Revenue Management For Inventory Optimization And Price Availability

Reasons of the City Selection

Discuss about the Revenue Management for Inventory Optimization and Price Availability.

Revenue management helps in anticipating the consumer demand for inventory optimization and price availability to attain highest possible revenue growth and for increasing demand in low demand periods (Enz et al. 2012). Hotel services are considered to be perishable as the number of hotel rooms are generally available in limited numbers. For this reason, consumer satisfaction along with pricing serves to be the vital dynamic variables that are subject to hotel revenue management. The objective of the paper is to analyze the progression and role of the revenue management process. In addition, suitable revenue management measures are presented to the hotel based on the demand forecast.

Newcastle is situated at the heart of the North Coast and is a vibrant cosmopolitan city comprising of eye-catching beaches, rich history, exceptional culture and arts (Heo et al. 2013). The region is also a destination of excellent dining and shopping options that grabs attention of the tourist segment. Newcastle is among the renowned sea-sight tourist destination in Australia. Moreover, hotel industry is considered to be among the largest revenue generating sectors in the region. Moreover, the occupancy rate in the Newcastle region was observed to be increased by 74.4% in the year 2015 (Australia.gov.au 2016).

Number of international investors has also increased considerably in the year 2015 that makes the region the largest source of tourists. Increasing demand and steady growth in tourism has improved the business prospects in this Australian region. A robust growth was recorded in the Australian hotel sector with improved occupancies and Average Daily Rates (ADR) in the selected region. These are the reasons for which the region is chosen as the suitable place of hotel business operation.

Several categories of hotels exist in the Newcastle region in Australia. All these hotels are distinct from each other in areas of quality and services they offer. However, there are certain aspects those are common among own hotel and the competitor hotels for which they are selected in this paper. The hotel of this case study falls under the five star category. For this reason, the own hotel is compared with the competitors those fall under the category of either four or five star hotels. Several other criteria based on which the competitive set has been selected are location, brand, ADR and type (Beach 2016).

Explanation Regarding a Particular Competitor Set Selection

All of these competitor hotels are full-service those have attached restaurants, meeting space and lounge services that provides them a competitive edge over other hotels in the region. Based on these aspects the hotels those are selected as competitors in this region are Travelodge Newcastle, Noah’s On the Beach and The Gateway Inn.

Book figures and occupancy forecast for the hotel has been conducted by considering the competitor’s room rates and their service benefits. As there was lack of information on the cost and the tariff rates of the competitors hotels, the forecasting of occupancy was done based on the room rates of the hotels very month. From the estimation of the rooms sold by all the three competitor hotels it was observed that that average rack rate for the five start hotels in Newcastle region is average of higher rates along with minimum 10% discount (Beach 2016). Considering the competitors book figures, the occupancy forecast of own hotel is determined by making appropriate assumptions.

In consideration to the volume of competitors in the market, own hotel is expected to perform competitively in the Newcastle region. As per the evaluation of the market trend the anticipated room rates are observed to increase at a great amount during holidays and weekends (peak season). During the peak season, own hotel’s no of rooms sold is deemed to attain the highest record of 200 rooms in comparison to the rooms sold in the other days (Noone et al. 2013). The hotel will design unique marketing strategies and will set competitive rates by analyzing the room rates of its major competitors during holidays and weekends.

Through competitive pricing, the hotel is expected to attain higher performance results than its competitors. In the month of October, own hotel is anticipated to attain an occupancy rate of 100% that indicates successful competition with the other three competitor hotels (Kimes 2016). Such occupancy rate can be achieved by the hotel though offering exciting packages different from its competitors such as extended happy hours, sightseeing and indoor pools that match the desires of the target consumer market.

Traditional families are the target market segment for the hotel. Selection of target market for own hotel is done through understanding the existing customers of the competitor hotels and prospective consumers of own hotel in Newcastle region. Through selecting the target market, pricing and promotion strategies can be designed that address the consumers desires thereby attracting huge consumer segment and ensuring better revenue management. Newcastle region is renowned for its divine culture and scenic beauty. For this reason, the target market for the hotel will be the traditional families those are keen holiday tourists (Liu et al. 2014). This consumer market segment prefers comfortable along with good value hotels with tendency to visit beautiful beaches and historical places. As the hotel is located near the tourism spots, it will grab attention of large target market.

