Revenue or Yield Management in Hospitality Industry

Question: Discuss about the Revenue or Yield Management in Hospitality Industry. Answer: Introduction Revenue management is critical for achievement of the financial goals for every organization regardless its industry, nature of business, or size of its operations. There are two primary elements in the revenue management such as demand and price. The management of these two primary elements is crucial to ensure proper revenue management aligned with the organizational goals and strategies (Huefner, 2011). Thus, the revenue management could be defined as a disciplined approach to analyze and predict the consumer demand and set the prices to ensure attainment of the optimal revenues. In this context, a report has been prepared here that deals with various crucial aspects of the revenue management in the hospitality sector. This report covers discussion on the technical terms used in revenue management in the hospitality sector such as occupancy, ADR, and RevPAR. Further, the report also covers tactics to analyze hotels performance along with analysis of the competitors. The analysis of competitors is crucial to gauge own weakness and implanting alternative solutions to overcome such noticed weaknesses (Huefner, 2011). In addition to this, the discussion has also been put across the yield management strategies to be adopted by the managers of a hotel. Definition of Occupancy, ADR, RevPAR Understanding of the technical terms such as occupancy, ADR, RevPAR is important in revenues management. In the hospitality sector, occupancy rate refers to the unit demand. It is calculated by dividing the occupied rooms of a hotel by total number of rooms available for rental (Hayes, Ninemeier, Miller, 2011). The occupancy rate is used in computing the demand, which is a necessary element of revenue computation. Another important element of revenue computation in the hospitality sector is the average daily rate (ADR). The average daily rate represents the rental revenues per occupied rental unit, for example room. The RevPAR is referred as revenue per available room, which is computed by multiplying the ADR by occupancy rate of the hotel. In the hospitality sector, the RevPAR is used to measure the performance of hotel and its management over a given period of time (Hayes, Ninemeier, Miller, 2011). Analysis of the Hotels Performance against Its Competitors The first thing that could be observed about the hotel is the high occupancy rate as shown in the Smith Travel Research (STR) report. The report shows that occupancy rate of the hotel is higher than its competitor in all week day except Saturday. It has been observed that the occupancy rate of the hotel on Saturday was 94.70%, against which the competitor achieved an occupancy rate of 94.80%, which is marginally higher (Appendix). The high occupancy rate clearly indicates that the hotel is in demand. Further, the trend in respect of occupancy of the hotel also depicts increase by 39.10% in the current week as compared to only 6.90% increase in the case of the competitor (appendix). The next thing observed in respect of the hotel was the low average daily rates (ADR). It was observed that the hotel maintained ADR of 40.79 in the current week as against the ADR of 69.39 of its competitor. It may be that the hotel is following strategy to maintain low ADR to attract more customers. The companies adopt changes in the prices to infuse demand, but the change in the price should not result in reduction in the overall revenues. The third observation in respect of RevPAR indicates that the same has happened to the hotel in the current week. The hotel reduced ADR so low that its RevPAR went lower than that of its competitor. For the current week, RevPAR of the hotel was 36.43 as against 45.32 of its competitor (Appendix). Thus, despite maintaining high occupancy, hotels RevPAR went down, which indicates that the reduction in the ADR was not sustainable. Thus, based on RevPAR, it could be articulated that the performance of the hotel has been down as compared to its competitor. However, the hotel has built up a solid customer base, which is depicted in the high occupancy rate; thus, in the future, sustained increase in ADR could be made to gain from the situation (Ivanov, 2014). Ways to Analyze the Competitors In the current business scenario of throat cut competition, it has been become essential for the companies to keep eyes on the competitors and analyze their strengths, weaknesses, and strategies. For this purpose, SWOT (strength, weakness, opportunity, and threat) analysis of the competitor can be carried out. SWOT analysis focuses on the analysis of four core elements such as strengths and weaknesses of the business and opportunities and threats emanating from the environment (Varghese, 2012). The results of the SWOT analysis disclose the core competencies of the competitor and the weak areas, which can be exploited by others. Though SWOT analysis covers all the crucial areas of business such as marketing, finance, and administration, but it emphasizes much on marketing (Varghese, 2012). However, it should be noted that analysis of the marketing strategies and competencies of the competitors is not the only aspect that needs to be looked into in a competitor analysis. There are crucial areas such as finance, which should be analyzed in a competitor analysis. For this purpose, the financial statements of the competitor for preceding years say for 5 or 10 years could be referred. The analysis of the financial statement reveals the financial performance and position of the company, which is necessary to understand the standing of the competitor in the market place (Varghese, 2012). Yield Management Strategies The yield management strategies are applied for the purpose of effectively managing the revenues by adjusting the prices of goods or services. These strategies are effective in managing revenues when the resources are limit, for example, rooms in case of hotels, airlines in case of an airline company. The primary purpose of yield management strategy is to reduce the wastage and maximize the output within the constraint of the resources (Ingold, Yeoman, Beattie, 2000). There are various strategies that can be applied in the field of yield management; among them major five are listed as below: Adjusting prices of the goods and services: Adjusting the prices of the goods and services is the biggest tool in the hands of the management. The price affects demand, therefore, the management uses price as the tool to optimize the demand (Rouse, 2011). Controlling inventory in a better way: Controlling of inventory sometimes becomes pertinent, for example, in case of perishable