BSM781 Financial Performance and Revenue Management Assignment - Robert Gordon University, UK
Learning Outcomes -
- Critically evaluate processes involved in the management of revenue in hospitality enterprises.
- Design a revenue management strategy for a hospitality enterprise.
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Task - Write a paper discussing the approaches and techniques used when managing and maximizing revenue in hospitality businesses. Your response should address the range of revenue management techniques used in controlling costs, marketing and pricing strategies, yield management, capacity allocation and in the management of capacity. Your response should include examples of these techniques which are used by hotel, restaurant and bar operations that you are familiar with, either through your work experience or as a customer.
Answer - Financial Performance And Revenue Management
Revenue management is the process that is used to maintain the revenue collected from the customers by any business organization. It is important to understand the concept of revenue management as there are several approaches along with techniques to manage the revenue. The management team of a business organization aims to maintain revenue along with maximizing the revenue and increase the profitability of the company. Any business organization performs a business in order to receive revenue and increase it from time to time. The report elaborates various approaches for maintaining revenue along with addressing the factors including controlling costs, marketing and pricing strategies, yield management, capacity allocation and management of capacity. The report considers various hospitality enterprises to explain the maintenance and maximization of revenue collected. The report considers the need for awareness regarding the marketing and operational factors that influence the process of revenue management.
Importance of Revenue Management in the Hotel industry
The importance of Revenue Management in the Hotel industry is:
1) Lowering costs: Revenue Management helps in lowering the costs in the hotel industry. It helps in determining the rate that is suitable for a hotel to sell rooms to customers or prices for restaurants to sell dishes. The Revenue Management also helps in optimizing the manpower and helps in better management of resources. Moreover, it also helps in maintaining consistency in the services provided. The booking of hotel in Switzerland reached to 18.4 million in 2018 that is increased by 670000 in 2017 (Stv-fst.ch, 2017). For example, Accor Hotel increased the availability of room by 8.8% and opened nearly 5 more branches of hotels in 2017 with the help of revenue management.
2) Improves Branding: Revenue Management helps in improving the branding of hotels and restaurants. It helps in increasing the bottom line of the hotel industry and helps in generating more revenue and increasing sales of the organization. The different example of a hotel that used Revenue Management for improving their branding is NH Hotels. It helps in improving the efficiency and effectiveness of operations of hotels.
3) Increase in customer satisfaction: Revenue Management helps in increasing customer satisfaction in the hospitality industry such as hotels and restaurants. The different factors in the hotel industry based on the availability of rooms, duration of stay and services provided. Revenue Management helps in collecting data and feedback from customers. For example, Club Med Hotel use a pricing model that helped in Accor in increasing the market share by 25% in 2017.
4) Improving operations: Another benefit of revenue management strategy is it helps in improving operations in the hotel industry. It helps hotels in saving costs and optimization of manpower thereby helping in improving the ranking of the organization. The different example, that has been included in the ranking are Boast Hotels, Katara Hotel, and Welcome Hotel Management. Moreover, revenue management also helps in gaining market awareness and competitive advantage.
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Challenges in Revenue Management
The different challenges in Revenue Management of the Hotel industry are:
1) Reduction in customer surplus: The most common problem faced by the Switzerland hotel industry is a shift in customer preferences due to high prices. Moreover, other challenges faced in revenue management by hotels are a decline in sales, a decline in customer satisfaction thereby affecting the reputation of the hotel.
2) Change in customer demands the major problem that the Switzerland hotel industry is a shift in customer demands and needs. As opined by Wang et al (2015), the requirements of customers include ensuring that customer is looking value for money. Moreover, the hotel brand is not sufficient enough experience is the most important criteria for customers in the hotel industry. For example, Motel one Hotel results are unable to under the change in customer demand and services due to which the sales declined by 2%.
3) Lack of skill among employees: The most common challenges faced by hospitality industry such as hotel and restaurant are the lack of skills such as communication, customer handling and user solving, and convincing skills among employees. For example, the revenue of the Club Med hotel market share declined by 24% due to a lack of skill among employees (Forgacs and Dimanche, 2016).
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Approaches for managing revenue in hospitality enterprises
The management team of a hospitality enterprise needs to consider few factors that are important in order to manage the revenue. The company functions in the industry of hospitality enterprises that include hotels, restaurants, needs to plan proper segmentation, forecasting of the demand and plan the stock accordingly, pricing the items accurately and distribution of the profit. The proper segmentation helps to measure the values of the factors influencing business in hospitality enterprises especially hotel and restaurant. The forecasting of demand ensures that the management team has knowledge about the sectors from where they can extract the revenue and maintain the rate of revenue gained. The hotel Pilatus Kulm of Switzerland highly uses the segmentation to maintain the revenue they receive from the customer staying in their hotel (Tourismus 2019). The hotel faced a high increase in the number of customers visiting their hotel as they were able to identify the types of the needs of the customers and provide them room accordingly.
