Revenue_Management

HRM302 Revenue Management Assignment 1 Leung Man Tao Marco 200710535 Executive Summary This report is going to discuss about the revenue management, and the revenue management do not have a long history, and it only had using in hotel industry about 10 years, the first industry using the revenue management to manage the revenue which is the airline industry. Revenue management is a subject which is helping the organization to keep running in the highest profit. There is a big topic for the revenue management and which is pricing, because if the organizational would like to have the highest profit, the revenue management team has to sell the right room, right customer, at the right time, for the right length of stay and through the right distribution channel. And also, there are eight elements which are the RevMAP and the “IDEA” strategic. Then, it is the strategic levers of revenue management which is the Price and Duration, setting pricing, and position price. Based on the research, the report is going to focus on two resorts, which is the Azzura Greens Resort and the Ocean Pacific Resort, and both of them are located in Gold Coast. According to the research, it shows the price which is on the web travel agency; Wotif and Last Minute. It is going to analysis these two resort and discuss about the three department how to making profit for the resort. Table of Content 1.0 Introduction………………………………………………………………..…..P.4 2.0 Definition all the key terms ……………………………………………P.5 – P.8 3.0 Important to Revenue Management ………………………………..P.8 – P.12 4.0 Key topics and concepts ……………………………………………P.12 – P.17 5.0 Holiday Inn Resort Kandooma Maldives ………………………….P.18 – P.24 6.0 Conclusion …………………………………………………………………..P. 25 7.0 Reference …………………………………………………………...P. 26 – P.27 8.0 Appendix ……………………………………………………………………..P.28 1.0 Introduction This report is going to discuss about the nowadays revenue management in hospitality industry and the history. Today, revenue management is becoming a more and more important, most of the organization is already using the revenue management to keep their profit in a high profit margin. More people are studying the revenue management, and there is the new opportunity for jobs. The report is going to discuss about the key terms, importance to hotel revenue management, and the key topics of the revenue management. Then, the report is going to choose two resort to analysis of various pricing policies and method in this two resort. Finally, based on the research, it will discuss the three departments, which is the Rooms, F&B and Spa. These three departments is the earning profit department, so this report will focus on these three departments. Next, it will discuss the key terms. 2.0 Definition all the key terms The Key Terms In Revenue Management ➢ Revenue Management, Revenue management, which is also called yield management, and it is really a process for the capacity-restricted industries to increase profitability to analysis the Right inventory, at the Right price and Right time, for the Right Length of stay, through the Right Distribution, to the right customers. (Revenue PPT week 2, 2011) ➢ Occupancy Occupancy, it means the percentage of the time and how many customers are using the services for the business, in the hotel industry, the reservation department is to control the booking, and do not make the occupancy of the hotel is over 100%. Also, there are calculation to calculate the occupancy; Occupancy% = Rooms Sold/ Rooms Available. ➢ Average Daily Rate Average Daily Rate, in short form is ADR, it is mostly used for the hospitality industry to calculate the average of the room rental every day, and it is a lodging unit to measure a hotel or motel operating performance The calculation of ADR is the hotel revenue divided of the number of the rooms sold. (Revenue PPT week 2, 2011) ➢ Revenue Per Available Room Revenue Per Available Room, for short is the RevPAR, it a ratio used in the hospitality industry to measuring the financial performance, and calculate the hotel’s ADR of the occupancy rate. There are two calculation can calculate the RevPAR, which Is Rooms Revenue / Rooms Available, or ADR x Occupancy%. (Revenue PPT week 2, 2011) ➢ Duration Duration, it is a stride from the sensitivity from the cost of the fixed-earnings investment to a general change in rates of interest, and it expressed a few years. In hotel, duration