Application of Revenue Management Practice in the Hotel Industry - Essay Example

Application of Revenue Management Practice in the Hotel Industry Revenue management within hotels happens to be a practice, which has developed extensively within a relatively short history. Embraced by hotels in the 1980s, following the airline industry’s demonstration of extraordinary success utilizing inventory, capacity, as well as and pricing in managing revenue, revenue management turns out to be one of the most essential and identifiable concepts in hotel operation strategy. Nonetheless, perhaps understandably, modern hotel revenue management brand varies extensively from that of more than two decades ago. Modification in the general handling of revenue management, inventory allocation, pricing strategy, use of information and channel management as concerns to revenue management tend to redefine the field. Similarly to how detailed past analysis might have a representation of the best pricing practice during the 1990s, apparently, the stock market-impacted algorithms exist in the cutting edge of modern pricing thought. Comparably, the highlighting on occupancy or average day to day rate, which might have dominion over revenue managers’ outlook over two decades ago has led to the dominance of revenue per available room i.e. RevPAR. Instances like this abound hence this article will endeavor to share all of the revenue management expertise with readers, in a series examining the modern revenue management’s best practices (Kimberley, Trevor & Juston 2008, p.12). Strategic Pricing Pricing tends to a feature of revenue management, which features a number of intriguing, as well as innovative developments recently. Whereas pricing has continues to be a significant driver having an effect on both occupancy, along with RevPAR, in the present environment surrounded by exceptional price transparency, rates have taken an even bigger role. Ascertaining the optimal rate to give to a potential customer tends to be one of the most significant concepts of revenue management. The basic fact that the appropriate rate- one that achieves the balance between replicating enough demand in maximizing occupancy, while at the same time, not deserting money on the table within the form of low down ADR turns out to be the key to a profitable revenue management strategy causing pricing perhaps the most significant concept of revenue management. Then how is a hotel capable of determining what the best rate has to be any time? In the past, this would center on historical analysis, while, at the same time, computed by the application of a discount to a fixed rack rate. In this case, there is no achievement of the objectives of revenue management, and in a modern environment, they are incapable of providing a competitive advantage that is adequate; therefore, the best revenue managers, as well as revenue management systems are dependent on the stock market principles in the formulation of complex algorithms, which are capable of generating with exactness of the optimal rate. Apart from that, these systems tend to work perfectly in real time, thereby making subtle modifications at brief gaps of time in the maintenance of the best rate. Therefore, in this case, the two most excellent practices at work tend to be automation, as well as an advanced algorithmic tactic of pricing (Roy & Bob 2008, p.31). The Stock Market Pricing The rule of optimum pricing happens to be familiar to financial experts, especially those working with commodities. In the case of hotels, it turns out to be a less familiar concept, yet there is no reason as to why this should be the case. High-performing hotels use a comprehensive system of revenue management, which sets prices on the basis of both historical considerations, as well as current market conditions, providing it twice the choice of pricing strategies that are more traditional. Subsequently, these systems happen to be a reflection of similar systems within the place at financial companies. The majority of financial price-setting formulae use two decision makers in making sure that the highest level of efficacy, whereby one system corrects while accounting for the other; highly developed hotel revenue management programs apply the same formulae. A hallmark of these inventive revenue management systems tends to be dual programs: a major program, along with a secondary program (Singh 2004, p.31). The primary program is responsible for the generation of rates on the basis of historical data, putting into consideration the positioning of pages on online sales channels, inventory availability, competitors’ rates, together with other variables, and executing them athwart the sales channels. On the other hand, the second program is responsible for monitoring the first program when it comes to its effectiveness, while, at the same time, making amendments appropriately. This process, which turns out to be a mathematical generator attached with an efficacy-driven supervision program, tends to be the foundation of each neural network applied by large trading organizations. Beating in mind that these two programs function off of one another; therefore, the system in totality turns out to be adaptive. These adaptive features of these revenue management systems are what enables them to constantly outperform traditional revenue management methods, something that truly underscores the advantage of the application of stock market standards to revenue management of a hotel (Singh 2004, p.51). Automation The inventive feature of the above systems, as well as all of their algorithmic, along with computational power might be wasted in the absence of considerable measure of automation. Automation happens to be the best practice, which in most cases tends to develop or damage a pricing concept of a revenue management system. Ascertaining which channel is capable of selling inventory fastest, tends to be a one minute decision, and the automated system deals with that will power. Furthermore, an automatic RMS of the suitable sophistication is responsible for making those decisions using less information compared to when done by a human revenue manager. Therefore, a computer program that is algorithm-based is capable of recognizing, by brushing through data faster, as well as through extrapolating tendencies and trends with less raw input, the channel that is functioning best, and apportioning inventory there at the suitable price. This is capable of and must happen automatically; hotels