The approach of forecasting demand helps the business organization to plan strategies that can retain the revenue. The low forecast demand indicates that the company is not able to attract more customers and hence they need to cut the cost of the rooms in order to retain their customers. The high forecast demand indicates that the hotel management team is able to maintain the profitability and the revenue is efficiently managed. The hotels using forecasting demand are able to identify season and find the type of room and service preferred by the customers. The identification then helps the hospitality enterprises to plan strategies and policies such as offering discounts and offers to the customer during the peak session when tourists visit. The hotel Des Alpes of Switzerland provides facilities such as rooms with river view and provide free breakfast (Luzern 2019). With pleasant weather, the hotel is able to attract more customers and maintain along with maximizing the profitability of the company.
The pricing of the hotel and the items sold in restaurants highly influence the consumers to make a visit of a hotel and restaurant. The approach based on proper pricing enables the hoteliers to plan the invest of the revenue collected on decorating the rooms of the hotels and the restaurant managers can effectively plan to include new dishes that can attract the customer and maximize the revenue collected. The pricing of a room in a hotel and food items in a restaurant provides a platform to the management team to find the spot where they can invest the money gained and influence the factors such as beautification of the hotel environment, better room condition, better attitude of the staff, that can influence the customers to make a visit in the hotel or restaurant. The hotel Seehotel hermitage of Switzerland actively choose the approach of proper pricing strategies and priced the rooms based on the view and service provided to customers staying in the room (Hermitage 2019). The company has received a wide increase the number of customers staying in their hotel.
The distribution of the revenue collected needs to be effective. The customers visiting a tourist spot and staying in a hotel considered the facilities such as beautiful view, splendid hotel rooms and restaurants in the hotel. The distribution should be in such a manner that the environment of the hotel is attracting and people preferred to stay in room having good view despite the high prices. The choosing of a costly room by the customers will ensure maximization of the revenue gained. The customer tends to choose hotels that provide restaurant facilities and delivery of food to the room. The hotel Seehotel hermitage of Switzerland is able to properly distribute the revenue they collect in to the beautification of the hotel, rooms and provide superior quality of services to the customers (Hermitage 2019). The hotel has a restaurant inside the hotel premises that provide amazing quality of food and along with delivering the ordered items to the hotel room.
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Techniques for managing revenue in hospitality enterprises:
The techniques used for managing and maximizing revenue in hospitality enterprise include various methods that a company functioning in the hospitality industry can implement to maximize the revenue collected. The method includes:
The business organization can be available on the internet and be bookable. The company needs to have a website where the customers can get a view of the hotel rooms, environment. The exhibition of rooms to the customers, attract them. The online booking of the rooms helps the hotel management team to allocate rooms accordingly and have a view of the capacity of the rooms to take further booking from visitors. The knowledge of the capacity will help the hotel members to management the rooms available and revise the check-in and check-out time in order to make more rooms available (Rodríguez-Algeciras and Talón-Ballestero 2017). The managers of the hotel are able to monitor the booking rate and modify the process of the rooms according to the demand. The modification of the price of the rooms helps the managers to maximize the revenue collected.
The hotels provide offers to the customers who make a direct booking of the hotel rooms on the website before making a visit and staying. The customer making a visit a few number of times to a hotel are provided with special benefits. The hotel managers provide that express rooms in regular price. The benefits attract the tourist visit again and influence their family members and friends to visit the hotel and increase the revenue collection of the hotel.
The hotel and restaurant needs increase capacity of housing guest by expanding the area where the hotel and restaurant in situated (Fernandez 2019). The expansion is possible by distributing the revenue collected properly. The proper pricing and identifying capacity of the hotel and restaurant helps the managers to plan strategies to initiate the expansion of the area. The hotel needs to increase the beautification of the environment around the hotel, rooms and ensure best quality service to the guests. The increase in the beautification and attractiveness of the hotel helps to attract more customers that help the business organization to maintain manage and maximize the inflow of the revenue.
The hotel organizes event and attraction for the customers staying in the hotel. The refreshment and program organized for the customers induce a great feeling about the hotel in the mind of the customers (Kovaltchuk et al. 2016). The customers enjoy the events and refreshments provided to them and plan to stay in the same hotel whenever they visit again. The hotel ensures a great number of customers by the method and they can plan the pricing strategies based on the increase in demand. The proper pricing strategies aid the hotel managers to control the inflow and outflow of the revenue and thus maximize along with managing the revenue.