is in most of the front of house, for example; period of the guest stay, day use, hourly rentals of the meeting rooms, and fixed timings of the F&B outlets for operations. (Revenue PPT week 3, 2011) ➢ Pricing Pricing, is a business to set their product or service selling price, and it base on the product or service, and the company’s average cost, and strategic approach. (BusinessDictionary.com, N.D.) ➢ Price Transparency The Price Transparency which means a situation to let the seller and buyer know the pricing, but it can be hidden for the closed user group promotions. (Revenue PPT week 4, 2011) ➢ Rate Fences Rate Fences means establish rules through which clients segment themselves into cost groups. And also there are five types of rate fences, which is physical, product line, consumer (market segment), transaction, and controlled availability. (Revenue PPT week 5, 2011) ➢ Dynamic Pricing Dynamic Pricing, it is a system based on pickup and demand of rooms to setting the daily rates, also the price is also called the Best Available Rate. It is also give the contract and other business discounts off the BAR, and excellent rate management. (Revenue PPT week 5, 2011) ➢ Distribution Channel Distribution Channel, make an arrangement between the seller and buyer to promised to purchase an advance service or product, and it can avenue needs he reservation for the seller and buyer to actually transact. There are some examples for the distribution channel, such as retailers, agents, distributors and wholesalers. (Revenue PPT week 6, 2011) ➢ Forecasting Forecasting, it is a planning tool that can help management in the attempts to handle the uncertainty for the future, and it depending on data in the past and offer and the trend’s analysis. Forecasting is based on the management’s experience, judgment and knowledge these kind of assumptions. (Revenue PPT week 7, 2011) ➢ Pickup Pickup, it means the number of rooms has been booked from one day to next. ➢ Rooms on Books Rooms on Books, it means the rooms have already booked by the guest, it also provides the range of the dates. (Revenue PPT week 7, 2011) ➢ Turnaway or Regret Turnaway or Regret, it means the guest do not want to book this hotel. (Revenue PPT week 7, 2011) ➢ Lost Business Lost Business, it means the business or the management considered the hotel’s services and products, but they decided to book other place. (Revenue PPT week 7, 2011) ➢ Cancellations Cancellations means the guest is already booked, confirmed and guaranteed the room, but the hotel has enough guest, so they will allow the guest to declines the booking. (Revenue PPT week 7, 2011) ➢ No Show No Show, means the guest booked the hotel and does not arrive at that day and does not inform or call the hotel. (Revenue PPT week 7, 2011) ➢ Stay Stay, means how long does the guest has occupied the specific product. (Revenue PPT week 7, 2011) ➢ Stay Pattern Stay Pattern, it means a pattern at the arrival day, and the guest stayed number of nights and the departure day. (Revenue PPT week 7, 2011) 3. Importance to Revenue Management 3.1 History of Revenue Management ➢ 1970: Revenue management was created by an airlines who would like to offering same flying experience to different customers for different prices, based on the same time at which the customer booked and the flexibility that the customer required. (HospitalityYieldManagement, 2008) ➢ 1985: The American Airlines is going to launch the Ultimate Super Saver fares in an effort to compete with low cost carrier PEOPLExpress. (HospitalityYieldManagement, 2008) ➢ 1990: Revenue management are going to spread to other industry, such as transportation companies, other travel companies and national car rental. (HospitalityYieldManagement, 2008) ➢ 1995: Hotel started to try to rationalize the variety of price that they were charging different customers. (HospitalityYieldManagement, 2008) 3.2 Revenue Management in hotel Nowadays, most of the hotel using their occupancy levels to rate their success, but the occupancy levels is not the best way to measure the success. There is another way to measure the hotel’s performance and it is determining the hotel’s REVPAR, or each available room’s biggest revenue. In hotel, the yield manager’s job is going to maximize the REVPAR to the right customers, at the right time and at the right price. (BPOIndia.org, 2010) 3.3 Why revenue management in hotel There are