Revenue Management in Hospitality - Assignment Example

Revenue Management in Hospitality Introduction The concept of Revenue Management (RM) has emerged as a popular revenue generation strategy that is being utilized by industries across the globe. A prominent example of this is the Hotel and Tourism sector, which focuses on the development and implementation of a revenue management mechanism that would ensure generation of higher revenues, consequently, leading to higher profit margins (Cross, 1997). One of the most important techniques of successful implementation of RM is the Yield Management (YM), which is concerned with the generation of maximum revenues through optimum utilization of available resources. YM majorly focuses on revenue generation and management by emphasizing the concept of ‘4 C’s’, comprising Calendar, Clock, Capacity and Cost associated with forecasting of demand. From the provided case study, it has been identified that Aldermar Resorts & Spas is a premium and luxurious family run company that specializes in the hotel industry and is located in Greece. The business is recognised to be facing a number of problems associated with fluctuations in demand patterns. Hence, the operation management consultant is to concentrate on the development of an YM strategy that would replace the existing strategy used by the company in order to ensure effectiveness and success of the YM performance in the business operations. The report would outline the importance and applicability of YM in enhancement of performance and would assess the impact of CRM integration in YM. Furthermore, the report would concentrate on discussion of the various job roles that must be adhered by the staff members concerned with the implementation of YM. Moreover, the report would examine the strategies that can be used by Aldermar Resorts & Spas to enhance performance and mitigate the problems. Finally, the report would disclose a number of YM metrics that the firm needs to consider for performance assessment and generation of higher revenues. Importance and Applicability of YM in Increasing Hotel Performance & Revenues YM is considered as one of the prominent tools to determine the risks associated with decisions taken by the firm to ensure generation of higher performance and revenues in the present as well as future markets. Aldermar Resorts & Spas comprises eight properties that have a distinct client mix including conference guests, individual clients and tour operators. Each of the eight properties is concerned with application of a unique product mix, which assures successful application of the YM strategy with due consideration to the available resources. The problem of high fluctuations in demand and inability to forecast the future demand variability has made it necessary for the firm to develop and apply a new YM strategy. The YM strategy would assist the firm to focus on capacity management and control the existing strategies with an aim of minimizing problems and maximizing revenues. The firm acts as a subsidiary unit under the influence of Opera Property Management System (PMS). The parent company is having a strong RM mechanism and focuses on the utilization of a computer based YM system that allows successful integration with the Electronic Distribution Systems (EDS) and ensure Customer Relationship Management (CRM). In addition, YM encourages the use of Information Technology (IT) that allows the firm to take appropriate decisions pertaining to management of demand and supply along with proper pricing mechanisms for the eight properties. However, in case of Aldermar Resorts & Spas, there is a need to focus upon the generation of revenues through successful integration of computerized YM with the firm’s strategies and internal structure. Each of the eight properties needs to follow a certain pricing mechanism, comprising the three interdependent pricing structures that include operational, strategic and tactical pricing scheme. YM can be successfully implemented throughout the organization, if it is being applied in the firm based on differentiated levels and pricing structures (Lieberman, 2011). Successful applicability of the YM depends upon proper utilization of the Human Resources (HR), apart from optimum use of the technological aspects. This would facilitate in forecasting of the demand and analysis of the facts undermining the market mix that is being utilized by the properties of the firm. Since, the firm cannot fully rely on the use of computers to ensure successful implementation of YM, there is a need to focus upon human intelligence, which would be ensured through development of the employees’ skills and competencies, conducting training classes for the employees engaged in reservations and sales. This would facilitate in gaining an insightful knowledge of the factors associated with the impact of employees upon YM and vice-versa. Focusing upon the employees would further ensure that the firm is able to achieve its objectives and exploit the available opportunities that would allow differentiating the hotel rates based on market segment and emphasize the channels of distribution. Furthermore, stressing on the involvement of HR in the process of implementing RM leads to the establishment of a culture. The higher management through motivation of employees and ensuring their participation in the managerial decisions propels the culture. Aldermar Resorts & Spa, in order to ensure successful implementation of decision-making within the organizational strategy, must ensure that a team culture is being incorporated within the organizational boundaries for attaining success in future (Jones, 1999). High level of operational decisions taken by the top management also plays a key role in determining the success of YM and its future