hotels and resort managers have to make correctpredictions with regard to targeting the right client base. Clientsplay a significant role in establishing the success and growth of ahotel brand. One of the fundamentals of hotel management is acquiringthe right client. For this reason, revenue management advocates foracquiring the right client, at the right moment, for the right price.Clients get the option of paying less for staying more days or payingless for booking as a corporate group. That way, a hotel can enjoythe benefits of bulk purchases, which represent most of the 60% ofthe hotel revenue (Crystal,2007).
An important aspect that is vital in revenuemanagement is that the market in the industry is flexible. Forinstance, hotels have the provision to change their pricing to suitthe current market unlike other businesses. During holidays,vacations, and business periods, hotels have the advantage ofincreasing their prices to reflect on the high rate of demand foraccommodation. Given that a hotel can experience two high seasons ina year, hotels can generate enough revenue as a company that pricestheir products or services at the same price throughout the wholeyear. In contrast, hotels have to face the reality of low demandduring low seasons. In order to prevent further loss of income,hotels can reduce their prices of their rooms. They can offerconsumer friendly prices, which can attract customers in new marketsegments. Therefore, hotels have to use information of the differentmarket segments that they have. In addition, hotels should diversifytheir products and services to appeal to various target markets. Withthat said, strategic pricing is vital in ensuring that hotels meettheir annual revenue requirements (McGuire,2016).
Given that the industry is very competitive,hotels have a vital role in growing a countries economy. Revenuemanagement affects the dynamics of annual income in a particularbusiness market. Firstly, with proper planning, hotels have theability to generate millions of dollars in a few months. At times,the amount of money a hotel/resort makes may quadruple that of anordinary company (Talluri& Van, 2004). The initialinvestment is the construction of the hotel in question. The moneyreceived in peak season can bring back profitable returns in a shortperiod. When a hotel establishes itself with the right branding andclientele, it can contribute to the growth of its investors,industry, and economy as a whole. In turn, hotels generate taxes,which contribute to the GDP (Growth Domestic Profit) of an economy(Hayes& Miller, 2011).
The hospitality industry represents a largeselection of businesses such as airline services, hotel, condominiumand resort services, and the transport industry. All these businesseswork hand in hand given that the presence of one business determinesthe success of the other. For example, if more hotels open in newmarkets like China, Dubai, and Europe, there will be demand forflights in a particular airline vice versa. In addition, the presenceof airlines and hotels improves the road network and the transportindustry as a result. Revenue management ensures that hotels canmanipulate several factors to ensure that they generate revenue forthe given financial year (Talluri& Van, 2004).
Revenue management also allows a hotel to hirepermanent and temporary staff. This is a significant part of theprocess since hotels have the option of increasing or reducing theirstaff during high and peak seasons respectively. Moreover, usingtemporary staff saves the company money on wages and salaries duringlow season. As such, a company can operate at a low cost withoutcompromising on its maintenance and overhead costs (Verret,2008).
Notably, the development of technology hasenhanced the way in which companies determine pricing, clientselection, and production values. For example, Systems (RMS) assists hotel owners, management, and financialcontrollers in analyzing all the companies operations against theirbudget for the given year using technology. One of the advantages ofemerging technologies is that hotels can be more efficient,effective, and reliable when determining operational costs, costs ofproduction, and pricing. In turn, companies can maximize on thisfeature by making precise predications in terms of pricing (Verret,2008).
In conclusion, revenue management has changedthe dynamics of the way in which the hospitality industry operates inthe current market. Ideally, companies in the hospitality industriessuch as airlines, hotels, and resorts faced a significant amount oflosses in a given year owing to the lack of proper management. Theintroduction of yield management and revenue management in the 1990sencouraged businesses to analyze the opportunity and challenges ofthe industry and maximize on its strengths while minimizing on theweaknesses. Hence, over the years, companies have learnt how toanalyze data from their previous operations. As such, hotels andresorts alike can now apply these processes to their businesspractices and functions to enhance their growth and that of theireconomy.
Crystal, C.R. (2007). Revenuemanagement performance drivers: An empirical analysis in the hotelindustry.
Hayes, D. K.,& Miller, A. (2011). RevenueManagement for the Hospitality Industry.Hoboken: Wiley Textbooks.
McGuire, K.A. (2016). Hotelpricing in a social world: Driving value in the digital economy.
Talluri, K.T., & Van, R. G. (2004). Thetheory and practice of revenue management.Boston, Mass: Kluwer Academic Publishers.
Verret, C.(2008). Hotelsales and revenue management book 2.0.New York: iUniverse