few points are going to discuss; Segmented Market, Fixed Capacity, Perishable Inventory, Low Marginal Cost, Advanced Sales and Demand Fluctuations. (BPOIndia.org, 2010) ➢ Segmented Market In the hotel industry, most of the hotels are typically segment the subscriber base into some groups in line with the cost each category would like to pay for. And the categories will be the vacation traveler and the business traveler, and because different type of traveler may have different vary significantly, and it is hard to satisfy all the demand concurrently. Business traveler would like to pay for a greater cost in return for versatility of having the ability to book an area in the last second as the latter would like to stop some versatility with regard to a far more affordable room. Revenue management attempts to maximize revenues by controlling the tradeoff from a low occupancy and greater room rate scenario (business guests) versus a higher occupancy minimizing room rate (vacation guests). This type of strategy enables hotels to fill rooms that will otherwise happen to be empty. (BPOIndia.org, 2010) ➢ Fixed Capacity Hotel’s capacity is comparatively fixed – it is extremely difficult to include or remove rooms according to fluctuations sought after. If all of the hotel’s capacity were flexible, there would no need to manage capacity. (BPOIndia.org, 2010) ➢ Perishable Inventory Within the hotel industry, rooms in hotels would be the inventory. Hotels that continue to be unoccupied for one night and it will lose its value for that night. Hotel room cannot be stored and if it is empty, the value will lost forever. Revenue management attempts to manage demand rather that supply, it turns out to be good business sense for that hotel. (BPOIndia.org, 2010) ➢ Low Marginal Cost Fixed cost is a heavily capital intensive of adding room. However, when the hotel handles to pay for the initial fixed cost, this cost of serving increase customer is low enough the hotel sell room in a lower margin whether it wishes. This types of strategy will clearly have to be balanced by one which also demand the room sell for higher margin. Thus, the business makes cost differentiation essential of the low marginal and high fixed cost nature, and something that permitted by application of revenue management. (BPOIndia.org, 2010) ➢ Advanced Sales Generally, demands for reservations start early. Thus, hotels have sufficient leeway to regulate room rate in line with the variation between expected demand and recognized reservations. If all rooms in hotels are offered simultaneously, the accommodations do not have the versatility to regulate rate upward if demand accumulates later. The tradeoff happens whenever a manager is confronted with a choice of accepting an earlier reservation from the customer who desires a minimal cost, or waiting to ascertain if a higher having to pay customer will ultimately appear. (BPOIndia.org, 2010) ➢ Demand Fluctuations In the hotel industry, there are peak season and lean season which factor the hotel room pricing process. In lean season, the hotel can increase its specifically rate to lowering prices, while peak season the hotel can raising room rate to increase the revenue. Manager can consult the past data to forecast these periods of low or high demand may be occur. Regrettably, it is hard to predict the particular demand having a high amount of certainty. (BPOIndia.org, 2010) Therefore, probably the most critical challenge to the hotel industry is predicting potential capacity, and creating a prices strategy which will encourage maximum revenue and capacity. Revenue Management is easily the most effective method to solve this concern. (BPOIndia.org, 2010) 4.0 Key topics and concepts 4.1The Strategic Revenue Management Strategic revenue management and the integration of tactical help the management to manage an effect marketing measures. Strategic approach is looking for the best pricing for the target market, and it is not a nightly race to highest possible revenue. Strategic revenue management is also including the hotel income, distribution channel and packaging management. (Dr. G Forgacs, Hotel Online, 2010) There is a process which is called the RevMAP for the strategic revenue management, and this map is like a road map to explain the evaluating, executing and development to the company. The RevMap process is based on Duration and Price of the