Revenue Management For Hospitality Industry

Key Performance Indicators in Hospitality Industry

Discuss About The Revenue Management For Hospitality Industry.

In hospitality industry, occupancy means number of rooms or beds available that are sold to the customers. It is hotel key performance indicator which represents the percentage of available rooms and beds that are been sold out to the customers for a specific period of time. Keeping the record of occupancy on daily basis will help the hotel management to calculate the average daily rate and forecast future demands (Ivanov, 2014). 

Occupancy (OCC) is typically calculated by applying the following formula:

OCC: Number of rooms sold / Number of rooms available

The full form of ADR is Average Daily Rate. It is also one of the KPI used for measuring the performance of hotels. It is used to calculate average price or average rate for each room sold for a specific day. It is very important for the hotels to improve their ADR over the years as increasing average rates bring more revenue to the business (Guilding, 2014). 

ADR: Revenue of room/ Rooms sold

RevPAR basically means Revenue per Available Room is regarded as the classic key performance indicator which is calculated to determine the amount of revenue earned by the hotel during a specific period of time. In order to evaluate the performance of a hotel, the figures of RevPAR are compared with the compset of the hotel (Tranter, 2009). 

Revenue per Available Room is calculated as follows:

RevPAR = Rooms revenue / Number of rooms available21

1. By looking at the STR reports, it can be said that in terms of RevPAR, the hotel has performed pretty well as its revenue for the week has increased by 25.5% whereas the compset or the market has shown an increase of 3.3% only. Hence, it can be said that the performance of the hotel in terms of its revenue per available room is satisfying.
2. Looking at the average daily rate, it is noticed that hotel’s ADR has shown a huge reduction of 9.8% in the whole week. As compare to the competitors, their ADR is reduced only by 3.4%. This reduction in daily rate has impacted the occupancy of the hotels.
3. The occupancy of the hotel is greater than its competitors as it is reported at 91.8% with an increase of 39.1%. This is because of the low ADRs during the week. Market occupancy has shown only an increase of 6.9% because of the high daily rate of $69.39. Hence, it can be said that the hotel has performed well as compare to its compset.

From the above findings, it can be concluded that the overall performance of the hotel has been satisfactory in terms of its occupancy and revenue as compare to the market. Friday and Saturday are the two worst performing days for the hotel. On Friday, the occupancy of the hotel reduces along with its ADR. As a result of which, the RevPAR of the hotel was very much lower than the market’s RevPAR. However, the occupancy of the hotel was more on Friday as compare to its competitor; still its revenue was less than other week days. Talking about Saturday, the occupancy of the hotel do increases but it was lower than the market. The percentage for the hotel was 7.4% while for the compset it was 13.4%. On the same day, the ADR increases but lower than the market’s ADR. As a result of which, the RevPAR reduces by 8.1% on Saturday. On these two days market has performed well as compare to the hotel.

STR Reports

One of the reasons for the bad performance on these two days may be the less number of customers visiting the hotel and reduction in demand for the same. Another reason for this may be the services provided by the hotel were not up to the mark and the slightest increase in the daily rates for the room. All such reasons affected the potentiality of the hotel to perform better.

Apart from the STR reports, there are other ways also which a hotel manager can compare its performance and make an analysis of its competitors. Two of them are as follows:

1. Creating excel spreadsheets by using Hotel Competitor Analysis Tool (H-CAT), a strategic tool used by hotel managers to collect the data that enables a comparison between the hotels on the basis of critical success factors. With the help of this tool, the executive team of a hotel can assess its direct competitors and then on the basis of the results make future planning in order to improve and enhance the performance of the hotel (Enz & Thompson, 2011). The worksheets or spreadsheets prepared by H-CAT are in proper format which allows the proper analysis of the key competitors including their strengths and weaknesses. The main aim of this competitor analysis tool is to help the hotel managers and other operators to enhance their performance and to make significant modifications in their operations by conducting a meaningful comparison and identifying the areas which requires improvement.
2. Another method is to take into accounting the process named as Search Engine Optimization, abbreviated as SEO. It is a process employed by many hoteliers to analyse their competition by improving their hotel websites. SEO allows the managers to improve their searches enhance their ranking factors. If someone searches by the phrase ‘Hotel in (city)’, the individual may get thousands of results. In such situation, SEO allows the hotelier to update its searches and outrank the competitor by showing its self on the top. This is how the hotel managers can properly analyse their competitors at time of improving their searches (Sturman, Corgel & Verma, 2011)

Yield management basically means selling the right product or a service to the right customer and at the correct time (Rouse, 2011). The five yield management strategies which can be used by the hotel to improve its performance are as follows:

1. Establishing the market segments

One of the strategies which can be used by the hotel to manage their yield or revenue is to divide the target market into segments or sub markets. This will help the managers to think about the appealing amenities required for each type of location so that more and more customers can be attracted. In order to increase its revenue the hotel should set a target market and then divide it into segments. For each division, proper and relevant facilities must be provided as it will bring more customers and earn more revenue (Kawamoto, 2017).

1. Open pricing strategy

This type of strategy allows the hotel managers to maximize and improve their profits by taking correct pricing decisions which reflects the demand for each location. Open pricing strategy will allow the hotel to offer different price points so that the customers or guests can choose their preferred brand on the basis of the price they found reasonable. The hotel must fix their room prices on the basis of demand rather than using fixed bases to differentiate the prices of the rooms. If the prices of the rooms are set according to the demand, it will provide the hotel more flexibility and adaptability. In addition to this, hotel must establish flexible discounts instead of providing fixed discounts on Best Available Rate (BAR) (Appaw-Agbola & Agbola, 2013).

