Revenue Management Strategies and Tactics

Question: Discuss about the Revenue Management for Strategies and Tactics. Answer: Introduction: Revenue management is the art and science of maximizing revenue under variable conditions. According to Wang (2012), revenue management is the use of pricing to increase the profit generated from a limited supply of supply chain assets. Revenue management helps to predict consumer demand to optimize inventory and the availability of price in order to maximize revenue growth. Thus, the role of the revenue manager is significant for assessing the suitable pricing strategies which is said to be one of the core strategic levers used to optimize revenue. In this assignment, the researcher will prepare a report on behalf of the revenue manager for Sydney Harbour Marriott Hotel at Circular Quay. The Sydney Harbour Marriott Hotel at Circular Quay is looking forward to exceeding the wildest expectations. This five star hotel welcomes their guests with graceful accommodations, luxury amenities and a well-renowned commitment to outstanding services (Abrate Viglia, 2016). The fundamentals of the companys revenue management is all about selling the right room to the right client at the right moment and the right price on the suitable distribution channel with the best commission efficiency. However, the revenue management often challenges the resources to gather information about the market. Use such information to divide into the market and adjusts services through distribution and provide services to their clients at the right price is the main objective of the report. By the suitable revenue management strategy, the hotel will not only maximize the high demand but it would help to stimulate demands in low periods while avoiding price cannibalism. The report, thus, will make strategies taking revenue with their profitability into consideration, and provides services even at the low rates ensuring in high demand period. On the other hand, the proposed revenue management strategy will discuss not selling a room today at a low price to sell it tomorrow at a higher price. Market Segmentation Analysis: Business Details One of the components needed to apply revenue management in hotels is segmentation of market (Bayoumi et al., 2013). This analysis is significant to target a variety of consumer groups with different behavior with an offer that meets their needs and budget level. Marriott believes all customers require a base service level against the differentiation of willingness to pay for different levels of comfort and luxury. This is the reason they created a tier of different designs varying from the price and amenities to meet each customers desire, needs and income. This hotel uses multi-stage segmentation to cater services for distinctive target consumers. For instance, the company segments their market considering the demographics such as age groups, and cultural preferences and so on. Generally, luxury services are offered for seasoned traveler and segmented as a high income bucket. On the other hand, the upper age customers are generally come into the hotel for weddings/special occasions/upscale business meetings and many others. Here the price does not determine the segmentation of the market. Thus, the market segmentation of Marriott identified the different purposes of the trip which includes Business, Leisure, Wedding or other cultural purpos es. The demographic and behavioral segmentation are the main characteristics of the Marriotts market segmentation. The fundamental behavioral considerations are brand loyalty, frequency usage status and benefits. Marriott offers a reward program with free nights facilities, upgrades different third party promotions to appeal to their loyal customers. On the other hand, the company also considers the service-related consumer specifications. This five star hotel has constantly expanded their service offerings. For instances, the high profile corporate often visits this hotel for attending meetings or party. This has been investigated that corporate people have specific services that appeal to them. Business professionals, socialists, and many other consumers are more interested in fitness services, technological needs which obviously complements with their lifestyles. Currently this luxurious hotel of Australia has adopted a unique segmentation strategy for their market which is featured on Marriotts main web page. They are targeting new football fans who are owners of VISA card. The hotel provides $20 Visa Gift Card and NFL MVP Combo Snack Pack. The research evaluates that the company gives 70 percent preferences of behavioral considerations over 30 percent of demographics of their clients. The company continually extended their product offerings by elevating the guest experience at their hotel. The research shows that consumers ranks bathrooms amenities among the top influential services on their overall guest room experience. However the company finds challenging to meet the customers desire for the introduction of the new amenities on a frequent basis. Trends Analysis: In the 20th Annual Travel and Leisure Award ceremony, Sydney has again been voted the number one city among Australia, New Zealand and the South Pacific. In addition Sydney properties currently dominated the Top Hotel categories in which Sydney Harbour Marriott Hotel is one of them. The purchaser profile of Australian hotel investors continues to be dominated by buyers from Asia. The emergence of Chinese investors has been one of the key features of the hotel market since 2014. The current trend analysis reported that there was a marked improvement in returns delivered by the luxurious hotel sector of the nation, reflecting