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Hotel Managers’ Views on Using Revenue Management as a Way to Maximize Hotel Revenue

Introduction

This research is aimed at examining the views of hotel managers on the use of yield management as a way of maximizing the revenues of a hospitality organization. In particular, this study focused on such practices as pricing policies, the assessment of market segments, empowerment and training of workers, displacement rules, and discounts. This chapter will present the major findings in more detail. Close attention will be paid to the recommendations that business administrators may consider in order to improve their performance of their hotels. Moreover, this chapter will investigate the limitations of this study and opportunities for further research.

Conclusion

There are several important arguments that one can make judging from the findings of this study. First of all, the managers of many hotels in Saudi Arabia attach importance to the use of yield management as a ways of improving the financial performance of their organizations. In particular, the respondents are aware about some of the core principles of this technique and they adhere to these principles while managing other employees or dealing with clients. For instance, they attach importance to the flexibility of pricing policies as a way of increasing revenues and attracting clients. In particular, they respond the changes in demand and other information that can affect the financial performance of a hotel. Furthermore, they understand the significance of segmenting potential and current customers in different groups since these individuals can have different goals, income levels, and priorities. As a rule, they focus their attention on such criteria as the ability and willingness to pay. Apart from that, it is possible to argue that hotel managers can identify some other factors that can affect the prices of hotels, and their profitability. In this case, one can speak about such aspects as the location of a hotel, the loyalty of clients, the length of customers’ stay, or the time when a person arrives. This information is usually of great value to hoteliers since on its basis they can take many important decisions. In addition to that, business administrators in Saudi hotels pay close attention to such indicators as occupancy rate and room rate. In particular, hoteliers attempt to manipulate both occupancy and room rates in order to increase the profitability of their organizations. Additionally, these professionals take into account that the manipulation of room and occupancy rate should be based on some principles such as customers’ satisfaction and the need to respond the changes in the market. Furthermore, business administrators take into account such indicators as demand, customers’ loyalty, or a clients’ ability to pay. These are some of the main aspects of their work.

Moreover, these professionals understand that the principles of yield management cannot be successfully implemented without the best HR practices. In particular, they attach importance to such aspects as training and empowerment of workers who are responsible for attracting and retaining clients. To a great extent, they justify this policy by arguing that it can eventually increase customers’ satisfaction with the services of a hotel. Judging from the responses of the participants, their organizations enable workers to take initiatives. Moreover, they have the opportunity to develop new skills in the use of yield management when they have to overcome a particular challenge. Additionally, these professionals understand that websites can be a powerful tool for attracting clients. In most cases, the practices of hoteliers are consistent with the recommendations that one can find in academic literature and empirical studies examining this issue. Overall, it is possible to say that managers in Saudi hotels employ different strategies in order to increase the revenues. The participants did not always use the concepts or terminology adopted in academic literature; nevertheless, one can argue that the principles of yield management profoundly affect their work. Certainly, there were some exceptions to this argument. For example, some of the interviewees did recognize the importance of empowering employees. Furthermore, some of them adopted a very rigid cost-based pricing model. However, these people did not constitute the majority of the respondents. In turn, the majority of respondents did appreciate the benefits of yield management.

Recommendations

The main elements of revenue management

Overall, it is possible to identity several practices that can help hotel managers improve the profitability of their organizations. There are seven practices that are closely related to revenue management. In particular, business administrators should focus on customer management, location, pricing strategies, the use of indirect distribution channels, occupancy, HR management, and the application of price-adjustment strategies. If a business administrator focuses on these elements, he/she will be able to increase the revenues of the hospitality institution and increase its competitive strength. They should be regarded as a set of interrelated practices have to be implemented by business administrators. At this point, it is important to speak about each of these elements in more detail.

Occupancy

The first element that should be considered is occupancy rate within hotels. In particular, hotel managers should pay attention to the contracts with governmental organizations and companies. These clients can dramatically raise occupancy rate in hotels particularly during those periods when the number of guests declines. Nevertheless, hoteliers should determine the number of rooms that should be available to these customers. The problem is that hotels can face such a situation when occupancy rates are very high, but the profitability can decrease mostly because companies and governmental and organizations often ask for significant discounts. Thus, quotas should be based on the quantities of rooms that corporate customers can acquire. This is one of the first points that should be made. Another technique that can be applied is overbooking. This method is premised on the assumption many customers cancel their bookings. Therefore, many rooms can remain unused and an organization can fail to derive its profits. This is why hotels can enable more customers to make reserve rooms, even if the number of clients exceeds the capacity of hotel. This practice can be acceptable; however, hoteliers must avoid situations when a hotel cannot find rooms for clients. They can employ several techniques. First, one can speak about close-to-arrival strategy which means that a customer can easily make a reservation for a certain date; however, he/she should also stay arrive at the hotel one or two days before this date. Finally, one can mention such an approach as the minimum length of stay. It means that a client is required to stay during a certain number of days. In this way, managers can increase the profitability of their hotels. These are the main techniques that can be identified, and they can be of great use to hoteliers.

