The Revenue Management Strategy - Essay Example

Revenue management strategy helps to discriminate between the customer who seeks for low cost and minimal service, with some other those are radically paying more attention to high-quality service and convenience level. Kimberley et al. (2010) describe revenue management as a means to innovation. It helps hotel managers to create new products and services and also the associated pricing strategy. According to Talluri and Ryzin (2004), revenue management strategy accounts for 53-75 % of its total revenue, although in reality there are some hotels that have experienced much higher impact. In a hotel, the revenue management strategy helps to control and manage the overall revenue efficiently. It is very important especially for the big hotel chains, to reach their customer’s expectations and manage technological tools such as computer programs and reservation systems in an appropriate manner. Thus, the hotel sector needs to make sure that rates charged by them are suitable for the market, seasonality and competitor set.

Revenue management strategy is extremely advantageous to a company as it allows an organization to provide personalized service to its customer irrespective of the capacity of the customers. Investment in this strategy helps to categorize the significant market segments and creates valuable market opportunities (Irene, 2005). Revenue management is not about setting and updating the price strategy but updating the availability of price strategy during the booking period. Revenue management helps the hotel to customize its pricing strategies according to the individual needs of the customers. This helps the hotels to extract consumer surplus and transform it into organizational surplus, which results in increasing the overall profit of the hotel. However, it can be risky and highly destructive if companies make their price decisions incorrectly. In this situation, it might not be possible for the revenue managers to make correct decisions. Further, if the revenue management procedures are not followed correctly, it may cause a loss of money.
Customer satisfaction is ensured by the professional implementation of a revenue management strategy. The use of revenue management has a number of advantages from customers’ perspectives. It facilitates the allocation of the available service in the most productive way. It helps the customer to get their room in a hotel when the requirement arises. With the help of this strategy, price-sensitive customers have got new opportunities to conduct their deals in an effective way, especially during low demand times.

Although revenue management yields several advantages for the customers, it also creates a number of potential disadvantages for the customers, such as unfairness (customer may perceive that they are treated unfairly by the hotel), perception problems (for example, bearing differentiate pricing strategy for the same product might provide a bad image on the customer’s mind) etc.

The revenue management process mainly focuses on creating competitive pricing for the organizational products and services. From the employee’s perspective, the changes in the pricing strategy can bring in challenges in the operational functions (Ismail et al. 2002). For instance, if the price has to be lowered, the business will cut down on the operational expenses which will also influence the work culture and the work process of the employees. On the other hand, an increase in the pricing process will create the pressure of performing on a higher quality standard (Younes and Kett, 2003). Moreover, the revenue management strategy also focuses on the performance of the workforce which creates an equality-based performance appraisal process for the employees.

However, the implementation of a revenue management strategy lowers the morale of the employee from their job, as this strategy reduces the contribution of employee input from the price-setting process of the products. Read More