incorporating a high level of automation within their revenue management systems tend to exhibit the best practices of an industry (Kimberley, Trevor & Juston 2008, p.51). Broad Approaches to Revenue Management As modification in revenue management’s approach have thrived in the recent past; those methods working best have differentiated themselves as a unique type of best practices. The preeminent techniques of revenue management in general happen to be using RevPAR as the main metric, and those emphasizing the use of revenue management systems in enhancing revenue managers’ efficacy, instead of making revenue managers assume responsibility of the endless calculations, as well as pricing updates. Within hotels, exhibiting best practices of RM, revenue managers have to think proactively, and not reactively, thereby focusing more on the optimization processes, while, at the same time, working with other sales and marketing teams in the expansion, as well as implementation of long-term pricing approaches (Verret 2008, p.31). RevPAR At the beginning, of revenue management, occupancy turned out to be the metric of the time; the tune of ‘heads in beds’ happened to be on the lips of each general manager, as well as hotel owner, with the underlying principle being that higher occupancy certainly lead to more revenue; an approach that has changed significantly, while, at the same time, continues to evolve. Latest metrics of the moment come up daily, with a number of analysts, as well as experts flaunting ADR and even exotic structures such as GOPPAR as the most excellent yardstick for the determination of revenue management efficacy. The most excellent measure continues to be RevPAR; therefore, a hotel using RevPAR as its guiding objective for a revenue management approach turns out to be a hotel that is displaying the best approach to revenue management. Apart from that, RevPAR continues to be the only revenue management metric, which a hotel is capable of literally taking to the bank; therefore keeping RevPAR at the front position of any revenue management strategy happens to be the industry’s best practice (Verret 2008, p.39). Revenue Management Systems The majority of hotels, along with some revenue managers, have a latent doubt of revenue management systems, driven by the perception that it is impossible to compare a comprehensive RMS, which happens to be the one handling aspects of pricing, distribution, channel management and inventory management and distribution to the performance of a trained, as well as talented revenue management team. Nonetheless, the best hotels embrace RMS as technological advancements to existing teams of revenue management, an enhancement that frees significant personnel so that they are capable of working on beneficial, revenue-generating activities instead of revenue management maintenance minutia. Completely-function RMS tends to interrelate with the act with property management systems, while, at the same time, performing all of the duties outlined above tend to be indispensable to hotels that are high-performing both of the variety of large-chain, as well as amongst independent properties that are forward-thinking. The utilization of such systems turns out to be the best practice within the industry (Kimberley, Trevor & Juston 2008, p.72). Every one of these best practices i.e. utilizing stock market standards and systems based on the pricing strategy, execution of that pricing approach with automation, the approach of revenue management via a RevPAR lens, while, at the same time, emphasizing on comprehensive RMS systems, turns out to be in use the majority of the top performing hotels within the UK and all over the world. Furthermore, every one of these practices is implementable for any hotels wishing to develop a competitive advantage within their markets. These sections of revenue management have a link to the primary group of best practices mentioned above: strategic pricing, which depends on both real-time information, as well as accurate price predictions; along with overall revenue management approach influenced by the aspect of rate discipline. Similarly to the revenue management approaches examined above, the best practices in using information, rate discipline, as well as prediction has developed as time passes. Less than ten years ago, the most excellent and most recent information obtainable concerning competitors’ rates appeared in quarterly at reports by Smith Travel Research, or via call-around rates, GDS, along with rack brochure rates. However, that same data are consistently obtainable and readily accessible and not in call-rounds. Similarly, price and rate prediction are achievable through historical tables consultation; rate of discipline, as well as its effects on the identity of the brand, along with future room sales, was rarely contemplated two decades ago. Nonetheless, presently, the most excellent revenue management systems apply highly developed algorithms in the generation of best prices (Roy & Bob 2008, p.101). Rate Discipline In most cases, the rate discipline comes up when referring to discounting or rate cuts. This theory upholds that implementing deep discounts in order to boost occupancy or arouse demand, which happens to be a common practice in the course of recession, tends to deteriorate the brand image of the hotel. As earlier mentioned this practice can sometimes run contrary to other significant objectives; therefore, sacrificing occupancy so as to maintain firm rate discipline is capable of being financially negligence as knee-jerk discounting. As a result, the best practice, then, dynamically regulate rates on the basis of demand, devoid of going too far in whichever direction. The experience of the main impact of rate discipline is on the brand of the hotel. The existing connections between price, as well as quality, tend to be natural for consumers to formulate; however, perceived quality turns out to be a major constituent of the brand image of any hotel. Therefore, a rate discount is responsible for negatively affecting a hotel’s brand. This happens to be a simplification since a number of hotels define their brand through bargain prices, as well as a high rate, something that does not assure positive brand development; nonetheless, a correlation does exist in this case (Singh 2004, p.62). This impact is real hence it is impossible to dismiss it considering that brands possess immense value. Studies indicate that brand value is responsible for almost 38% of