Revenue Management: Business Purposes Essay

Question:

Discuss about the Revenue Management for Business Purposes.

Answer:

Introduction

This assignment is based on the subject of revenue management. The assignment aims to identify the reason for which the hotel that selected the particular city for its business purposes. At the same time, the assignment also tries to find out the reasons behind the selection of the competitor set and the way of forecasting the occupancy rate and the performance of the hotel. Along with that, the study also recognizes the target market of the hotel and the way of handling the changed market situation.

Explaining the Reasons for Selecting the City

It has been identified in the previous assignment that the hotel is situated at Darwin Australia. The management of the hotel has selected this place because the population growth rate at that place is good and it is gradually improving. Apart from that, that particular city has softer occupancies, which is favorable for the hotel business (Kimes 2016). At the same time, the room rate in the hotel industry is also growing in this city. Moreover, the demand for the hotel services in that place is increasing day-by-day (Kimes and Wirtz 2016). Therefore, management thinks that if the hotel operates its business at Darwin, Australia, then it will have more growth opportunity. Hence, Darwin, Australia will be profitable for the hotel.

Justifying the Selection of the Competitor Set

There are mainly four large hotels in Australia are included in the competitor set of this hotel and these are – Hilton Hotel, Skycity Darwin, Coconut Grove and Ramada Suites Zen Quarter Darwin. The primary reason of including these four hotels in the competitor set is – these hotels are operating their business successfully in the market of Darwin and if this particular hotel competes with these four hotels then it can improve its standard of performance (Arenoe, Van Der Rest and Kattuman 2015). At the same time, if the hotel competes with the large hotels, then it can understand their strategies in better way, which is important for the further development of the new hotel. Apart from that, by competing with the large hotels, it can attract at least some of the customers of those hotels (Abrate and Viglia 2016).

The most common thing between this particular hotel and its four competitors is that all of these hotels are situated at Darwin, Australia. Along with that, it can also be said that some of the services or facilities like, restaurant facility, room service and free internet facility are common in these hotels.

Justifying the Figures in the Books and Occupancy Forecast

In the accounting book of the hotel, it has been identified that the income or the profit level of the hotel is expected to be increased in the 2nd month than that of the 1st month. The amount that the company will receive through room bookings, restaurant service and value added services will grow up in the second month because the management expects that at the end of the 1st month, the hotel will gain some reputation, which will help it increasing its room bookings (Van Der Rest et al. 2016). As the room bookings will grow up, it can be expected that the more use of restaurant facilities and values added services will take place, which will increase the income from the restaurant and value added services (Sigala 2015).

On the other side, the purchase will grow up because in order to meet the increasing demand, the hotel will require purchasing more ingredients and other things. As the purchase will increase, the cost per average sales will also grow up. The beginning inventory will be high in the 2nd month because it is possible that in the 1st month the sales will be much lower than the production and the closing inventory will be high because at the end of 2nd month, the management will prefer to have good amount of stock in hand so that in 3rd month, they can easily supply the increased demand (El Haddad 2015).

The expenses for paying the salary will not be changed in the second month because in second month, the management will not recruit any new people and the salary level will be same for the existing people. The advertisement cost will be higher in the second month because in second month the hotel will more focus on the promotional activities (Ortega and Ortega 2016).

In the occupancy rate forecast, it can be identified that the occupancy rate will be 84.5% in the high season. In the high season, the occupancy rate will not be 100% because the hotel is new and many people will not be aware of the hotel. In the average season the occupancy rate will be 70% because till the average season, the hotel will be able to increase its promotional activities and so more people will be aware of the hotel (Denizci Guillet and Mohammed 2015). Hence, in the average season also, the hotel will have 70% occupancy rate. In the low season, the occupancy rate will be 50% because the demand will be low at that time.

Describing the Way of Competing in the Market

It has been identified in the previous discussion that this hotel will compete with four major hotels at Darwin, Australia. As a new hotel it will not be easier to compete with already established and reputed hotels (Legoh?rel et al. 2016). However, the management of the hotel is planning to compete in this competitive market by emphasizing on it’s pricing strategy. The management has decided it will maintain the price level as per the standard rate in the market (Jonsson 2015). At the same time, the hotel will also focus on its cost level, so that it can better manage its profit level and revenue.

Defining the Target Market

The management of the hotel has segmented the market on the basis of the income level of the people. As per the market segmentation, there will be three market segments – high income group, middle income group and lower income group. The hotel will target mainly the middle and higher income groups. The hotel will set the room rates at such a level, which will be not so high and the middle class people can easily afford.