applicability. These allow the managers to ensure that they are able to make proper allocation of rooms and generate the forecasted revenues. Applicability of YM would further facilitate reservation of rooms in future with the highest rates of occupancy. The application of YM would further depend upon the ability of the employees to manage multiple day stays and enhance the operational decision making strategy. Aldermar Resorts & Spa would be able to implement the YM successfully by managing the managerial roles and enhancing the abilities of the managers to handle unpredictable demands. Fluctuations in the demands would further be managed through proper training and development as part of the application of YM (Jones, 1999). Flexibility in the operations can also play a key role in determining the level of success for the firm, as it would depend upon the firm’s ability to accommodate loyal customers in case of requirement through application of special rates. Interference of HR in the process of YM would further facilitate the firm to preserve goodwill and ensure success in long run, especially for the long-standing customers. Furthermore, YM can be successfully applied with the help of customized services that would be facilitated by integrating HR in the process of YM application. Applicability of YM with the help of HR would also enable the company to achieve its business objectives, gain a better understanding of the customers and their perceptions, effective management and manipulation of data and identification of the effect of displacement on reservations. Furthermore, Aldermar Resorts & Spa would be able to grab larger information, which would ensure a better understanding of the target markets and make proper amendments in the existing strategies accordingly. Moreover, application of Multi-Property Yield Management system would ensure successful calculation of revenues and design customized packages for the existing and upcoming customers considering their preferences (Okumus, 2004). Role of IT in enabling YM strategy and assessing impact of CRM and Distribution systems in YM IT plays a key role in determining the success of the application of YM, since it is a major contributor towards implementation of YM. IT plays a key role in successful implementation of the YM strategy, since, nowadays, there exists a limitation on the day-to-day capacity in the hotel and tourism industry. Aldermar Resorts & Spa is one such firm that needs to concentrate upon the development of a successful IT infrastructure to ensure success, face the challenges of emerging competition and generate higher revenues, thereby minimizing the costs associated with providing services to customers. In order to ensure that YM is implemented successfully, there is a need to lay stress upon the development of IT, which would assist the firm in disbursing the exact amount of services and inventory to the specific customers at the exact time and location. With the development of Information and Communication Technology, there has been a constant rise in the effectiveness of gauging the YM, as it is facilitated with the help of Computerized Yield Management Systems (CYMS). CYMS helps in evaluation of the application of YM through successful incorporation of the IT system within the organizational framework. Aldermar Resorts & Spa with the aim of boosting the revenue generation capacity, needs to focus upon the various systems and their level of interaction, which would in turn determine the success of the firm in generating revenues (Ivanov & Zhechev, 2012). A majority of the CYMS functions are being performed with the help of modular computer programs, which are supported with the help of large storage databases. These databases include valuable information pertaining to market and capacity, which helps in assessment of future demand and revenues. The modular computer programs are known as Decision Support System (DSS) that emphasize a number of factors such as strategy of the firm, the availability of actual market information, optimal pricing decisions and forecasting of sales and profits, apart from information associated with competitor pricing and reaction. Such factors can assist the managers concerned with implementation of YM to engross higher revenues. DSS would further be supported with the help of other three important fundamental mechanisms comprising Database Management System (DBMS), Dialogue Generators and Management Systems (DGMS) and Model Base Management System (MBMS). DBMS enables the DSS to extract information from the integrated databases, which is generally known as Property Management System (PMS) in relation to the Hotel and Tourism industry. The core feature of PMS is to gather, store and maintain appropriate levels of information pertaining to the available inventory and the price tag that must be considered prior to its use in the actual market. Central Reservations System (CRS) and Global Distribution Systems (GDS) are some other commonly known systems that ensure successful collaboration of the CYMS by ensuring space for automated transactions that allow third parties and agents to connect with each other and provide maximized services to the end customers. PMS can be utilized as a CYMS in the future, the success of which would be reflected through higher room bookings and revenues (Ingold, McMahon-Beattie & Yeoman, 2012). Aldermar Resorts & Spa with the purpose of ensuring effectiveness in its business operations and increasing the level of revenue generation must try to ensure that the organization is able to implement the CYMS in a successful manner. The purpose is to ensure that the Revenue Management System (RMS) is integrated in a manner that increases the efficiency and competiveness of the firm. Furthermore, successful implementation