stronger growth of capital. Furthermore, current market trend suggests the hotels situated in Sydney have the highest occupancy rates for the period of 2014-15 and relatively stable in most markets. The highest occupancy rate during the year to date June 2014, was maintained in Sydney City at 86 percent and ensured growth in values from continued strong trading pe rformance. Increasing regional business travel, which has been found the major revenue streams for larger hotels, has further supported the industry over the recent periods and as a result, revenue of the hotel industry is expected to grow at the rate of annualized 4.8 over through 2016 to 2017 (Marriott Hotel Rooms, 2016). The market segmentation analysis also evaluated that larger hotels of Australia are provided diverse services from accommodation facilities to pool and billion tables, conference and meeting facilities as well. Thus the trend analysis clearly supports that major Australian city hotels have enough opportunities to increase room accommodation availabilities against the revenue by an average of 2.8 per cent with the wide divergence related to the performance of the market of individuals. (Source: Butler et al., 2013) Analysis of the Competitors set: Current market position The luxurious hotel industry has developed over the last five years, as it recovered from unresponsive demand conditions due to the presence of the global economic crisis. Rising growth in the tourism business and overseas visitors who have arrived from Singapore, Hong Kong, Malaysia and India have ensured large financial contribution responsible for strong growth in outbound travels and high competitions among luxurious hotel service providers. Therefore, the report indicates that there is a huge competitive pressure in which Sydney Marriott Hotel is currently operating with and it results high standards quality services to clientele. The biggest competitors of Sydney Harbour Marriott Hotel at Circular Quay are the Hilton Sydney International, Park Hyatt Sydney, Intercontinental Sydney and the Accor Group of Hotels. All these companies have reflected the incredible standards in the States accommodation sectors. All these companies are largely contributed towards maintaining highest occupancy rate among the other cities which is nearly about 86 percent in June 2014. However Sydney Harbour Marriott Hotel at Circular Quay has maintained their superiority to cater innovation and growth strategies which increases a stronger community engagement compare to other competitors. The consumers reviewed and give ratings in the area of Room cleanliness, Service and staff, comfort in accommodation and Hotel condition. Sydney Harbour Marriott Hotel is also facing a strong competition on both macro and micro-levels between the major global and international hospitality brands. For instance, Hilton International is competing with Marriott on the range of upscale and is striving to build global demand. Both the companies operate on a global scale with a single brand and these brands can be considered as operators of niche markets. On the basis of number of rooms availability and records of room sold during the given period are the hotels benchmark to calculate its performance against competitors. As per the financial report of 2012 of Sydney Marriott, the hotels performance has been indicated as follows: Increased room night occupancy rate by 10.9 percent Increased the hotel average room rate by 4.8 percent Accelerated net operating profit increased by 15.8 percent Despite the slight decrease in room night demand since the fiscal year of 2012, the average room rates within the Sydney Harbour Marriotts competitive set recorded a 3.3 percent increase compared with the prior year. Furthermore, the occupancy rate of Marriott increased by 7.2 percentage points to 83.8 percent due to the reason of refurbishment program that was completed in June 2011. The market analysts indicated an average room rate growth of 4.8 percent, and this has contributed to achieve total revenue growth of 13.6 percent and moved the hotel up two positions to third in its competitive set for the generation of the revenue. Thus the operating profit in turn increased by 15.8 percent in the financial year 2012-13 (Marriott Hotel Rooms, 2016). Later the hotel management authorities has faced difficulty to calculate the average daily room rate because demands have been varied due to increased economic uncertainty in Australia. Additionally, there is a significant growth indicatio n observed by the researcher comparing the results to its competitors, Marriott International Inc reported Total revenue increase in the last two quarters of 2016 by 5.77 percent year on year, while most of its competitors have experienced contraction in revenues by -1% in the same quarter (Marriott Hotel Rooms, 2016) Currently, the group of Marriott International Inc has achieved a leading position compare of quarterly growth rate to its competition: Table: MARs comparison of quarter growth rates to its competitors (Source: Butler et al., 2013) Competitive market position by Porters five forces The following segment discusses the current competitive market of the Sydney Harbour Marriott Hotel at Circular Quay by the use of Porters five forces. The Barrier of new entrant- Low License of operation of the hotel Capital requirement and availabilities Establishment of distribution network Demand of human resources Rivalry- High High availability of the luxurious hotel services at Sydney High market exit barrier Power of Suppliers- Low Availability of multiple suppliers Low service switching costs Use of advanced technologies Power of buyers- High Service dependency on consumers purchasing power