1. Making a demand calendar

It is one of the strategy and the tool used by the managers to make informed and accurate decisions on the basis of solid statistical data. The demand calendar will help the managers to measure and evaluate the amount of revenue generated by each event. The hotel must prepare this type of calendar as it will let know about the positive and negative demand prevailing in the market for a different areas of the hotel. Recognition of demand can help the hotel manager to improve their performance on days like Friday and Saturday (Landman, 2018).

1. Maintaining the data

Revenue Management Strategies

The hotelier must maintain relevant and correct data and should record them properly. This will help the manager to make the functioning of the hotel easy and to take right decisions at right time. The availability of correct data regarding demand, competitor’s strategies and many more will help the hotel to make correct pricing and yield more revenue. The data maintained also help in managing the yield of hotel.

1. Enhancing direct booking

The manager must promote its direct booking by offering value incentives. Such booking plays a very important role in generation of hotel revenue. The hotel must keep its website updated so that the customers can make booking easily and according to their preferences. Timely bookings will also help the hotel to improve its performance (Kawamoto, 2017).

1. Investors

One of the key stakeholders of the property or hotel is the investors. These are those people who invest their money in order to get some return on their investments. The amount of return depends upon the level of profitability maintained and earned by the hotel. As investor is the key part, it is very much necessary to communicate the yield management strategies to them in a proper and formal manner. The hotelier can provide the detail of the strategies in their monthly reports which are provided to the investors. Another method of communicating is to have monthly conference call in order to be in touch and updated with the investors. Both the written and oral communication will allow the hotelier to share the strategies with investors and to have feedback on the same. The assistant required by the investors is in form of funds and to verify with them about the accuracy of the strategies made (Pojasek, 2017). 

1. Suppliers

Another key people or stakeholders of the property are suppliers. These people supplies various type of hospitality stuff required by the hotel as per the demand. Providing them all the details in a summarized manner in annual reports is a way of communicating the strategies to the key suppliers. Another way is to create a monthly newsletter which is to be provided to the suppliers that contains all the updates and information about the hotel which is relevant to the suppliers. The hotelier requires suppliers to provide immense support in executing the above strategies by making them available the required resources at the correct time. As in direct booking, the demand of consumers will increase which requires the manager to manage the supplies (Dhiman, 2016). 

1. Employees

Employees are the individual who are responsible for the overall working of a hotel or property and that factor makes them the stakeholder of it. Proper staff communication methods must be used for communicating the strategies to the employees. One of the methods is to conduct formal meeting with the employees in which all the strategies are addressed to them and their feedback on the same is taken. Also providing the same details in written can considered to be another method of interacting with employees. Manager requires the employees to support all the strategies and work in the set directions to achieve more revenue and profits. Also they are allowed to provide new and innovative ideas regarding the same (Enz, 2010).

Apart from the rooms, the two areas where yield management strategies can be applied are the marketing and sales department of a hotel and the latest technology used by it. Strategies that can be used in these two areas are:

1. Making the demand calendar means keeping the hotel technology updated as per the need of consumers as this will attract more guest and yield more revenue. It will also be helpful for the marketing department as it will keep them updated with the current demand and prices of the rooms and services provided by the hotel.
2. Pricing strategy is the one which can be applied by sales and marketing department while charging from the consumers for the services. Also the hotel must ensure that the technology purchased should be at reasonable prices.
3. Data maintenance is another strategy which will surely help in smooth functioning of both the departments. People in marketing and sales must keep up-to date data related to the demand and supply.

References 

Appaw-Agbola, E. T., & Agbola, A. K. (2013). Implementing yield management in hotels: An empirical study on small and medium hotels in Ghana. World Journal of Social Sciences, 3(3), 20-27.

Dhiman, M. C. (Ed.). (2016). Opportunities and Challenges for Tourism and Hospitality in the BRIC Nations. USA: IGI Global.

Enz, C. A. (Ed.). (2010). The Cornell school of hotel administration handbook of applied hospitality strategy. California: Sage.

Enz, C. A., & Thompson, G. (2011). The Hotel Competitor Analysis Tool (H-CAT): A Strategic Positioning Tool for Managers. Cornell Hospitality Tools, 2(3), 6-12.

Guilding, C. (2014). Accounting essentials for hospitality managers. New York: Routledge.

Ivanov, S. (2014). Hotel revenue management: From theory to practice. Bulgaria: Zangador.

Kawamoto, R. (2017). 5 Revenue Management Strategies for Multi-Property Hotel Brands. Retrieved from https://roomkeypms.com/blog/5-revenue-management-strategies-multi-property-hotel-brands/ 

Landman, P. (2018). Revenue Management Strategies. Retrieved from https://www.xotels.com/en/revenue-management/revenue-management-strategies-for-hotels 

Pojasek, R. B. (2017). Organizational risk management and sustainability: A practical step-by-step guide. Boca Raton: CRC Press.

Rouse, P. (2011). Revenue Management for Service Organizations. New York: Business Expert Press.

Sturman, M. C., Corgel, J. B., & Verma, R. (Eds.). (2011). The Cornell school of hotel administration on hospitality: cutting edge thinking and practice. New Jersey: John Wiley & Sons.

Tranter, K. A. (2009). An introduction to revenue management for the hospitality industry: Principles and practices for the real world. India: Pearson Education.