Explanation on the Books Figures and Occupancy Forecast

Revenue Management Measure in Slower Demand than Anticipated

The revenue management measures those can be taken by own hotel in case the demand turns out to be slower than anticipated are described as follows:

Yield management can serve as a method that can be employed for maximizing the room revenues. This process of revenue management can be an efficient measure of performance as it includes occupancy percentage with average daily rate within a particular statistic that is yield statistic. In order to maximize the revenue in slower demand forecast, information regarding capacity management, duration control and discount allocation needs being collected. Based on yield management measure it can be deemed that in the slower demand, own hotel needs to lower its room rates and reservations are to be promptly accepted that might maximize revenue (El Haddad 2015). In maximizing revenue certain aspects needs to be considered for increasing profit such as group room sales, transient room sales, food and beverage availability, domestic and area wide conventions and special events.

Discount allocation is another revenue maximizing measure in slower demand. Considering this measure, extending the time and available product mix at decreased or discounted rates can increase revenue during this period (Mathies at al. 2013). Moreover, increasing discounts based on room types can maximize revenue for own hotel. Moreover, the price sensitive consumer groups requires being displaced and correct mix of target market should be defined during low demand period for selling maximum room rates.

Revenue Management Measure in Higher Demand than Anticipated

The revenue management measures those can be taken by own hotel in case the demand turns out to be higher than anticipated are mentioned below:

To deal with increasing demand the best revenue management activity will be to decrease the room bookings by selling the hotel rooms at higher rates (Mauri 2013). Such revenue management strategy can help in increasing own hotel’s profitability. Room rates needs to be higher for maximizing the rate at the time demand is more than supply.

During high demand, own hotel may restrict offering rooms at discounted rates and the hotel should ensure minimum length of stay of the customers. However, the hotel should also consider that whether a huge increase of the room rates would serve as a good business practice. The discounted packages should not be offered to the consumers those are willing to pay more.

Some other revenue management tactic during high demand are reducing group allocation of rooms, making stricter cancellation and guarantee policies, rate increase for all the hotel packages, application of full price on suites and executive rooms. Moreover, to reap the highest revenue during higher demand than forecasted, own hotel should choose dates those are closed-to-arrivals and analyze the advantages of sell through (Mei and Zhan 2013). In addition, deposits and guarantees need to be applied until the last day of stay.

Performance Expectations of the Hotel against Competitors

During high demand, the staffing levels should also be checked such as the front desk, the outlets and the ancillary venues (McManus 2013). Fully staffed front desk might be needed to address the needs of the increased demands along with maximizing the average room rate that will increase revenue.

Conclusion

The paper intended to evaluate the progression and the role of the revenue management process in hotel industry along with offering suitable demand based revenue management measures. Own hotel is deemed to compete successfully in the Newcastle region as will set competitive pricing for its rooms and special packages. It is gathered that during the high demand days, own hotel should set revenue management strategies those will address the consumer needs along with attaining maximum revenue in comparison to its consumers. Moreover, in the low demand period, own hotel is recommended to set revenue management strategies those will increase the occupancy rate and will maximize revenue.

Reference List

Australia.gov.au., 2016. Public holidays | australia.gov.au. Retrieved from: https://www.australia.gov.au/about-australia/special-dates-and-events/public-holidays [Accessed 20 Jul. 2016].

Beach, Q., 2016. Quality Hotel NOAH’S On the Beach – Newcastle – Australia. Noahsonthebeach.com.au. Retrieved from: https://www.noahsonthebeach.com.au/ [Accessed 20 Jul. 2016].

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Heo, C.Y., Lee, S., Mattila, A. and Hu, C., 2013. Restaurant revenue management: do perceived capacity scarcity and price differences matter? .International Journal of Hospitality Management, 3(5), pp.316-326.

Kimes, S.E., 2016. The evolution of hotel revenue management. Journal of Revenue and Pricing Management, 15(4), pp. 247-251.

Liu, W., Guillet, B.D., Xiao, Q. and Law, R., 2014. Globalization or localization of consumer preferences: The case of hotel room booking. Tourism Management, 4(1), pp.148-15

Mathies, C., Gudergan, S.P. and Wang, P.Z., 2013. The effects of customer-centric marketing and revenue management on travelers’ choices. Journal of Travel Research, 52(4), pp. 479-493.

Mauri, A.G., 2013. Hotel revenue management: Principles and practices. Pearson: Italia Spa.

McManus, L., 2013. Customer accounting and marketing performance measures in the hotel industry: Evidence from Australia. International Journal of Hospitality Management, 3(3), pp. 140-152.

Mei, H. and Zhan, Z., 2013. An analysis of customer room choice model and revenue management practices in the hotel industry. International Journal of Hospitality Management, 3(3), pp.178-183.

Noone, B.M., Canina, L. and Enz, C.A., 2013. Strategic price positioning for revenue management: The effects of relative price position and fluctuation on performance. Journal of Revenue and Pricing Management, 12(3), pp. 207-220.