The hotel embraces latest technology from time to time. The hotel rooms are equipped with television, hot water supplier and intercoms. The latest technology highly used is installing WiFi in the rooms (Dickerson. and Hassanien 2018). The hotels use the latest technology to promote and advertise their hotel. The trending technology to advertise is the search engine optimization. The hotel applies the search engine optimization and promotes the hotel. The hotel can collaborate with the companies who provide application on mobile for online booking of hotel rooms. Customers tend to visit hotels that are attractive, provide good with along with using the latest technological tools to attract customers and in the room and all around the hotels.
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Revenue Management strategies
The different revenue management strategies for Motel one Hotel are:
1) Segmentation: Motel One Hotel can indulge in better segmentation of the target market. The Motel One Hotel target market is the customers are both foreign and domestic tourist. Motel One Hotel can include target market that is seasonal tourists for increasing revenue of the hotel.
2) Price Optimization: Another revenue management strategy that can be used by Motel One Hotel is price optimization that is ensuring that customers are provided services as per their value. This revenue management strategy has helped the Motel; one Hotel in increasing the sales by 195 in 2018. Similarly, price optimization also helps in increasing the Accor Hotel by 245 market share in 2018.
3) Promotion: Another strategy that can be adopted by the Motel one Hotel is the promotion of services and experience provided using different social media promotion. The different social media platforms such as Facebook and Twitter can be used by the Motel one Hotel for creating customer awareness about the offers and discounts being offered by them (Cerniers,2015).
4) Direct Bookings: Direct booking also helps in improving the services provided to customers. Motel one Hotel can provide direct bookings through websites and online check in and check outs to keep track of customer location and ensure that customer satisfaction is delivered.
5) Monitoring of Competitor rates: The last strategy that can be used is the monitoring of competitors rate that is ensuring that the price of the room is not high or not low as compared to its competitors. Price war can help in improving the delivery of better services at the same time improving customer experiences.
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Marketing and operational factors in revenue management
The different marketing and operational factors that affect the hospitality industry such as hotel industry are:
1) Price: The most common factor that influences the hotel industry is price. The different factors such as competitor's price and demand of the customers influence the revenue management of the hotel industry. For example, price influence the booking of hotels. For example, stay in hotel industry declined from 7830000 to 7465000 in 2015 due high prices whereas 2016 Switzerland hotel recorded nearly 37.4 million stays in 2017 due to low prices and better experiences (Corporate.cms-horwathhtl.com, 2018).
2) Sales Channels: Another marketing and operational factor that influences the hotel industry is sales channels that are promotion and customer awareness in the hotel industry. The use of social media platforms can help in gaining feedback from the customer thereby improving the reputation of the hotel industry. For example, different hotels such as Accor Hotel and Burgenstock hotel are using different social media platforms such as Facebook and Twitter for promoting the discounts and offers being given by them. In addition, advertisements are also used by hotels for promotion of different facilities being offered by them such as spa, swimming pool, and gym [Refer to Appendix 1].
3) Cost: The operational; factor that influences the hotel industry is the costs and price rate of the room being offered by the hotel industry. The price of rooms and services available also influence the costs and operations of the industry.
4) Technology: The major factor that affects the hospitality industry is technological innovation. The different technologies that are affecting the hotel industry are Artificial Intelligence and Machine Learning. The different innovation such as Cloud Computing software is being used for recording customer feedback. Another technological innovation to improve customer experience includes online check-in and checkout that is customers can book hotels and check in from anywhere and anytime. In addition, the other entries include keyless entries. Moreover, virtual entry and free wifi can be used by the hotel industry for improving customer experiences. For example, Deutsche Hotels is using different techniques such as Wi-Fi, keyless entries and online check-in and check-out can be sued for improving the customer experience.
It is recommended that the different technologies that can be used by the Switzerland Hotel industry to improve customer experience are using Artificial Intelligence such as Cloud Computing Softwares for better understanding of customer needs. The other suggestion that is recommended is the use of Customer Relationship Softwares for improving customer experience. In addition, it is also recommended that Hotel ensure that price rates of the room are affordable thereby helping increase the occupancy rate of the hotel industry.
It can be concluded that the different challenges that exist in the hotel industry are a reduction in customer surplus, a decline in customer satisfaction and change in customer trends. In addition, the different revenue management strategies that can be adopted by the hotel industry are monitoring of competitors rates and promotion on social media. It can also be said that the different factors that affect revenue management in the hotel industry are technology, price and costs. It can be concluded that the different revenue management approaches include segmentation, demand forecasting and planning the stock accordingly, pricing the items appropriately and distribution of the profit.
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