Question

Examine the concept of revenue management, its component parts and the characteristics of businesses that make them suitable to the application of revenue management techniques. Quote examples from the hospitality, wellness, and / or other tourism business. Reference a minimum of four readings. Word count 1,000 words approximately

focus on hotel industry

Answer 1

Revenue management is a vital concept in any industry which allows businesses to forecast growth trends and accordingly optimize their resources. As per the question, we are required to focus on the hotel industry. Hence we will proceed further explaining details of revenue management within the hospitality industry.

Revenue management, within the hotel industry, means selling the right room to the right customer at the right moment for the right price. This needs to be most profitable for the hotel. Revenue management allows the managers to anticipate demand and optimize the available resource at the best possible price in order to achieve the targeted financial result. This involves the use of data to understand the performance that helps the hotel owners to precisely forecast and understand customer behavior. This eventually helps them to make the right decisions and appropriate actions which leads to an increase in revenue and thus profits. Thus, businesses must have some tool to undertake this activity, so that informed decisions could be taken and necessary adjustments could be made. The hotels can use past trends (data), books and journals, weather forecasts and any other industry statistics to create a revenue management strategy.

To understand why is revenue management important to the hotel industry, we must know that the hotel rooms are seen as perishable inventory and they need to make the most out of the available rooms to maximize the amount generated from it. Essentially, revenue management equips the business owners to make informed decisions that are data-driven and is not just on general assumptions. Hotels, just as any other businesses, have a fixed cost that needs to be paid irrespective of the number of rooms sold or profits generated. Thus, through a revenue management strategy, the business owners ensure their costs are met and prices are optimized.

The component parts of a revenue management strategy may comprise different approaches to selling techniques and methodologies. While designing the strategy, important points that the hotel owner will consider having an answer for are What service should be sold and in what mix? For eg. should the hotel offer just lodging service or should they also offer luxury services like spa, massaging, etc? They would also consider what will be the best mix of products and services they could offer which could attract more customers? For eg. a touring guide or a vehicle made available for the customers etc. While they consider these points, it's important to understand who are their target customers and what do they value, so that the hotel is able to provide what their customers really want and will be willing to pay for. Another discussion could be on what if their product and service are offered to a different group of customers, which would mean trying out a different strategy. Thus, there are many components to revenue management which is generally tested by hotel owners for getting different and better solutions. So, we see that various concepts and components of revenue management and its strategy play a vital role in the hotel industry to optimize their resources, make informed decisions, and maximize profits. We are not supposed to give any external reference in our answer hence have skipped that. You may add names of any well-known hotels in the hospitality industry to quote examples.

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