goods. The perishable goods purchased in high quantities in the anticipation of high demand could causes heavy losses. Period wise analysis of demand: In order to utilize the resources to the optimal level, the industries such as hospitality and airlines conduct period wise analysis of demand. Based on this analysis, the periods are segregated as peak period and lean period (Rouse, 2011). Market or product wise analysis of demand: The analysis of demand based on the market or product is also helpful in putting the limited resources to their optimal use. Bringing lucrative incentive policies: This strategy is used to push the demand upside. As per this strategy, the firms in the industry such as hospitality bring in incentive policies for the staff so that the load of peak season could be sustained without many problems (Rouse, 2011). In the case being analyzed in this report, it could be observed that the demand is at excellent level as indicated by high occupancy rate, but the pricing needs modifications. Therefore, the management of the hotel should follow the strategy of adjusting the average daily rates. At present, the average daily rates of the hotel are so low that RevPAR is slopping downward despite registering growth in occupancy. Thus, with the motive to increase RevPAR, the management of the hotel should revise ADR to upside. Further, in order to sustain the hike in ADR, the management may consider delivering some additional value added services to the customers (Rouse, 2011). Communication with the Stakeholders In order to ensure successful implementation of the strategies and plans it is necessary to communicate them to the stakeholders in an effective manner. For this purpose, firstly it is crucial to identify the stakeholders to be communicated in respect of a particular strategy or plan correctly. For instance, in the current case, if the revenue manager plans to alter the prices for the room rent, the key stakeholders to be communicated will be top management, lower level management, and the customers (Bourne, 2015). The communication within the management that top management and lower level of management is the part if internal processes while the communication with the customers can be achieved through advertisement in a better way (Bourne, 2015). The revenue manager will have to first get the approval of the top management before considering implementation of the strategy. Thus, for this purpose, it is advisable that the revenue manager arranges a pre-informed meeting with the top management. The revenue manager should disclose the facts and figures along with analysis of the estimated benefits to the organization from the implementation of the strategy (Bourne, 2015). After getting approval from the top management, the revenue manager will have to communicate the implementation plan to the lower level management. This communication can be made through a meeting or sending written communication personally to the lower level managers. In this communication, the lower level staff should be made aware of the changes to be carried out through the strategy implementation and their duties and accountability toward the same (Bourne, 2015). Further, the third group of stakeholders that needs to be communicated about the changes in the prices of goods and services under the new strategy is the customers. In order to communicate, the customers, the advertisement and marketing channels to be used by the revenues manager (Bourne, 2015). Implement Revenue or Yield Management Strategies The two prominent areas where revenue or yield management strategies could be implemented are market segmentation and provisioning of bundled services. The market segmentation implies drawing out strategy to enter in the new segment of the market. In the case of a hotel, the new market segment could be providing space for corporate meetings to the companies (Marketing4restaurants, 2012). Thus, a hotel which primarily provides accommodation to the tourists could enter into new service area that is to provide services for corporate meetings to the companies. Further, the other area for implementation of yield management strategies is provisioning of bundled services. Following the policy of provisioning of bundled services, the hotel can offer multiple services in a single package. For example, the hotel providing only accommodation services could club in other services such as food serving, guide services, and local transportation for the visitors (Marketing4restaurants, 2012). The bundling of various services along with accommodation would be helpful for the hotel to add value for its customers. It will boost up the sales revenues of the hotel. Apart from these alternatives, further steps could also be taken by the management through pricing policy to improve the yield. Based on the size of booking amount, the customers should be give discount on the price. The price discount policy should fair and competitive. It will help the hotel to enhance revenues in a quick time. In addition to this there are few other examples that could be applied in yield management in a hotel. For example, the hotel may consider getting into an alliance with the airlines or agents to catch the customers more easily (Marketing4restaurants, 2012). Conclusion The discussion in this report resolves around the subject matter of revenue or yield management in the context of hospitality industry. From the discussion carried in this report, it can be articulated that the yield management is crucial for the survival of the firms operating in the hospitality industry. The area of yield management is strategic and tactical that requires formulation of different strategies keeping the competitors in mind. The analysis of competitors thus becomes necessary before framing the strategies for yield management. Further, the discussion of the report extends to descriptions and application of the yield management strategies. References Bourne, L. 2015. Making Projects Work: Effective Stakeholder and Communication Management. CRC Press. Hayes, D.K., Ninemeier, J.D., Miller, A.A. 2011. Foundations of Lodging Management, 2/e. Pearson Education India. Huefner, R. 2011. Revenue Management: A Path to Increased Profits. Business Expert Press. Ingold, A., Yeoman, I., Beattie, U.M. 2000. Yield Management. Cengage Learning EMEA. Ivanov, S. 2014. Hotel Revenue Management: From Theory to Practice. Zangador. Marketing4restaurants. 2012. 7 tips for restaurant yield management. Retrieved December 06, 2016, from https://marketing4restaurants.com/7-tips-for-restaurant-yield-management/ Rouse, P. 2011. Revenue Management for Service Organizations. Business Expert Press. Varghese, J. 2012. Competitor Analysis:Working Paper. AuthorHouse.