Hotels are a major segment of the Hospitality industry, which contributes a significant amount of funds to the Gross Domestic Product (GDP). The friendly reception and treatment of strangers mostly the vacation traveller and the business traveller are the core of the hotel industry. Hotels are classified as economy or limited service hotels, mid markets hotels, all-suite hotels, first class hotels and luxury or deluxe hotels depending on the type of service they offer. Hotels have rates suited to meet specific needs of the different customers. Hotels may have all the rates well differentiated or they may just have one or a number of categories (Kamath et al 2008). The hotel sector employs a considerable number of the population in different regions of the world and therefore any significant change in the industry either improves or lessens the living standards of these populations.
Just like any business venture the objective of every hotel is to provide quality service in a profitable manner that ensures its survivability both in the short and in the long run. Therefore every hotel employs its own unique ways of ensuring that their operations run smoothly and that efficient resource use is put in place for maximum profitability. The ability of a Hotel to forecast demand for its non-storable service such as room occupancy is one of the keys to attaining efficient resource use. Among the techniques employed by hotels to mange their cash in flows is revenue management, which as defined by different scholars has the aim of making the best use of available resources to get optimum revenues. The aim of revenue management is to mange demand and supply in such a way that incremental revenues are realized. This aim is strengthened by the realization that for a hotel have fixed amount of resources to be sold, these are rooms, and also that the resources are perishable with time limit of selling after which they cease to be resources of value (Kamath et al 2008). Moreover the recognition that there are different customers who are willing to pay different prices for the usage of the same resource calls for efficacy in revenue management. Every unoccupied room per night is an irrecoverable loss with an associated cost (Kumar 2006). As such Hotels both large and small must manage their revenue source creatively and prudently to ensure that they reap maximum benefits in the use of their resources and assets identified by both the customer and employee.
1.1 Problem Statement
In line with the continuing changes in the global revenue management trends, players in the hospitality industry are emphasizing the implementation of revenue management systems within their businesses. To some hotels, this is being done without the proper analysis of the effects of reducing costs to the quality of service offered, safety of employees and clients, and capacity. The cost reductions and revenue management systems implementation may seem to increase flexibility, improve asset utilization, optimize business efficiencies and increase profitability but their impact to the customer and the Hotel at large may not be as pleasant as expected in the long-run. The effects of revenue management to other divisions within a hotel need to be analyzed to ensure that collective and impartial views of the impacts of revenue management are well distributed within the hotel fraternity. Therefore this study aims at examining the impact of revenue management on the customers, employees, investors and the operations of the small hotels.
1.2 Purpose
The purpose of this study is to investigate ways in which organizations develop their revenue management strategies over some duration as per the already available strategic approaches and development that are traceable from the related literature. The study further examines how revenue management system is designed, developed, and implemented to maximize revenues of a hotel. The study further seeks to ascertain how revenue management strategy improves the small hotels performance, hence gaining sustainable global competitive advantage in the challenging market.
1.3 Objective
The overall objective of this study is to investigate the overall impact of revenue management in small hotels.
1.4 Research Questions
The study will be guided by the following research questions.
How does revenue management system perform in the achievement of its targeted results
Does forecasting enhance or hinder revenue management in a small-scale hotel
Is there any difference between a revenue management strategy and relationship marketing in a small-scale hotel
What role does revenue management play in building business relationships in a small-scale hotel
What does Revenue management do to customers relationships in a small-scale hotel
What hinders proper revenue management in small-scale hotels
What role does Information Technology play in revenue management and improving the hotels attractiveness to customers, employees and investors
How do revenue managers overcome resource constraints and tough economic conditions to ensure that costs incurred are justified
What benefits or trade-offs accrue because of the implementation of a revenue management strategy in a small-scale hotel
Does revenue management take advantage of other revenue opportunities prevalent in a small-scale hotel environment
1.5 Hypotheses
The study hypotheses are.