strategic levers. () 4.1 The RevMAP The RevMAP is leading the strategic revenue management’s critical path. There are eight fundamental elements which is step by step and it shows the strategic IDEA. These eight elements group together and created the strategic revenue management process. The eight elements in eight steps are the Customer knowledge, Market Segmentation and Selection, Internal Assessment, Competitive Analysis, Demand Forecasting, Channel Analysis and Selection, Dynamic Value-Based Pricing, and Channel and Inventory Management. First step is the Customer Knowledge. The revenue management team should take all of the guest profit, although pass, now and future. After that, the revenue management team have to analysis which kind of customer they should focus on, and start think which price and room type is fit to their process. Then, revenue management team have to choose the channel and selection, try to focusing for the next half year customer interest, and start the Value-Based Pricing. The last step is the revenue management team start management the inventory and channel for the organizational. After that, the revenue management team have to, Identification of Goal and Objectives, Development of Strategies and Tactics, Execution of Strategies and Tactic and Analysis Evaluation and Adjustment, and it is stand for “IDEA”. () 4.2 The Strategic Levers of Revenue Management The strategic levers of Revenue management will summarize in four Cs: cost, capacity, clock and calendar. The revenue management are facing to pricing which kind of customer would like to pay for the service related to timing and matching the service timing. According to the customer demand levels and characteristics, revenue management team can change the need for individuals’ guest who are relatively cost sensitive but time’s insensitive to low season. ( The Center for Hospitality Research, 2011) Price and Duration Pricing, there are three types are focusing on and which are the Flexible price, fixed price, and Dynamic price. Flexible price means based on the some out factors, such as location, product complexity and delivery of time. In hotel, flexible price will appear in the between buyers and sellers.. Fixed price means only set one fixed price for all of the markets. In hotel, fixed price will appear in F&B and rooms. (Marketing Institute of Singapore, 2011) Dynamic Price is based on the pick-up rooms and demand to set the daily rate, and it is the lowest rate and which is called Best Available Rate. For the market segmentation, the revenue management team should look on the Inelastic and Elastic demand of their target market. Because of different season, the demand of the hotel makes the hotel’s price change. Because of the revenue management team have to making the highest profit, so the revenue management team are going to use the flexible price for the cold season to keep their revenue. In the other hand, the fixed is going to use in the hot season. And this is the Demand-Control Chart for the hotel to adjusted for the pricing system. A.Tranter, Stuart-Hill and Parker (2008, P85-89) Price Elasticity. [pic] ( Chart from Week 4 ppt, P.14) Setting Price & Positioning Price Nowadays, revenue management are combine the Values based Pricing, Demand and Competitive. For Setting Price, there are fve different types of setting the pricing, and which is the Single Rate, Cost-based Pricing, Competitive Pricing, Demand-based Pricing and Value-based Pricing. (Blue Mountains Hotel School, Week 4 ppt, 2011) ➢ Single Rate, this is a rate mostly appear in the monopoly business, such as the essential industry, such as water and power. And these kinds of industry and rate will be controlling by the government. ➢ Cost Based Pricing, Pricing the service or product of their costs. ➢ Competitive Pricing, following the competitive pricing, it depends on the competitive rising or declining the price. In hotel industry, hotel which is in the same area, their front desk will send the Round Town information to each hotel. ➢ Demand-Based Pricing, this pricing setting is depend on the demand. ➢ Valued-based Pricing, this method is based on the intended customers perceived the worth of the good or service. (Business Dictionary.com, 2011) Position Price Next, it is going to discuss about the Position Price. The positioning Pricing, is based on the product or service quality, and compare with