the worth of the companies owning them. Therefore, if discounting turns out to be detrimental to a hotel’s brand, while, at the same time, the maintenance of one static rate is evenly damaging to RevPAR, as well as occupancy, then the answer lies in variable rate, customized in real-time to suit demand conditions. This removes the either-or dilemma of whether to embark on discounting or not; rather, the highest rate expected to generate a sale goes to the perfect customer at the perfect time. This is attainable through the utilization of revenue management systems that are advanced, the most excellent of which will lead to optimization position of page on OTAs, management of multiple sales channels, together with the management of room inventory. However, for maximization of occupancy and rate to take place, automation happens to be the key; therefore, it is a prerequisite for rates to be adjusted subtly, in real-time, in order to evade the drawbacks of discounting in a wide scale. Subsequently, just because a hotel gives a certain rate does not necessarily mean that a consumer will grasp that rate; rate discipline via dynamic pricing offers a workable result to this axiom (Singh 2004, p.69). Using real-time information Similarly to other industries, the hotel industry has entered into the information age. Contrary to some years ago when information concerning the whole lot from competitors’ rates up to booking pace up to demand levels was securely held by an exclusive few gatekeepers; presently, all of the information required in setting the perfect rate tends to be always accessible to hoteliers. Unfortunately, the majority of hotels fail in adequately obtaining this information, and when they do, they fail terribly in leveraging it effectively. Therefore, the best practice in utilizing information tends to be exemplified by the developed revenue management systems practiced in a number of hotels, which continuously consults demand levels, while, at the same time, monitoring competing hotels’ rates, as well as making modifications to the rate provided on the basis of this real-time information (Verret 2008, p.47). The main reason why this valuable information tends to be widely available at the moment is due to the advent of Internet sales considering that each hotel posts rates online via a variety of sales portals, those rates are capable of monitoring them. There are increasingly high room sales made via the online sales channel, thereby making it possible to assess the demand levels minute to minute; considering that hotels have unfettered accessibility of this information via the web, they tend to do something on it in a manner that is both quick and decisive. However, to do this effectively, hotels require the right tools; most of the time, these tools are in an inclusive, automated revenue management system, which are capable of accurately predicting movements within the price of a hotel room (Verret 2008, p.52). When a hotel has effectual revenue management practices, this tends to be beneficial to customers since the hotel has a website that indicates everything concerning that hotel, that is accessible to its customers or even potential customers. This enables customers to access the rich editorial content provided by the website, especially with the sophisticated search technology, as well as inventory numerous hotels and airlines. Considering that all travellers have highly distinctive priorities, which tend to change depending on the occasion, their plans, as well as their general travel preferences; therefore, it is essential to consistently expand the range of filters offered to enable users find exactly the right accommodation offered to them. Apart from that, users get inspiration from website content, together with the ability of refining this choice depending on their preferences, while, at the same time, booking with assurance that they are making the perfect choice by checking the choices with the help of a variety of mapping options, summaries of comments and photos posted by previous customers. Consumers tend to use an assortment of tools, as well as sites when they plan and research their travel online; therefore the website simplifies the whole process by offering relevant, complementary services of saving travellers time during their research. This process is decidedly much about conveying the hotel’s service to the users thereby saving them time. Furthermore, there is the ready access to several services offered by the website, for instance, hotel deals, co-branded weather tracking and last minute deals; this keeps the users updated with the latest deals, weather, as well as currency changes whereas carrying on with their normal browsing activities (Kimberley, Trevor & Juston 2008, p.102). According to the two articles whereby this article came from, the initial article turned out to be remarkable considering that it was more detailed on how to apply revenue management practice in hotel management, as a matter of fact, most of the material used in compiling this essay came from that article (Kimberley, Trevor & Juston 2008, p.104). Nonetheless, the second article turned out to be incomprehensive hence failed in providing exhaustive information about this issue, although it was also significant in compiling this essay. There are a number of other articles written about application of revenue management practice in hotel management found in the Internet; however, most of them tend to have their basis on similar information; as a matter of fact, there is no article amongst them that provides distinctive information. All of these articles reminisce about the application of revenue management practice; the only distinctive factor is that each one of them talks about how revenue management practice is applicable in different industries different from the tourism industry in the later sections, for instance every one of them focuses on distinctive companies like oil firm, manufacturing company and transport company. References: Kimberly A. Tranter, T. S.-H. J. P., 2008. An Introduction to Revenue Management For The Hospitality Industry: Principles and Practices for the Real World. Carlifonia: Pearson Prentice Hall. Roy C. Wood, B. B., 2008. The Sage Handbook of Hospitality Management. Strathclyde: SAGE Publications Ltd. Singh, T., 2004. New Horizons In Tourism: Strange Experiences And Stranger Practices. Wallingford: CABI. Verret, C., 2008. Hotel Sales and Revenue Management Book 2.0. Chicago: iUniverse. Read More