Explaining the Reaction if the Demand is Slower

It is possible that in future the demand in the market for the hotel services becomes slower. If the demand becomes slower, then it will be the first step to control the cost of the hotel. However, at the same time, the price level of the hotel must be sensitive enough (Lin and Huang 2015). The hotel can provide price incentive, which indicates discounts in the hotel rents. Low room rents of the hotel will help to attract the customers easily. At the same time, the hotel also requires to encourage the customers or guests to avail better facilities, which will help to enhance the revenue of the organization (Denizci Guillet and Mohammed 2015). Apart from that, the management of the hotel can also introduce the package system.

In the package system, it can provide a specific group of services to its customers within a particular price range. Sometimes, the package facility attracts the customers more because customers get varieties of service by paying the money once at time (El Haddad 2015). Customers feel that they are paying fewer amounts but in actual sense, the hotel can gain good amount of profit by introducing the package system during the low demand season.

Explaining the Reaction if the Demand is Higher

At the time, when there is high demand in the market, the management of the hotel can take varieties of strategy to handle the situation in a better way. First of all, the management can increase the revenue by increasing the price level of the rooms by a little percentage (Abrate and Viglia 2016). At the time, when demand is high in the market, crisis situation takes place regarding the availability of the hotel rooms. Due to that, the people become ready to pay high rent to get the hotel room. Along with that, the hotel can introduce some extra services free transportation from hotel to nearest airport or railway station. As during the high demand season, the people are ready to pay extra amount, they will be attracted towards the hotel that will provide more facilities (Legoh?rel et al. 2016). Apart from these, the management of the hotel can increase the number of rooms or accommodation to fulfill the demand of the people.

Conclusion

In this study, it has been identified that Darwin, Australia has good population and the population trend of the place is upward moving. Due to this, Darwin, Australia is a perfect place for new hotel business. The Skycity Darwin, Hilton hotel, Coconut Grove and Ramada Suites Zen Quarter Darwin are the major player in the market of Darwin and so these are the major competitors of the new hotel. In the second month, the income level of the hotel will increase because it is expected that the demand will be higher. The target customers will be the middle income group and high income group people. In order to manage the situation during low demand season, the hotel can introduce package system and when the demand is high the hotel can increase its price level by little percentage.

Reference List:

Abrate, G. and Viglia, G., 2016. Strategic and tactical price decisions in hotel revenue management. Tourism Management, 55, pp.123-132.

Arenoe, B., Van Der Rest, J.P.I. and Kattuman, P., 2015. Game theoretic pricing models in hotel revenue management: An equilibrium choice-based conjoint analysis approach. Tourism Management, 51, pp.96-102.

Denizci Guillet, B. and Mohammed, I., 2015. Revenue management research in hospitality and tourism: A critical review of current literature and suggestions for future research. International Journal of Contemporary Hospitality Management, 27(4), pp.526-560.

El Haddad, R., 2015. Exploration of revenue management practices–case of an upscale budget hotel chain. International Journal of Contemporary Hospitality Management, 27(8), pp.1791-1813.

Jonsson, R.A., 2015. The new hotel business model: enhance customer experience and profit optimization through the use of revenue management.

Kimes, S.E. and Wirtz, J., 2016. Revenue Management in Restaurants: Unbundling Pricing for Reservations from the Core Service.

Kimes, S.E., 2016. The evolution of hotel revenue management. Journal of Revenue and Pricing Management, 15(3-4), pp.247-251.

Legoh?rel, P., Schwartz, Z., Heo, C.Y. and Wang, X.L., 2015. Special Issue: Revenue management for tourism and hospitality. Journal of Travel & Tourism Marketing, 32(7), pp.795-933.

Lin, Y.H. and Huang, K., 2015. Customer Loyalty under the Influence of Revenue Management: The Case of Taiwanese Hotel Customers. Asia Pacific Journal of Tourism Research, 20(12), pp.1374-1388.

Ortega, B. and Ortega, B., 2016. Revenue management systems and hotel performance in the economic downturn. International Journal of Contemporary Hospitality Management, 28(4), pp.658-680.

Sigala, M., 2015. From demand elasticity to market plasticity: A market approach for developing revenue management strategies in tourism. Journal of Travel & Tourism Marketing, 32(7), pp.812-834.

Van Der Rest, J.P.I., Cordella, P., Loosschilder, G. and Schwartz, Z., 2016. Connecting Search Marketing to Hotel Revenue Management: Conjoint Analysis as a Methodology to Evaluate the Optimal Online Travel Agency Commission Fee. Service Science, 8(2), pp.169-183.

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