External Business Conditions of Hotel Revenue Management - Research Paper Example

?Revenue Management: Introduction and The case studies Revenue management is a central part of organizational management; especially in hotel management. According to the Decision Craft Incorporated (2010), “Revenue Management is a process for capacity-constrained industries to maximize profitability by allocating the right inventory to the right customers at the right price.” It paves way for planning into the future and building general strategy for running one’s hotel (Twumasi, 2009). This is a case study that looks at a hotel at a beach resort that needs to increase its revenue by 50%. Revenue management has been tagged as the most preferred option. External Business Conditions To know the workability of a particular revenue management model, it is important to analyze the external business conditions of the said hotel (Salerno, 2011). To this effect, a quick PEST analysis has been done below. PEST Analysis According to Competitive Intelligence (2011), “Political factors include parts such as employment laws, environmental regulations, tax policy, trade restrictions and tariffs and political constancy.” This means that political factors have to do with factors that are influenced by government. In this case study, tax charged on rooms, trade restrictions and travel policies would be factored in the political analysis whereby a relatively low tax system and free flow of people would enhance the patronage of hotels. Economic factors for the revenue management are exceptionally important for international trade and patronage. This is because according to Marketing Teacher Limited (2000), economic factors cover issues such as “Interest rates, the level of inflation Employment level per capita and long-term prospects for the economy Gross Domestic Product (GDP) per capita”, which are all very important in determining internal revenue management models. The most sensitive aspect of the revenue management in relation to the PEST Analysis seem to be the social factors as the patronage of hotels deals more with the social status and social structures of people than political, economical and technological factors. This argument is made against the background that not all people who are economically sound fancy the patronage of hotels – thus hotel patronage is purely a social issue (Gagner, 2003). This point is buttressed further by the Quick MBA Network that mentions issues under social factors to include “health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.” Technological factors will eventually play a central part of the revenue management in the sense that it is going to be the single most important interactive medium by which potential customers are going to be contacted. Customers are also expected to be abreast with innovations and programs of the hotel by accessing data and information on the hotel through the use of the internet. Most commonly, it is expected that online reservations and group bookings will be made via the internet. The Net MBA (2011) mentions other forms of technological issues such as “Recent technological developments, Technology's impact on product offering, Impact on cost structure, Impact on value chain structure, Rate of technological diffusion.” Revenue Management Model In today’s competitive economic era, revenue management has been identified as an extremely important means for hotels to make up for their apportioned resources and income. Revenue xls (2007) has it that “revenue management models are intended to optimize the pricing of hotel rooms, airline seats, and other “perishable” commodities for a given duration by taking into account demand variability over time and capacity constraints.” The major model to be adopted would be the stochastic model, which was first used on the airline industry by De Boer et al. (2002) for the airline industry. A qualitative rather than a quantitative form of the model shall however be used. Under the model, the following areas will be considered. The basic principle with which the model works is that more room allocation is made to more expensive types of stay (Goldman et al. 2001). Precondition With the situation of the hotel at a beach resort, there are a number of pre conditions will be set. First, fluctuating demand will be highly factored here. This because with the location of the hotel at a beach, there are moments in the year when patronage generally go high. For instance during summer, a lot of customers require the hotel’s services when they come to the beach resort to relax and for holidays. The second would have to do with perishable nature of the hotel rooms. As noted by Salerno (2010), “hotel rooms perish every day; any room that is unsold tonight is gone forever.” The third precondition would have to do with the service industry where by quality service shall be set as the hallmark for the hotel. Finally, competitive advantage of the hotel shall be a precondition. Salerno (2010) observes that “Hotels quickly recognized that consumers would also pay more for rooms with a superior view, such as ocean or mountain views and other unique features of their location; larger or unusual rooms; and rooms with unique features.” The hotel shall therefore have a competitive advantage with its location. Revenue Management Process Having stated the preconditions, the process shall be straight forward and that it, the process shall be centered on the pricing of rooms whereby premium shall be given to holiday makers who make reservations as groups and also demand for extra-resourced rooms. The pricing for these rooms shall be raised on the basis that there will be high demand for rooms during summer and that if the groups do not accept the increased pricing, they will barely have places to reside when they come for the holidays. Tools The Decision Draft Incorporated (2010) observe that setting the pricing set does not end the process. Rather, there is the need for demand forecasting. It is said that “Demand is forecasted with the help of historical data of demand patterns for the particular service” (Decision Draft Incorporated (2010). The forecasting tool to be used will be the booking records of the hotel. As much as possible, a graph will be drawn on a monthly bases to compare the rate of demand for rooms at various times of year. An example of the graph may look like the one below. Figure 1: Number of Customers on a Weekly Basis for 1st Trimester of 2001 With such a tool as the one above, it will be essay to identify that the hotel records more number of bookings in April and January in the first trimester of the year and thus any revenue management would be directed towards those months. Usually, demand exhibits definite patterns such as trends and cycles. For example demand may vary by time of day, day of week or season of year. These demand patterns can be used to predict the potential future demand in each market segment.” Implementation After settling on the pricing and tool, the implementation shall be quite simple. For an organizations such as a hotel, the most preferred implementation procedure for a revenue management process is decentralized system where departmental heads of the hotel will be involved in decision making and be expected to bring their inputs to the successful implementation of the plan (Anokye, 2003). Conclusion and Recommendation To conclude, it is recommended that hotel managers should always uphold to innovative ways of raising their revenue and profits. With dynamism and innovativeness, they are sure to make the most out of the industry and reap the results of their labour. REFERENCE LIST Anokye G. (2003). Contemporary Hotel Management System. Peacock Productions: Durban Competitive Intelligence (2011). Pest Analysis. Retrieved September 2, 2011 from http://competitive-intelligence.mirum.net/analysis-a-crucial-step/pest-analysis.html De Boer, S.V., Freling, R., Piersma, N. (2002), Stochastic Programming for Multiple-Leg Network Revenue Management, European Journal of Operational Research, 137, 72-92. Decision Craft Incorporated (2010). Revenue Management. Issue No: 05/07/01. Retrieved September 1, 2011 from http://www.decisioncraft.com/dmdirect/revenue_management.htm Gagner G. Y. (2003). Innovation in the Hotel Industry. PrintMark Group Limited: Accra. Goldman P, Freling R, Pak K and Piersma N (2011). Models and Techniques for Hotel Revenue Management using a Rolling Horizon. Retrieved September 2, 2011 from http://repub.eur.nl/res/pub/593/feweco20011214153931.pdf Net MBA (2011). PEST Analysis. Retrieved September 2, 2011 from http://www.netmba.com/strategy/pest/ Quick MBA (2011). PEST Analysis. Strategic Management. Retrieved September 1, 2011 from http://www.quickmba.com/strategy/pest/ Revenue.xls (2007). Case: forte hotel revenue management. Retrieved September 1, 2011 from http://www.mktgeng.com/downloadfiles/tutorials/S015%20-%20Revenue%20Management%20Tutorial.pdf Salerno N (2011). Hotel Revenue Management…The way I see it. Hotel Management Coach. Retrieved September 1, 2011 from http://www.hotelmarketingcoach.com/hotel_revenue_managementthe_way.htm Salerno N. (2010). What the Heck is Hotel Revenue Management, Anyway? Retrieved September 2, 2011 from http://www.hotelmarketingcoach.com/What%20the%20heck%20is%20Revenue%20Management.htm Teacher Limited (2000). PEST Analysis. Retrieved September 2, 2011 from http://marketingteacher.com/lesson-store/lesson-pest.html Twumasi T. (2009). Basis of Organizational Management. Word Publishers Limited: Lagos Read More