Location

Another factor that affects the work of hospitality institutions is the location of these organizations. It is closely tied to the revenues of a hotel. One of the main goals is to make sure that customers do not have to experience any discomfort that can be attributed to the location of a hotel. In some cases, these organizations can offer free transportation services to clients in order to improve their experiences and retain them for a long term. Furthermore, these organizations can emphasize the superior quality of their services that cannot always be offered by hotels located in urban centers. For instance, they can provide more recreational facilities such as spas or swimming pools to customers. In some cases, the managers of these organizations can charge a high price for their services especially at the time, when large hotels located in urban centers cannot meet the demands of all customers. These are the ways in which hoteliers can attract clients and increase their revenues, even despite the fact that they are not located in the center. These are some of the practices that managers can take into account.

Customer management

It is also important to focus on such an issue as customer management which is also vital for the sustainability of many hotels in Saudi Arabia and many other countries. There are several practices that can be identified. One of them is the fenced pricing. This approach implies that clients can choose from a range of prices. Nevertheless, they have to face some restrictions if they choose to pay a lower price. In particular, they have to make reservation in advance, and they may have to face stricter fines when cancelling their bookings. Yet, these customers will be aware of these restrictions. The main advantage of this approach is that it helps customers with different income levels. Additionally, hoteliers can rely on such a method as price bundling which means that clients purchase different services at a single price. This technique is beneficial because it enables hospitality institutions to differentiate themselves among their rivals. While interacting with clients, hoteliers should bear in mind that these people can differ in terms of loyalty and potential revenues to a hospitality institution. They should first focus on the needs of people who continuously use the services of a hotel. Finally, practitioners should avoid conflicts that can arise due to the use of yield management. These conflicts occur in those cases when hotels apply discriminatory pricing. Therefore, managers should explain why yield management is applied and what kind of benefits it can bring to the clients. These are the main aspects of customer management.

Internet

One can also speak about the use of information technologies, especially Internet which has now transformed into a powerful marketing tool for many organizations. One of the most important elements is rate parity. This concept means that the price for the services of a hotel can differ depending upon the distribution channel that a hotel uses. Provided that, a third-party website helps a hotel to attract more clients the website can have a rate advantage. Nevertheless, hoteliers can avoid the use of third-part websites at the time when the level of demand is very high. Instead, business professionals should concentrate on the development of their own websites that can differentiate a hotel among its major competitors. Overall, this approach can enable hospitality institutions avoid intermediaries. This is the main benefit of this approach, and it can be of some use to Saudi Hotels. Overall, business administrators should enhance customers’ affiliation to a hotel because in this way, they can decrease the dependence of a hotel on intermediaries. This is one of the key points that can be made.

Pricing

Furthermore, business administrators should attach importance to pricing strategies. In particularly, they should give preference to such models as market-based pricing that enables the management to respond to the changes in demand and supply. According to this approach, hoteliers can raise or decrease prices by some percent. The main strength of this technique is its flexibility, and it enables the managers to increase the profitability of hotels at the time the level of demand is low. Furthermore, they need to consider the practices of their competitors. For example, they need to understand the reasons why these rivals can set certain prices on their room. In some cases, hotels can raise or decrease their prices in order to respond to the policies of their rivals. However, it is not reasonable to enter into price wars with other hotels since such a strategy is more likely to result into losses for hospitality institutions. Moreover, dynamic pricing can greatly benefit many institutions because this approach takes into account various data about the market. In particular, hoteliers should consider such data as weather forecasts, expected local events, historical sales records, and so forth. The main strength of technique is that it makes a hospitality institution much responsive to the changes in external environment. By combining these approaches, hoteliers can maximize the revenues of the hotels and increase occupancy rates. Furthermore, business administrators should avoid cost-based pricing which usually prevent hotels from maximizing their revenues. Overall, these strategies are vital for the long-term sustainability of many hospitality institutions in Saudi Arabia.