Revenue management system is an valuable tool in the achievement of small scale hotels objectives of optimum revenue collection
Revenue management when properly implemented enhances business relationships in small-scale hotels.
Embracing Information Technology in Revenue management is a useful way of combating resource constraint and improving attractiveness to customers, employees and investors of small-scale hotels.
The benefit of implementing a revenue management system in small-scale hotels far surpasses the intended ones justifying the costs incurred.
1.6 Significance of the Study
The Small hotel business is faced with various risks and uncertainties that may be due to ignorance of the top management in terms of designing and implementing appropriate revenue management strategies that would improve the small hotels performance. This study is rich in significances, such as assisting both emerging and existing small hotel businesses to realize how to go about the processes of designing, implementing, and managing revenue management strategies to optimize revenues from their limited assets and resources. The overall maximization of revenues will result to the recognition of more marginal returns, which assists the Small hotels to further their growth and thus gaining sustainable and a competitive advantage in the volatile market conditions.
This study will also assist Small hotels to identify the best revenue management models that will be fit for their business to enable them improve in their overall profitability. Business and market analysts have developed quite a number of revenue management models although, not all these models will work best in every Hotel, small-scale hotels inclusive. Each Hotel is unique in its own judgment. Therefore there is need for identification of the best revenue management model, which would be flexible in integrating other hotel strategies and with information technology to reduce costs within the small hotel.
This study will further unearth the available opportunities that Small hotels can embrace to enlarge their pool of revenues and not only rely on the traditional room needs and allocations only.
1.7 Limitations of the study
The study was limited by the resources to conduct a comprehensive all round study of the impacts of revenue management to small hotels. The research was also limited by time to collect, analyze and present the data.
1.8 Assumptions of the study
The study assumed that all the small hotels were in existence for a varied period and that they had similar management structures. Moreover the study assumed that all the small hotels under the study had revenue management systems in place.
CHAPTER TWO
2.0 Literature Review
2.1 Background of small-scale hotels
The hospitality industry where hotels lie is composed of a variety and wide number of players. These range from small-scale hotels, medium size hotels, economy class hotels and luxury or large-scale full service hotels. Every category of a hotel has its significance. Large scale or full service hotels are home away from home hotels where services are personalized to make the client feel satisfied, are targeted to large corporate, middle to rich class populations, and well to do tourists. Medium scale hotels and small-scale hotels offer limited number of services and are targeted to middle class to the common population given their limited services and affordable pricing.
Revenue management (RM) is defined as the art and science of forecasting real time consumer demand at the micro level and optimizing the price and availability of products to go with the predicted demand (Cullen and Helsel, 2006, p. 8). Choi and Kimes, (2002) and Kamath et al (2008) define revenue management by the practice of selling the correct product correctly priced at the opportune time to the right client. Furthermore revenue management is in some instances defined as yield management due to the objective of optimizing revenue or yield of the venture. According to Schutz (2008) this is acceptable because businesses with fixed amount of non-storable, immobile, perishable resources available for sale such as hotel capacity use yield management together with dynamic pricing for Revenue management.
Revenue management concept can be traced back to the 70s when the airline industry was deregulated allowing the industry to develop its own marketing and pricing strategies. New approaches to manage the airlines perishable product that is the passenger seat on each scheduled flight changed the revenue outlook leading to the development of revenue management to resuscitate the declining market demand and cope with the escalating competition (Donaghy, 1996). Thus to increase revenues, companies started monitoring yieldrevenue per available space. This was seen as a more effective strategy than the previous approach where managers either lowered average rate to buy higher occupancy levels or maintaining high rates while losing revenue from a low occupancy.
