Name: Preetam Gain

Although the definition of hospitality has changed since the classical era, one fundamental principle
has remained constant “providing services to guests”. In this essay, we going to discuss about the
various strategies practised by the hotels to maximise the revenue and target the right business mix.
Nowadays, visitors to hospitality businesses do more than simply stop by. Many hotels and restaurants
are regarded as attractions in themselves; therefore, no hotels pass up this fantastic potential that will
allow them to increase their revenue by adopting different strategies. To maximise revenue, it is
essential to have a safe and sophisticated hotel revenue management system. Hotels go through several
strategies that they can implement to maximise their revenue and profit from perishable and capacity-
limited assets (rooms, in this case). Before continuing, let us first understand, what revenue
management is and what it might imply in a business organization.
Revenue management refers to the use of analytical and statistical data to support hotels in predicting
the behaviours of their customers. The information is then utilised to develop appropriate pricing and
distribution strategies. It is the procedure through which the best service is offered to the best customer
at the best price as well as at the best time. (Smith, Leimkuhler, Darrow and Samules, 1992). The goal
of revenue management is to determine the prices that different audience groups are inclined to pay,
which can only be done by observing and tracking the demand and supply for hotel rooms (Walker,
2017). If a strong foundation of planning and strategy isn't used to drive room prices, it's probably
bound to fail. Hoteliers need to stay proactive when it comes to pricing their rooms. If a hotel room is
not booked for a specific night the revenue that the hotel could have generated by selling that room are
lost forever (Josephi and Melissen 2017). When trying to sell more rooms, the room rent hotel charge
for their rooms is very crucial to the success of the business.

The first thing to think about is how much a hotel room should cost. When determining room rates,
one must first determine the breakeven rate. The breakeven rate is the very minimum hoteliers charge
to cover their operating costs per occupied room. “Identification of the break-even point in a sales
transaction is critical because, as we have seen, businesses that do not consistently generate revenue
above expenses will cease to exist” (Hayes and Miller, 2008). The breakeven rate is not exactly the
rate hotel announces, but it is suitable for the whole experience they offer their guests. One can have
their Break-even rate simply by calculating their annual operating expenses that include food,
amenities, advertising, insurance, licensing, business rates, personnel, suppliers, as well as annual
financing costs, and by Dividing this amount by the number of room nights hotel anticipate selling
based on expected occupancy rate. Similarly, A way to determine the typical room charge for a new
hotel is the Hubbart formula. The fundamental formula is (operating costs + required return - revenue
from other departments) / expected number of room nights = average room rate. (Abbott, 1999, p.58)

Moving forward, Dynamic Pricing, commonly referred to as "time-based pricing," includes changing
accommodation prices depending on current market information, which may happen every day. This
kind of strategy considers supply and demand as well as additional elements like competition price,
room availability, seasonality, and other external considerations that may have an impact on market
demand. Pricing is flexible with dynamic pricing to meet anticipated demand with availability. Prices
can vary in accordance with the likelihood of selling the final rooms in a specific timeframe and are
driven by the time between the date of booking, the arrival date, customer demand, and the willingness
to pay of different customer groups. (Bowie et al. 2016). Prices should change as part of a dynamic
pricing plan in reaction to supply and demand in order to maximise income and occupancy.

In addition, there are three other key pricing strategies hotels employ: Cost-based, Customer-based and
Competitor-Based pricing.

Cost-based pricing implies summing up all of the costs of running the hotel, from management to
cleaning to food and beverage, and so on. Then, once they determined how much profit they want to
make, assign a percentage to each room. Customer-Based pricing, this technique has the potential to
generate extremely large profits and is very adaptable in terms of demand because customers have no
idea how much it cost hotels to provide a room for them. They pay what they think the room should be
valued. As a result, the perceived valuation of accommodation might be significantly higher – or
significantly lower – than its real cost. And Competitor-based pricing requires a detailed examination
of all of their competition which will enable hoteliers to decide how much to charge for their hotel.
Setting a cost that is acceptable for the hotel while still being less expensive than competitors may
attract bookings, or the hotel may be able to maximize profits by increasing pricing since their package
is better.

Next comes, Hotel Price Forecasting and Budgeting, the most important component of a successful
revenue management plan is the ability to accurately forecast the popularity of service and the
expected purchasing behaviour of the target audience. “Specifically, forecasts give owners a projected
level of sales, while budgets alert owners and operators alike to significant expenditures that are on the
horizon or predictable shortfalls in revenue” (Schmidgall and DeFranco, 1998). With this information,
hotels can be better prepared to make modifications when needed. The importance of forecasting
extends beyond rate establishing to budgeting considerations. Hotels can have plenty of time and a
chance to modify plans if they budget and forecast in advance (Bardi, 2011). However, before it
arrives at its optimum budget, hoteliers must consider factors such as sales resources, market
segmentation, and distribution.