Price-adjustment

Price-adjustment methods are vital components of yield management. It should be borne in mind hotels have to interact with different clients who may not have the same value for an organization. Moreover, these customers differ in terms of their ability to pay. One of the policies that can be advocated is the use of discounts because this approach can increase occupancy rate at the time when the level of demand has declined. This is one of the techniques that can raise occupancy rates. Additionally, managers should focus such a technique as the segmentation of clients. Some of them can regularly use the services of a hotel and prefer it to other hospitality institutions. Therefore, a hotel manager or front office employee can reduce the price per room when interacting with returned clients. On the whole, the recommendation is particularly applicable when one speaks about corporate clients who make reservations very frequently. Moreover, it is vital to remember about such distinction business and leisure travelers who have different priorities and needs. For example, some business travelers are ready to pay a higher price for such amenities as Wi-Fi Internet connection. Hoteliers can increase maximize the revenues by meeting the requirements of these clients. Nevertheless, more attention should be paid to such an indicator as the loyalty of customers since it is more important for decision-making. This is one of the main recommendations that can be made.

HR practices

Apart from that, one should focus on such an area as HR practices. The strategies that were described in the previous part should be put into practice by frontline employees who should have expertise and motivation. This is the reasons why hoteliers should attach importance to such activities as the empowerment of employees, training of the frontline personnel, and appropriate compensation that should motivate workers. For example, hoteliers should allow the frontline employees to raise or lower the price for room. This strategy is important because it ensures that workers can effectively meet the needs of clients. These activities can increase the effectiveness of yield management. Furthermore, the practitioner should develop performance appraisal programs and offer the compensation that corresponds to the contribution of every worker. These people should see that their effort is appreciated and awarded by the management; otherwise they will have no incentive to improve their work and acquire new skills. This principle can be implemented by giving employees bonuses that can reflect annual financial performance of a hotel. Finally, frontline employees take part in courses or programs in order to understand how yield management can be applied. Overall, these guidelines can help hoteliers make their organizations more profitable. Furthermore, they are essential for establishing good relations with clients. This is why HR practices should not be overlooked. It should be considered that these recommendations may not be applicable to every hospitality institution. The following section will explain why these guidelines may not be generalized to every hotel.

Limitations

There are several limitations of this research that should not be overlooked. First of all, this study included only those hotels that were located in Mecca, Riyadh, and Eastern Area. Therefore, one cannot generalize the recommendations offered in the previous section. They may not be applicable to the entire industry since it can include organizations with different pricing policies, target audience, or resources. Some of these organizations can represent large hotel chains that can take approach to marketing. Furthermore, this research was supposed to focus only seven areas namely, pricing strategies, customer management, price-adjustment methods, the use of third party websites, HR practices, occupancy and room rates, and location. Yet, there may be other activities or factors that affect the revenues of hotels. For example, one should not forget about such aspects as the provision of beverages and food; however, these activities can profoundly shape the opinions of clients. This is another drawback that should not be overlooked by business administrators. Furthermore, this study was not supposed to examine the influence of technologies on yield management. In turn, one should take into consideration that various software solutions can make the application of YM techniques much easier. Again, each of these points should be considered by hotel managers; nevertheless, it was not possible to include them in the study. These are some of the practices that were not discussed in this research due to time constraints.

Apart from that, it should be taken into account that this study examined the application of yield management from the perspective of hotel managers who often act as the main decision-makers. Nevertheless, this research did not involve the frontline personnel. These people were not interviewed during this research. In turn, their responses could have thrown a new light on the application of yield management. These people may not necessarily agree with the ideas of the senior officers. Nevertheless, if the opinions of frontline people had been explored, the research would have become more time-consuming. The problem is that it would have been necessary to interview a much greater number of people. These are the main limitations of this study and they should not be overlooked.

Apart from that, it was possible to survey only a small number of intermediaries. In this case, one can mention only two travel agencies that cooperated with some of Saudi hotels. Provided the number of intermediaries was larger, the study could have obtained slightly different results. These are the main weaknesses that should not be overlooked. These are the reasons why the finding of this study cannot be generalized. Nevertheless, despite these limitations, this research can throw light on the perceptions of hotel managers who have to apply various principles of yield management in their work.

Suggestions for further research

This study explores the perceptions of managers working in Saudi hotels. The results of this research can highlight the importance of applying yield management as a strategy for maximizing revenues. Some of the findings may be considered by business administrators. Furthermore, this investigation can give rise to further research. It will be possible to carry out a quantitative study that will investigate different aspects of yield management in Saudi hotels. Unlike this research, the possible can be used to test a specific conjecture about ways of maximizing revenues in modern hotels. Under such circumstance, it may be reasonable to rely on such a method as statistical survey. These are the main suggestions that can be put forward.