Benefits of Hotel Revenue Management
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Benefits of Hotel Revenue Management
Overview of Research
Hotel Revenue Management has changed over the years. It has grown from being a tactical management practice to a strategic role in the hotel sector. It also includes sales and marketing approaches and channel management (Erdem & Jiang, 2016). The current research will focus on the importance of revenue management in Hotel industry. The hotel sector understands the benefits of adopting a revenue management approach. The strategy can be implemented in selling of the hotel bedrooms and to other sectors in the hospitality sector. Revenue management has various benefits to the hotel industry such as pricing as well as revenue maximization strategy. Maximizing revenue is significant for the hotel industry due to their high fixed costs as well as their fixed capacity
Identification of topic area
Revenue management is an important instrument for matching supply and demand through dividing clients into diverse segments depending on their purchase intentions as well as allocating capacity to diverse segments in a manner that increases an organisation’s revenue (Ivanov and Zhechev, 2011). It is also defined as the application of information systems as well as pricing approaches to distribute the right capacity to the right clients at the right price at the right time. The approach was first initiated by the airline industry following deregulation process in the 1970s. Today, it has become a common business practice in various business sector (Hereter, 2017). It is used by airlines, restaurants shopping malls, and hotels among others. Although it is applied in diverse business sectors, the approach is used differently. For instance, what works for the airline industry may not work in the hotel industry.
The idea of revenue management was introduced in the hotel industry to understand the trends and maximization of revenue. Matching the right ways of trade, revenue management focuses on offering the appropriate commodity aimed at the right clients at the appropriate time and price, developing value for money (Hayes and Miller, 2010). Revenue management has diverse benefits for the hotel industry among them assessing the profit earned to increase revenue for hotel’s inventory as well as other Points of Sale. The current research will be focused on benefits of revenue management in the hotel industry. The aim of implementation of revenue management in the hotel sector is influenced by the need to ensure the rate of a hotel room is as highest as possible and at the same time make sure that all rooms are occupied. There are different elements of revenue management that any hotel in the sector should consider including room inventory management, overbooking, pricing, as well as duration control.
The research aims at evaluating the benefits of revenue management in the hotel sector and its explanation and history.
It will assist in understanding revenue management as well as its history
It will help in understanding the hotel industry
It will also help in understanding the history of revenue management in the hotel industry
Another objective is understanding the benefits of revenue management in the hotel industry
Also, it will help in understanding the key elements and basic of revenue management in the hotel industry
Another objective is understanding how organisations in the hotel industry implement the revenue management approach.
Erdem and Jiang (2016) maintain that since the introduction of revenue management in the airline industry it has expanded to other sectors. For instance, it has been implemented in the hospitality and tourism industries (Kimes and Wirtz, 2015). Different segments in the hospitality sector such as spas and clubs and restaurants began to implement revenue management approaches. The lodging sector implemented the revenue approach to maximize revenue (Hayes and Miller, 2010). Initially, many hotels emulated revenue management approach implemented in the airline industry. In this case, it was used I assessing the historical data and try to forecast future booking patterns. In 2000, a huge number of hotels were highly using Revenue Management systems. O’connor and Murphy (2008) maintain that hotels should implement ways of maximizing room revenue especially, in the current changing business environment. The systems should be able to continuously manipulate rates in response to expected demands.
Mainly, hotels assess previous performance as well as current booking patterns. They also, assess market trends and identify mitigating circumstances as well as predict future demands. The forecasts help in pricing and capacity allocation decisions that try to maximize revenue (Sharma, 2015). Hotels can use manual approach, however, computerized systems can introduce various factors and performed enhanced analysis, leading to improved forecasts and decisions (Tranter et al., 2014). Maximizing revenue is significant for hotels due to their fixed costs and fixed capacity. Revenue management works well in market segmentation, enhancements in business plans, forecasting elasticity of demand as well as strategic pricing such as discounts, packages, and commercial rates compliments among others (Cross, 2002).
It divides the market by understanding target clients, the right time and demand with its changing prices and approaches. Understanding client’s potential and preferences offers data to forecast revenue and profit (Yeoman and McMahon-Beattie, 2004). Revenue management is beneficial for the hotel industry however, it can only be used to hotels that are financially stable. In many cases, hotels that implement revenue management focus on selling every room at the highest possible rate and at the same time ensure that all rooms are booked (Phillips, 2005). There are diverse key elements of revenue management that helps hotels to achieve the particular goal includes overbooking, pricing, time management and room inventory control (Legohérel et al., 2013). Revenue management includes price discrimination. Hotels are required to classify clients and charge them at diverse rates depending on their needs as well as behavior (Li, 2011). The pricing strategy embrace some rational rules as well as restrictions to help in differentiating between guests that are willing and able to pay higher prices from the guests that are ready to change their behavior to get lower prices (Barrows and Powers, 2009).