of the RMS would act as a competitive advantage, as the company would be able to minimize the costs, increase its profit margins as well as operational optimization. Moreover, RMS would allow the firm’s revenue managers to assess the behaviour of the clients and the market segmentation techniques to be used to attract customers. One of the core benefits of RMS is that it can help in identification of the demand patterns, based on the availability of past and present information. Furthermore, it would allow the firm to determine a pricing mechanism with due consideration to the forecasted demand patterns in the process of implementing YM (Ivanov & Zhechev, 2012). CRM is considered another important technique that can play an important role in ensuring the success and efficiency of RM. Acknowledging and quantifying the positive effects of CRM is essential to ensure the success of the firm through establishment of profitable relationship with the targeted customers and minimization of the efforts that require addressing of unproductive customers. Aldermar Resorts & Spas through successful integration of a CRM mechanism can recognize the customers, apart from identification of their demands. CRM would require the firm to participate in direct interaction between itself and the customers by way of online or offline marketing channels and maintains high level of customer service, which would lead to customer satisfaction. Aldermar Resorts & Spas also needs to stress upon the concept of Consumer to Business (C2B) and Consumer to Consumer (C2C) relationships, which would focus upon providing optimum services to the customers in return of the prices paid. Hence, revenue managers associated with implementing of YM are constantly faced with the challenges of developing an interactive and regular process that focuses upon the development of customers to ensure long-term organizational success (Bitran & Mondchein, 1995). Identification & Analysis of Roles, Responsibilities and Information Needs of Staff Success of RM depends upon the performance and fulfilment of job responsibilities by the staff members concerned with the implementation of YM. A number of structural arrangements, apart from organizational culture and training of the employees are considered to be vital for the success of YM. In the process of deploying YM, there is an increased need to emphasize team building that would require commitment and participation from the team members. In YM, there exist three major decision-making levels that include operational, tactical and strategic decision making. An operational decision-making would require dealing with the employees concerned with direct interaction with the customers. Furthermore, to ensure the success of YM, it must be ensured that the employees at every department of the firm are bestowed job responsibilities associated with implementation of YM. This would ensure that YM is being implemented throughout the firm and in all of the departments. In addition, the operational department concerned with deploying YM must integrate its responsibilities with the reservation department. This is necessary since employees in the reservation department are in direct contact with the customers, who wish to make reservations and ask for enquiry. The staffs have the responsibility to resolve the queries as they arise and take prompt decisions that would facilitate the customers to make reservations. Additionally, the reservation department is concerned with the offers, booking and cancellation services, apart from determining prices and ensuring room availability. Generation of higher revenue can take place with the help of room sales maximization, which includes making use of rate controls (Jain & Bowman, 2004). Staff members also provided with the responsibilities of evaluating and interpreting the information that has been recorded with the help of PMS system in association with the senior team members. The staff members in operational department are mainly concerned with taking firm and real-life decisions, which serve the short-term needs of the firm in implementing YM. Tactical decision-making is another strategy that is used by the middle-level staffs. Staff members have to follow the decisions made by the superiors and carry out processes such as dealing with excessive reservation needs and forecasting about the future decisions. In addition, the forecasts would allow the staff members to gain a comprehensive knowledge of over bookings, which are considered an essential part of YM. To ensure that the firm generates higher revenues and maximizes profitability, the importance of over booking must be taken into consideration in Aldermar Resorts & Spas. This is because the hotel industry runs on the uncertainties of cancellation, which might hamper the firm’s sales. However, over booking might also lead to lack of adequate resources for customers who have made early bookings and can consequently lead to customer distress hampering the revenue generation ability (Brotherton & Turner, 2001). Tactical pricing, as the name suggests, refers to determination of the prices based on tactics that help in engrossing higher revenues such as short-term sales window. Managers are the management heads, who are concerned with devising such tactics, as they help them to ensure success through maximization of the revenues in short span of time. Downward Rate Adjustments is one such tactic that is entirely based upon targeting the same day and week booking customers. The responsibility to carry out the same day booking entirely depends upon the staff, since they are responsible for determination of lower prices, forecast demand patterns and occupancy rates that are further supported by PMS. At the strategic level, the responsibility to frame decisions lies