Revenue management is an important and a very essential marketing and pricing stratagem in every business venture particularly the highly valued Hospitality industry. A core constituent of revenue management system is the forecasting of the daily hotel arrivals and hotel room occupancy. Erroneous forecasts are said to greatly impact the performance of the revenue management system because forecasts are the key drivers of pricing and room allocation decisions Indeed it is estimated that a 20 development in forecasting mistake translates into 1 improvement in revenue generated from the RM system which impacts net income in a much bigger way due to the small margins of the hotel industry (Weatherford and Kimes, 2003).
RM matches supply and demand by differentiating customers into a number of segments based on their willingness to pay and allotting scarce resources and capacity in a way that optimizes gains (Crystal, 2007). Efficient revenue management ensures that gains are maximized and that the management can keep track of the trends of demands in the ever-competitive marketplace. Different studies confirm that companies using the revenue management practice experience increase between 3-7 percent without any major capital outlay and this bring about 50-100 percent increase in profits (Kimes, 1997 Cross 1997). Moreover revenue management enable the business venture to know the strengths of its revenue sources (Beck et. al. 2009) and therefore guard them as the apples of their eyes. In this era of increased application of revenue management techniques to bring about comprehensive growth it has been recognized that one of the enabling factor is the calibre of the manpower in service delivery, pricing, distribution and property management (Crystal, 2007). Highly trained, skilled persons who can effectively perform revenue management are therefore valuable assets to the generation of incomes for ventures such as the hotels. Similarly the increasing need for qualified staff for revenue management requires the identification of critical revenue management activities and necessary training for revenue managers as this will not only enable them successfully undertake the identified critical activities but will also play a supporting role in ensuring that steady flow of income is maintained (Beck et. al. 2009). According to Beck et. al. (2009) RM activities in the Hospitality industry vary from property to property depending on the intricacy of the product on offer, services, markets and the economic atmosphere.
Any revenue management policy must consider the impact it has on Customer Relationship Management (CRM) states (Mauri, 2007 Milla Shoemaker, 2008) as customers attraction and retention is a powerful driving force for RM in the present times and in the future. A great challenge to RM has emanated from the rise in numbers of hotel brands increasing the market orientation and highly sophisticating distribution channels making strategy implementation complex (Okumu 2004). For instance a Revenue manager can create different rate categories in one building with each having its own experience (Elizabeth Cambra in Hotel Motel Management, 2007, p. 36).
RM is of great import where constant costs are relatively high in comparison to the variable costs because the lesser the variable costs the higher the revenues earned and therefore the higher the gains (Crystal, 2007). Kamath et al (2008) advises that hotels identify their type of customers with the price they are willing to pay for their products and utilization of their services. Kamath et al (2008) outlines some of the parameters to assist the Revenue managers in identifying their customers to differentiate their services and products well as size of the rooms needed, flexibility needs, length of stay, and size of business required among others.
Interdepartmental cooperation and integration is very crucial in attaining revenue targets and strategies. The ability to know the right place, time and hotel category to maximize investments is critical for any potential or existing stakeholders mostly in the present economic climate. McCoy (2010) points out that mid scale, limited service hotels are a good investment for any investor in the current economic environment. According to McCoy (2010) analysis for the past 10 years mid-sized, limited service hotels have been growing faster and have become the most successful segments in the accommodation industry. Just like the big scale and full-service hotels, the Small sized hotels return on investment is equal and sometimes greater to owners and developers. In the present economic environment middle-sized hotels have faired well due to the fact that as the price conscious travellers trade down from upscale hotels they come to mid-sized hotels. Another driving factor for mid-sized hotels is the availability of funding for investment even during this period of economic downturn and thus credit crisis (Crystal, 2007).
2.2 Reasons for managing revenue
There are various reasons why hotels manage their revenues. To start with hotels have a segmented market, which are categorised based on the price each category is prepared to pay. There are business travellers whose needs and prices are different from those of the vacation travellers. Demand patterns for these categories vary greatly and thus it becomes hard for hotels to satisfy their demands at the same time (Kumar 2006). The business traveller is willing to pay a higher price in exchange for flexibility and ability to book a room at the last minute while the vacation traveller gives up that flexibility for the sake of an inexpensive room (McCoy 2010). Revenue management therefore tries to maximize revenues by managing the tradeoffs between low occupancy and higher room rate scenario of business customers with the high occupancy and lower room rate of the vacation customers (Kumar 2006).