“Market segmentation is the process of dividing the total perceived market into subsets, of which each
of the potential customers have characteristics in common, which lead to similar demand needs for a
product or service” (Cooper et al., 2008) In most circumstances, travellers may be divided into two
categories: lower-yield segments and higher-yield segments. Wholesalers are frequently the source of
lower-yielding segments. These guests will book accommodations early, but they will also book rooms
throughout the year. Higher-yielding segments are frequently created by OTAs and hotel booking
engines. These customers may register their accommodations just before their arrival and, as a result,
typically pay higher rates for rooms. Understanding the various traveller groups who make
reservations at hotels helps hoteliers to diversify their business mix and optimise their distribution
strategy (Berbeglia et al., 2021).

There was a time, guests would make their reservations by calling, or going directly to a hotel but at
present hotel websites, social media, and online travel agents (OTAs) rule the business. Hotel
distribution strategies aim to prepare for profitable room bookings through a number of channels. “The
digital era has given rise to new types of booking channels: “SoLoMo” applications that are social-,
location-, and mobile-based” (Lei et al., 2019). In addition, cutting-edge online communication
features like WhatsApp enable direct communication among hoteliers and guests through a range of
channels including text messaging, audio messaging, emoticons, and online community. Using these
channels, hotels swiftly offer a range of guest services, including membership programmes, room
service and relevant travel guidance. “As mobile penetration continues to increase worldwide,
travellers are increasingly relying on these SoLoMo channels to search for information and make
bookings” (Kim and Connolly, 2012). Even though external parties oppose hotels' direct channels,
hoteliers need simultaneous distribution channels (i.e., direct and indirect, online and offline) to save
expenses and perishable inventory.

Lastly, Customer behaviour must be at the core of any hospitality business strategy. If a hotel wants to
get the most out of each visitor that walks through their door, they must first understand their
purchasing habits and consider the following factors: How are today's travellers behaving, how do
they plan their trips and travel? How do they experiment and discover? What are they looking for?
What do they anticipate? To put it another way, the more a business understands about its core
customers, the more it will be able to deliver value that fits their demands while also putting marketing
initiatives in place to influence such customers' purchase choices (Middleton et al. 2007) resulting in
more secured reservations and fewer rooms to fill, allowing hoteliers to concentrate on upselling and
cross-selling their hotel accommodation.

In conclusion, it is clear that revenue management is a complicated process with many aspects.
Hoteliers must use a number of strategies, including price forecasting, market segmentation, and
dynamic pricing, in order to effectively generate income. In order to develop a value offer that satisfies
their demands, hotels must also have a thorough understanding of their clients. Moreover, it is crucial
for hotels to have a good understanding of their guests so that they can establish a value offer that
satisfies their needs and expectations. Hotels may need to try various different strategies until choosing
the one that works best for them. The most essential thing is to maintain track of the outcomes so that
the hotel can continue to increase its revenues. By using these techniques, hotels will be able to
increase revenue and target their business mix

REFERENCES
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Bardi, J.A. (2011) “Revenue Management,” in Hotel Front Office Management. Hoboken, NJ: John
Wiley & Sons, pp. 165–183.

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https://doi.org/10.1016/j.ejor.2021.03.056.

Bowie, D., Brookes, M., Mariussen, A. and Buttle, F. (2016) Hospitality Marketing. Routledge.

Hayes, David.K. and Miller, A. (2008) Revenue Management for the Hospitality Industry. Wiley
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Josephi, S. and Melissen, F. (2017) Hotel Accommodation Management. Routledge, pp. 126–137.

Kim, J. and Connolly, D., (2012) Hospitality in the age of customer empowerment. Retrieved 29 May
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Lei, S.S., Nicolau, J.L. and Wang, D. (2019) “The impact of distribution channels on Budget Hotel
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Middleton, V., Morgan, M., Ranchhod, A. and Fyall, A. (2009) Marketing in Travel and Tourism.
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Schmidgall, R.S. and DeFranco, A.L. (1998) “Budgeting and forecasting,” Current Practice in the
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Smith, Leimkuhler, Darrow & Samules, (1992) Fyall, Revenue management for hospitality and
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