In this case, clients who are price-sensitive can stay in a hotel at a lower price. Nevertheless, this will include some restrictions such as booking at a particular time ahead and paying deposit without refund (Li, 2011). Clients who are ready to pay more money are allowed to book at any time and choose the room they wish. In such an approach, the hotel can sell all the rooms at different rates. Another important element is overbooking. It helps in ensuring that all rooms are booked. In some cases, a client may cancel their reservation or fail to show up (Ivanov, 2014). Therefore, for hotels to ensure that there are no vacant rooms overbooking tends to be the solution. Nevertheless, this may cause issues in case all the clients show up ad hotels may not have enough rooms to accommodate them.
In this case, it is vital to ensure that there are overbooking rate. Inventory control is another element in revenue management (Li, 2011). The element mainly includes ensuring that the resources are allocated reasonably. Hotels ensures that the clients book the rooms near the arrival date at a high price (Ingold, 2008). However, they make sure that there are rooms available to be booked in advance. In the particular approach, the hotel minimizes the number of discounted rooms. Duration control is another important approach in revenue management (Talluri and Van, 2004). The implementation of good revenue management system would help hotels increase revenue. However, this does not mean that the gross operating profit would be high. For instance, attracting more clients would require hotels to use more money thus reducing the gross profit. The aim of revenue management in the hotel sector should be focused on increasing revenue and gross operating profit at the same time (Verret, 2008). As hotels continue to implement revenue management system it is clear that it is turning to be more customer-centric ad technology driven (Stanislav, 2014). Hotels are required to depend on technology for the approach to be effective. It is also clear that the strategy is a critical tool for the hotel sector, especially with the changing market.
The current research will use secondary data and primary data. The secondary approach will include gathering information from books and peer-reviewed journals. The approach mainly involves using data gathered by another person (Goodwin, 2012). Various researchers gather data and archive them and this data can be used by another person as secondary data. It mainly benefits researchers who have minimal resources as well as time (Thyer, 2009). The data is readily available which means that a person does not use a lot of time to collect it. Secondary data includes both published and unpublished data (Srivastava and Rego, 2011). Published data are gathered from different publications of both federal and local governments. They are also gathered from diverse publications of foreign governments or of global bodies together with their subsidiary organisations. For instance, the data may be gathered from UNO, IMF as well as WHO among others (Bhattacharyya, 2006). Additionally, diverse research reports are gathered by research scholars, universities and economists among others. Books by different authors, magazines, and newspapers are sources of secondary data. Technical and trade journals are also reliable sources of secondary data. Nevertheless, the unpublished secondary data may include diaries, unpublished biographies, and letters among others. The current research will rely on published secondary data from books, peer-reviewed journals, and articles. The approach will help in assessing and comparing data from different literature.
The population will include 12 hotels in different parts of the UK. 30 individuals working in the hotels will be interviewed, they will include the top management and some subordinates. The participants will first be
Primary research approach will also be used in the current research. It involves collecting data for the first time (Hair, 2015). Mainly, primary data is factual and original, whereas secondary data is assessment and interpretation of primary data. Primary research method includes collecting data through diverse approaches. For instance, it includes gathering data through survey which helps in collecting quantitative information concerning items in a population. Surveys can collect data from any place including private and public sectors. The researcher is able to approach the respondents personally. The approach takes a lot of time, efforts as well as money by the researcher.
Nevertheless, the data gathered is of high accuracy and it is also relevant to the topic. Another approach in primary data collection is observation (Hair, 2015). In this case, a researcher is able to measure variables or gather data that is important for measuring the variable that is being researched. Interview is another primary approach. It includes collecting data on a one-on-one basis or in a group. Interviews can be conducted face-to-face, through Skype, or through phone. It helps in gaining understanding of the underlying reasons and motivations for individuals’ attitudes, or behaviors (Krishnaswamy et al., 2009). During interviews, a researcher may use questionnaires that relate to the topic.
In the current research, primary data will help gather information on benefits of revenue management in the hotel industry. The approach will include gathering data from different hotels in the UK to understand how revenue management has benefited them. It will also help in understanding if the management of the hotels understand the definition of revenue management and what it entails. The participants will be informed about the research and its benefits. They will be required to sign a consent form before participating in the research. The 30 participants will be gathered from 12 hotels in the UK. The participants will include 8 individuals at the management level and another 22 participants from subordinate level.
The participants will be selected randomly from different hotels around the UK. Each participant will be contacted before the research starts. They will be informed about the research and what it entails. They will also be required to go through the questions on the research to make sure that they are comfortable. The participants will not be required to give any personal information. They will also be required to choose the method of interview that they require, maybe through phone, Skype or face-to-face. The participants will also be informed about the time of the interview. They will need to confirm their availability to avoid any inconveniences. Once they confirm their availability the interview will be organized. It will ensure that they feel to be part of the interview and will participate willingly. The questions will be open-ended which will allow the participants to give their opinion without being biased. After the data is collected it will be assessed and compared with that of secondary data.
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