with the General Manager (GM) of the firm, who is supposed to design and implement a long-term strategy that would support YM. The statistics underlying performance of the hotel would act as data to be utilized by the GM prior to implementation of decisions. In addition, successful implementation of YM would require GM to recognize market segment structures, allocate room prices and price structure for individual market segments (Jauncey, Mitchell & Slamet, 1995). Moreover, GM is responsible for determining the level of capacity that is distributed among the tour operators, take decisions on room prices for business clients along with engaging in long-term contracts with such clients. The people working in senior departments, GM and corporate officers would support the long-term decisions, which would allow formulation of future prices and demand trends based on historical demand patterns. Decisions pertaining to the future demands would be catered by way of YM model that would support analysis of past information, which would be followed by reservation inventory i.e. actual demand. There exists the responsibility of the manager to compare and contrast the actual demand with the forecasted demand that would facilitate gaining an understanding of the success of the decisions undertaken. Moreover, GM needs to analyse the available information on market composition and the rate of non-arrivals of customers to make amendments in the existing rates and policies (Prideaux, Moscardo & Laws, 2006). Strategies and Practices to Mange Customers Perceptions on Unfairness A number of problems can arise in the process of implementing YM, such as wrongful perception of customers regarding unfairness in the firm’s service delivery. This can have a direct impact upon the customer satisfaction levels, which can in turn, affect the revenue generation ability of the firm. Hence, there is a need to determine a number of strategies and practices to overcome such potential issues, which would be supported by pricing techniques, market segmentation and revenue maximization. Such techniques might tend to hinder customer perception and lack of customer loyalty. In this respect, the firm needs to prioritize the loyal customers rather than focussing only upon the new customers, which would benefit the hotel in the long run. Furthermore, considering the rise of internet usage amongst the customers, the hotel needs to determine the prices appropriately and distinguish them from competitors’ prices. The firm in order to differentiate the prices in one segment from others can adopt Price Fencing mechanism that would allow determination of special prices, employ advanced reservation schemes and non-refundable deposits (Talluri & Ryzin, 2006). Higher prices must be set for the last-minute bookings, apart from Non-refundable deposits, which would prevent cancellation by the customers. Stay Controls is another mechanism that must be used by the firm that would require minimum level of stay by the customers, which would assure of a minimum level of revenue generation. Volume must be treated as another essential factor that would play a vital role in determination of the success, as it would ensure that the loyal customers are provided services at lower rates in comparison to new customers. Bundling pricing is another strategy that must be used by the firm to ensure success and avoid unfairness through concealing individual pricing and generation of higher revenues. Aldermar Resorts & Spa can also focus on providing joint offers and additional; services to the customers, such as spa treatments and beverage facilities. Premium Pricing is another strategy that can be utilized by the firm to differentiate itself in terms of quality products and services. This would include providing services such as upgrades and express check-in for the customers willing to pay premium prices for the catered services (Kimes, 1989). Aldermar Resorts & Spa should make use of a number of strategies that would lead to efficient generation of revenues, such as an enhancement in the firm’s webpage. This would include establishment of price fencing for alternative reservation schemes such as advanced booking and bundling pricing among others. It is important to note that the product and services sold by the firm are having a higher quality status than that of the rivals. Additionally, the firm must also take care of customer sensitivity to price changes and that can have an impact upon the revenue generation ability of the firm. Furthermore, setting the prices as per the demand levels would allow the customers to book their rooms as per their requirements and would provide an opportunity to the firm for ensuring that there exists a positive perception amongst the customers regarding the premium services. The firm must also establish a loyalty program that would provide the premium customers with the opportunity to have recognition and receive rewards. Furthermore, the loyalty program would include services such as free upgrades and priority queuing among other benefits. Booking history must also be recognized prior to determining price decisions. Establishing transparent relationships with the customers would allow the firm to create a positive attention in the minds of customers, as the customers would be able to make themselves clear about the terms and conditions predetermined by the hotel. Enhancement of the ‘rack rates’ and providing ‘discounted price’ would enable the customers to perceive that the prices are fair, which would consequently led to an increase in revenue generation for the firm (Tranter, Stuart-Hill & Parker, 2009). Yield Management Metrics Needed The firm must utilize a number of YM metrics in order to ensure that it is able to measure the performance and impact of the YM progress