their competitors and setting the pricing. And there are five types in the Positioning Price, such as Skim, Surround, Undercut, Match and Penetrate. ➢ Skim, Setting the price which is higher than the competitors (Blue Mountains Hotel School, Week 4 ppt, 2011) ➢ Surround, Setting two price, one price is higher and the other price is lower than the competitor(Blue Mountains Hotel School, Week 4 ppt, 2011) ➢ Undercut: Offering a price which is equal and one is below to the competitor’s price. (Blue Mountains Hotel School, Week 4 ppt, 2011) ➢ Match, Setting a same rate and the other one is a little bit higher that the competitors. (Blue Mountains Hotel School, Week 4 ppt, 2011) ➢ Penetrate, Setting the price is lower than the competitor. (Blue Mountains Hotel School, Week 4 ppt, 2011) Duration Duration, it is a stride from the sensitivity from the cost of the fixed-earnings investment to a general change in rates of interest, and it expressed a few years. In hotel, there are lots of different duration happen, such as, during the check in and check out, day use rooms, meeting room, and F&B outlets. Blue Mountains Hotel School, Week 5 ppt, 2011) And there are two types of the durations which is predictable and unpredictable. ➢ Predictable, it means people will know about the time of the process is, when is it start and end, so the revenue management team can have well planning. ➢ Unpredictable, it means the people do not know about the timing, when is it start and end. And the revenue management can only try to be making it predictable. The F&B outlet are looking for a quick turnover and reservation to maximum space. When the customers come in to the restaurant, restaurant cannot be control how the customer would like to seat, and the restaurant has to reduce the booking which is not arriving. But there is special case in the major festivals, such as Christmas, restaurant will set the time for each table, it is around two hours and the guest have to left. | |External |Internal | |Reduce Arrival |Guarantee booking, Reminding guest |Reduce the no show | |Reduce Duration |Write down the Departure date on the RC, |Forecast the LOS | | |Charge if guest departure earlier | | |Reduce the time with the customer |Hold the booking within 15mins |Manage the reservation | 5.0 Holiday Inn Resort Kandooma Maldives 5.1 Azzura Greens Resort Gold Coast |Azzura Greens Resort Gold Coast (05/12/2011) | |Type of Room |Full Rate |Azzura |Wotif |Last Minute | |1 Bedroom Deluxe |450 |------------------ |225 |225 | |1 Bedroom Deluxe – 3 |450 |210 |210 |210 | |nights | | | | | |2 Bedroom Deluxe |510 |------------------ |249 |249 | |2 Bedroom Deluxe – 3 |510 |220 |220 |220 | |night | | | | | |2 Bed room Executive |540 |------------------ |275 |275 | |2 Bed Executive – 3 |540 |240 |240 |240 | |night | | | | | Azzura Greens Resort is a located in the Hope Island, Gold Coast, Australia. From Gold Coast Airport to the Azzura Greens Resorts, the distance is around 48 km, it guest travel by car, and it takes around 38 minutes to arrive to the resort. The resorts have three types of room which is the one bedroom deluxe, two bedrooms Deluxe, and two beds Executive. The resort front desk is work for at 08:00-18:00 on Monday to Saturday, and work at 08:00-15:00 on Sunday. Hours, but there is not any restaurant in the hotel but the resort do have the BBQ area for the guest who would like to BBQ and they are selling the food and equipment for BBQ. Also the guest just need to walk around 5 minutes can arrive the proximity of the Hope Island cafes, bars and restaurant. And there is an 18 whole golf course on-site with pool, spa, and gym and steam room. In gold goats, there is not much competitor which chosen the Ocean Pacific Resort. The Ocean Pacific Resort far from the airport 25 km, if by car, it takes 35minutes to the resort. The Ocean Pacific Resort has heated outdoor pool, 36 degree Spa, Sauna, games room and gym rooms. This resort does not have a restaurant for fine dining, but it has a BBQ area. There two resort facilities are quite similar, but the Azzura Greens Resort has an 18 whole golf course. Next, it is going to discuss these two resorts according these three departments, which are Rooms, Food and Beverage and SPA. |Ocean Pacific Resort ( 30/12/2011) | |Type of Rooms |Full Rate |Broadbeach |Wotif |Last Minute | |1 Bedroom Superior – 3 |260 |140 |140 |140 | |night | | | | | |Family Apartment – 3 |320 |180 |180 |180 | |night | | | | | |2 Bedroom Ex-Display 3 |300 |180 |160 |160 | |nigh | | | | | According to the research on the official website, Wotif, and Last Minute, the chart clearly shows the entire different price from the website. Azzura Greens Resort Gold Coast’s positioning pricing is using the skimming which is the price is higher than the competitor- Ocean Pacific Resort. Although their price is higher, but they can provide an excellent accommodation for the guest. Because the Azzura Greens Resort can provide a better service, so their price transparency is lower than the Ocean Pacific Resort. The Azzura Greens Resort is having a greater facilities and accommodation, but the competitor is attracting the tourist for the elastic demand, and Azzura Greens Resort is the inelastic demand. For the distribution channel, most of the customer would like to spend less on their trip and both of the resorts are using the web travel agency to help the resort founding guest and the resort are using the price parity, it makes the price is same with every travel agency. Overall the Azzura Greens Resort’s target market is tourists who are willing to spend more on their trip to have a better accommodation. 5.2 F&B Department Analyses For those two resorts, they only have the BBQ area for the guest for the F&B department; the reason is there are too many café, restaurant and bar. Although the resort is having a dining restaurant, they are difficult to make profit from the restaurant. Business is Business; the dining cannot make profit, so the resort is suggest the guest to dining from the surrounding area. 5.3 Spa Department Analysis Both of the resorts having the spa facilities, the resort are promoting the package to attract the guest to use their spa facilities. Because it is quite expensive for the spa, so the resort are not promoting package with the accommodation. And the resort facilities price transparency is not enough, this is a price list from a resort surrounding spa health centre price list. (Price List, Next page) Package [pic] |Nao Medi Advance Facial |80 minutes |$270.00 | |Yao Herbal Bath (including abdominal + back massage) |90 minutes |$168.00 | |Manicure |30 minutes |$50.00 | | |Total: |$399.00 | |Facial Rehydration |70 minutes |$85.00 | |Neck Care |30 minutes |$45.00 | |Warm Milk Paraphin Hand Treatment(Inc Manicure) |60 minutes |$70.00 | | |Total: |$140.00 | |Manicures |30 minutes |$50.00 | |Luxury Spa Ritual & Paraffin Hand Treatment |30 minutes |$60.00 | |Warm Milk Paraphin Hand Treatment |60 minutes |$70.00 | | |Total: |$200.00 | Additional Treatment [pic] |Eyebrown tinting |$15.00 | |Eyelash tinting |$20.00 | |Eyebrown tinting + Eyelash tiniting |$30.00 | |Eyelash perming |$45.00 | |Eyebrow shaping |$15.00 | |Ultrasonic penetration |$20.00 | |Back whitening mask |$85.00 | |Back acne care |$85.00 | |Breast care |$98.00 | |Ovary special care |$130.00 | |Milia removal |$10.00 each | Waxing [pic] |Upper lip |$15.00 | |Upper lip and chin |$30.00 | |Half arm |$35.00 | |Full arm |$50.00 | |Bikini line |$35.00 | |Brazilian |$85.00 | |Half leg |$40.00 | |Full leg |$65.00 | |Back |$50.00 | |Face |$55.00 | Hand Care [pic] |Hand massage |10 minutes |$25.00 | |To relax tension of the hand | | | |Paraffin hand treatment |15 minutes |$45.00 | |Hand exfoilation |10 minutes |$15.00 | (http://www.goldcoastspa.co.nz/promotion-package, Spa price chart) 6.0 Conclusion For the conclusion, this report has discuss about the key terms, key topics, the critical analysis of examples of various pricing policies and methods, and comprehensive the three different department in Rooms, F&B and Spa. This report is make writer and reader more well-known about the Revenue management, although the history, how it works, pricing policy and how to help the organization make the highest profit. In the future, revenue management will be an independent department in different industry. 7. Reference The Decision Makers, Revenue Management, viewed at 11 November 2011 Gold Coast Health Spa, Promotion & package, viewed at 15 November 2011 < http://www.goldcoastspa.co.nz/promotion-package> Ocean Pacific Resort, Facilities and location, viewed at 15 November 2011 < http://www.oceanpacificresort.com.au/index.htm> Azzura Greens Resort, Hotel & Resorts, viewed at 15 November 2011 < http://www.azzurahotelsresorts.com.au/hotel.php'id=1> 8. Appendix Hotel fact sheet [pic]