High price sensitivity with demands Substitutes- Low Low price attractiveness Low availability of the same premium services Analysis of Competitors: Sydney Harbour Marriott Hotel Hilton Sydney International Intercontinental Sydney Industry Hotels and Resorts Hotels and Resorts Hotels and Resorts Star Rating 5 5 4.5 No of Rooms 254 220 171 Last renovation 2015 2012 2010 Meeting rooms 5 4 5 Restaurants 1 1 2 Room service 24/7 24/7 24/7 Bars 2 1 2 Free WIFI YES YES YES Fitness/Pool Available for only for membership people Fitness+ Pool for all Indoor pool availability but restricted accessibility Facilities of leisure Yes-play ground, SPA, bar (changeable for all) Yes SPA treatment, Casino, free bar for members No Car parking Yes AUD 22 a day Yes AUD 17 a day Yes AUD 21 a day Table: Leading Competitors Analysis (Source: Butler et al., 2013) Internal environmental analysis (SWOT) of Sydney Harbour Marriott Hotel Strengths High brand recognition Application of innovative technologies such as connection established with nearest Wi-Fi Zone Good employee retention policies with the strength of 534 employees Several brand range from attainable to aspirational Weaknesses High competition from long established hotel and resorts means restricted consumer accessibility Increased global expansion and multiple hotels operations may lead to brand dilution Opportunities High potential in emerging markets Constant innovation for improved customer services Efforts given towards constant renovation and high customer services Emergence of large number of Chinese customers Threats Competition of price points Low market entry barrier Increased economic uncrtainty Table: SWOT analysis of Sydney Harbour Marriott Hotel (Source: Marriott Hotel Rooms, 2016) Demand Forecasting: According to Escudero et al (2013), the accurate forecasting of demand is essential to a Revenue Management system. Ivanov (2014) argues that the historical sales data and envisaged future events can be use for identify the potential demand. He also suggests that the companies can predict both: the price that each segment will be willing to pay for the service or product and the size of the potential market segments. Generally, revenue management forecasting methods fall one of three types: Historically booking models, Advanced booking models and Combined booking model By using all these models, the hotel can estimate the unconstrained demand, client stay patterns and current available booking space (Cetin et al., 2016). On other words, the demand forecasting is essential for estimating the suitable rate and room availability for every future day. Therefore, the budget can therefore be developed by market segments in room nights as well as revenue. Being the revenue manager of the hotel will propose their demand forecast to calculate by the taking the actual number of bookings on hand which shall be adding up with predicted number of rooms that may be booked in for the future period (Kimes 2016). In the first step, Marriott should maintain a demand calendar before budgeting. This will help to make informed pricing decisions based on statistics and prior data of the hotel. Thus this is significant for developing the yearly roadmap to build the revenue management strategy. The basic concept is to demonstrate historical demand patterns matching them with future events. To consider with the rate of average occupancy percentage and the volume of loyal customer, the hotel will forecast their demand for the next 13 weeks timeline. 13 Week Forecast Report Date Day DD/MM 254 Room Hotel Week # Week Ending (Date) Reservations (%)on-the-books Forecast Net Pickup Forecast Occupancy (%) Budgeted Occupancy Forecast variance to Budget Comments 1 21/08/2016 123 48.43 0 48.4% 30% 18.4% Positive 2 28/08/2017 134 52.76 4 54.3% 62% -7.7% Negative 3 4/9/2016 154 60.63 5 62.6% 60% 2.6% Positive 4 11/9/2016 145 57.09 5 59.1% 61% -1.9% Negative 5 18/09/2016 134 52.76 3 53.9% 55% -1.1% Negative 6 25/09/2016 178 70.08 5 72.0% 68% 4.0% Positive 7 2/10/2016 230 90.55 4 92.1% 88% 4.1% positive 8 9/10/2016 221 87.01 4 88.6% 79.30% 9.3% Positive 9 16/10/2016 222 87.40 6 89.8% 83% 6.8% Positive 10 23/10/2016 209 82.28 3 83.5% 90.50% -7.0% Negative 11 30/10/2016 226 88.98 6 91.3% 94% -2.7% Negative 12 6/11/2016 199 78.35 5 80.3% 83% -2.7% Negative 13 13/11/2016 234 92.13 4 93.7% 93% 0.7% Negative Channel Analysis: Hotel distribution is significant part of the revenue management plan. Nowadays, the internet distribution channels promote their services through online. According to Heo et al. (2013) the perfect hotel distribution channel must put their hotel in front of many customers that cant reach directly even though they can book their room for themselves. While new distribution channels are emerging seemingly every day, more perfect forecasting and improved technological automation are helping hotel revenue managers stay sound (Mei Zhan 2013). In other words, the channel distribution identifies methods of selling inventory with that of different channels a client can use to book (Hung et al., 2015). The appropriate revenue distribution can be possible only through the electronic channels. Effectively managing electronic distribution mediums is increasing significant to the overall success of revenue management. In the context of the distribution channels of Sydney Harbour Marriott Hotel at Circular Quay, the hotel will get the best results because the electronic distribution channels affected hoteliers revenue management efforts. Diagram: Electronic distribution channels of revenue management (Source: Fung et al. 2016 ) Sydney Harbour Marriott Hotel at Circular Quay can use three significant events which have made the composition of electronic