upon the core business areas involving sales, customer services and others. A number of Key Performance Indicators (KPI) would help in facilitating calculation of the hotel performance that would include a number of internal and external KPI’s. Internal KPI’s for the hotel would include a number of Average Daily Rate (ADR), Occupancy (Occ), Revenue per Available Room (RevPAR) and Gross Operating Profit per Available Room (GOPPAR). Occupancy can be considered as one of the prominent KPIs utilized by the firm to measure the performance as well as revenue generation ability and assess the future demands by dividing the rooms sold and rooms available in a specific time multiplied by 100 (Legoherel, Poutier & Fyall, 2013). Calculation of ADR is performed by dividing the room revenue by rooms sold. It is necessary to measure ADR, as it enables the firm to gauge competitors’ offerings, devise strategies to position hotel brand and gain market share. RevPAR is another potential tool that combines ADR and Occupancy in a simple digit format. GOPPAR is another important KPI that is concerned with measuring the profitability of the hotel, through a comparison of the gross profits earned by the firm divided by the availability of rooms in a specific period. GOPPAR helps in the analysis of overall profitability of the hotel along with its revenue generation, performance and cost efficiency. In addition, GOPPAR is identified to be an essential consideration in measuring the effectiveness of YM, as it helps in gaining an idea of the operational inefficiencies that can hinder firm’s growth in the future (Ingold, McMahon-Beattie & Yeoman, 2000). The aforementioned KPIs play a key role and act as metrics in the determination of the effectiveness of YM. However, Aldermar Resorts & Spas can use a number of commonly used contemporary metrics, such as selection of metrics based on the revenue generated by the hotel on a per square feet basis. This would help the hotel to ensure that the performance of the hotel is enhanced, apart from gaining effectiveness in utilization of available resources and property. The firm in order to analyse the performance of hotel can also utilize a number of external measurement techniques that would measure organizational performance, based on factors of firm’s history, its competitors and the budget of the firm. The commonly used external measurement tools are competitive set, fair share and market penetration. Aldermar Resorts & Spas can employ a number of variables such as geographic location, ratings, brand affiliation and amenities provided by the competitors. After analysis of the variables, the hotel needs to evaluate the market position of the competitors through analysis of their total combined capacity and market portions acquired. After gathering the required information, Aldermar Resorts & Spas can frame marketing strategies accordingly, and could establish a positioning strategy as per the facts derived from KPIs regarding competitors. Availability of such crucial information would enable the employees and managers of Aldermar Resorts & Spas to ensure that the pre-determined performance is achieved with an increase in the revenues. A number of additional KPIs, such as Internal Rate of Return (IRR), Return on Investments (ROI) and Payback Analysis can also be utilized by the company towards ensuring maximization of revenue generation ability (Ahmat, Radzi, Zahari, Muhammad, Aziz & Ahmad, 2011). Conclusion The aforementioned study provides a comprehensive overview of the various factors that are considered to be vital in determining the importance of the concept of YM in the process of maximizing revenue generation. It has been recognised that there are various factors such as high level of decisions and role of HR in ascertaining the success in the applicability of YM. The use of DBMS and other tools have been revealed to be important that plays an important role towards determining the importance of IT in the process of enabling YM. Furthermore, also it has been recognised that focus has been made on aligning CRM and distribution channels with YM, and clarified the importance of YM in ensuring organizational success in the long run. As an operation management consultant focus has emphasized highlighting various structures such as operational, strategic, and tactical decision-making systems that are essential for ascertaining the performance of YM. In addition, various strategies such as price fencing can be used by the firm at the time of segmentation would further assist the company to generate higher revenues. These strategies would further enable the firm to eliminate the problems of wrongful perception about the prices determined by the firm that is prevailing among the customers. Finally, an overview of the various metrics such as ROI, ADR, GOPPAR have been analysed, which are determined to be effective in evaluating the performance of the hotel and assist the managers and employees to determine future actions accordingly. References Ahmat, N. C., Radzi, S. M., Zahari, M. S. M., Muhammad, R., Aziz, A. A. & Ahmad, N. A. (2011). The effect of factors influencing the perception of price fairness towards customer response behaviors. Journal of Global Management, 2(1), 22-38. Bitran, G. R., & Mondchein, S. V. (1995). An application of yield management to the hotel considering multiple day stays. Operations Research, 43(3), 427-443. Brotherton, B., & Turner, R. (2001). Introducing yield management systems in hotels; getting the technical/human balance right. Journal of Services Research, 1(2), 25-47. Cross, R. (1997). Revenue management. India: Universities Press. Ingold, A., McMahon-Beattie, U., & Yeoman, I. (2000). Yield management. U K.: Cengage Learning EMEA. 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