distribution channels such as CRS, IDS and GDS. IDS: The system of internet distribution provides technology that allows clients to established complete trips that combine hotels, transportation and destination activities. By using this electronic distribution channel, Sydney Harbour Marriott Hotel can get the following advantages: Visibility on the internet to everywhere Smooth connectivity with thousands of online visitors with available inventories Accelerated ROI and revenue by direct sales to visitors Quick payment access Reduce cost of administration Helps to optimize the level of occupancy, ADR and revenue Develop pricing strategies for each market segments Record reviews and important marketing statistics CRS/ the System of Property Management: This channel of distribution is fully integrated system of management. By effective PMS procedure, the full integration covers three main items which includes the rate of delivery of the PMS to a Sydney Harbour Marriott Hotels own website and delivering bookings from the websites of the hotel into their PMS. Thus this is a window based property management system which contains advanced technologies. This would be beneficial for Sydney Harbour Marriott Hotel to record their reservation details for effective yield management. Furthermore, this system will be perfect for an integrated booking engine solution. PMS has become popular nowadays for online marketing solutions which are highly customized. GDS: Global distribution system is the core online channel for ant hotel and resort business across the globe (Petrick et al. 2012). In the highly competitive hospitality industry, GDS can be beneficial for Sydney Harbour Marriott Hotel for recording the computerized and centralized network which is all about single-point-access. Though this channel can become a very expensive channel and the hotelier may face difficulties to manage properly. In that case, optimum investment in this channel is essential to yield ROI (Lasek et al. 2016). As per the market position of the given company, Sydney Harbour Marriott Hotel is one of the high rated businesses which can be derived from this channel through creating hotel awareness and appealing promotions. Conclusion: The above discussion clearly indicates that the area of revenue management pricing in the multi-channel business environment becomes popular and is currently evolving throughout the hospitality industry. However, the different revenue management strategies have diverse impacts on clients perception. This report clearly discussed that hotel industry followed some basic concepts, definitions, and terms that can be applied as a baseline for the implementation and communication of revenue management in a hotel that does not currently have an automated revenue management system. In the first section, the report discussed clear market segmentation of Sydney Harbour Marriott Hotel at Circular Quay. The revenue manager has identified that the hotel segregates their market by two perspectives: Demographic segmentation and Behavioral segmentation. The fundamental behavioral considerations are brand loyalty, frequency usage status and benefit whereas the age, cultural preferences are segmented the comprehensive client base of the company. In the second section, the manager discussed the competitors sets and compared it with corresponding leading competitors such as Hilton Sydney International, Intercontinental Sydney and many others. In the third section, the hotel estimated the demand forecast for room availability for the timeline of 13 weeks. Based on the forecasted occupancy rate, the manager has calculated the budgeted occupancy rate for the company. Lastly, the report discussed that electronic channel of distributions by which the hotel can reach to their cu stomers from all over the world. Recommendations: Market segmentation: Sydney Marriott Hotel should segment their market considering the behavioral features of consumers. Though the hotel business is highly dependent on economies of the nation, the hotel needs to segregate their market by brand loyalty, frequency usage status of customers. By this the company can understand the consumers preferences and generate maximum service satisfaction for them. Competitors set: By the total revenue growth of 13.6 percent and moved the hotel up two positions to third in its competitive set for the generation of the revenue, the company needs to extend their unique services for achieving competitive advantages. For instance, the hotel currently provides pool and fitness services for only members. The hotel can increase customer satisfaction by increasing their service accessibilities, facilities and leisure. Demand forecast: As per the estimation, this has been clearly indicated that the company needs to achieve higher occupancy rate by scientifically manage demand for their services. Reducing room rate changes should not be profitable option. However, the demands need to be increased by offering more premium services to their high profile consumers. Channel distribution: IDS would be the best suitable option for establishing electronic distribution services for Sydney Marriott Hotel. This will reduce the reservation agents time. By focusing on direct customers, the company will get more satisfied clients. On the other hand, consumers can follow hassle-free reservation procedures while booking the room. In this way, the hotel can surely increase the rate of occupancy and generate more revenue. References: Abrate, G., Viglia, G. (2016). Strategic and tactical price decisions in hotel revenue management.Tourism Management,55, 123-132. Bayoumi, A. E. M., Saleh, M., Atiya, A. F., Aziz, H. A. 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