Secondly hotels have fixed capacity of rooms to sell and this cannot be increased with the fluctuating demand (Crystal, 2007). Therefore RM aims at distributing demand to off-peak seasons. Thirdly the inventory of hotels is rooms and their services cannot be stored therefore a room that stays unoccupied loses its value for the night and its revenue is lost forever (Kumar 2006). RM therefore aims at managing demand instead of supply by ensuring that all rooms are occupied fully and thus no revenue is lost. Fourthly the cost of adding a room in a hotel is very high but once the hotel adds it and is able to cover its initial costs the cost of serving an additional customer is low such that the hotel can sell the room at a lower margin (McCoy 2010). However such a strategy must be balanced by having rooms to sell at a higher margin. This high fixed cost and low marginal cost nature of the hotel business necessitates price differentiation, which is made possible by the application of Revenue Management (Kumar 2006).
Hotels usually receive early requests for booking giving them leeway to adjust room prices based on the expected demand exemplified by the variation in early bookings. In instances where the hotel sells all the rooms at the same time there is no time to adjust prices upwards if demand picks up later they will have to contend with the realized revenues though not optimum (Kumar 2006). Here is where a manager has to trade off in deciding whether to accept an early reservation at the current price or wait until demand rises up and hence increasing prices and also to see if a high paying customer will show up to make use of that service. Revenue management has therefore been identified as a technique to solve the challenge facing hotels of forecasting potential capacity and coming up with a pricing strategy that encourages maximum capacity and revenue collection (Kumar 2006). Mega events dissuade regular recreational and business visitors due to the overcrowding and congestion it causes. Moreover during mega events Hotels charge high prices that tend to dissuade casual visitors (Matheson, 2006).
2.3 Revenue management process
Revenue management is a business process that encompasses steps which enhances effectiveness and efficiency in product delivery. First of all revenue managers have to define the product they are offering. Secondly the revenue managers have to benchmark the product against that of the competitor to lead well in the competitive business environment (Crystal, 2007). Thirdly the revenue managers have to price the product to attract customers and offer its competitive and unique advantage. Fourthly the revenue managers have to correctly forecast demand to enable them offer a competitive price that will maximize their revenues. Wrong demand forecasting can prove to be a disaster as it will lead to wrong pricing of a really good product and thus miss to attract the correct clients which definitely decreases revenue earned placing the business in a disadvantage considering the competitive environment the business has to be operated in (Kamath et al, 2008). Fifthly the revenue managers have to perform a business mix manipulation. Here the managers identify the available market segments and each segment needs and in order to maximize revenues the revenue managers according to the company policy, charges different rates for different market segments according to the needs. Moreover after demand forecasting analysis the prices may then be changed to suit every segment and retain the highest number of customers. Finally the revenue managers have to select the best delivery channel of their product. Online booking in an attractive, with up to date information web page will prompt the customer to book and come to enjoy the services of the hotel whereas a dumb and old-fashioned web page may not even capture the eye of a potential customer thus losing business (Crystal, 2007). This revenue management process is cyclical in that each step is dependent of the other (Kamath et al, 2008).
Hotels despite of their classification have four product categories with minor adjustments to suit a customers needs. To start with there are normal room rates usually called rack rates which is based on the category of the room and type of bedding and room occupancy whether single or sharing. The second group are the discounted room rates for organizations with large number of rooms booked commonly referred to as group or tour rates. These rates are generally lower than normal rates. The third group is for regular customers such as corporate travellers, sales representatives, airline staff or military personnel. These are charged special rates for promotional purposes. In addition discounts are offered to support the hotel during hard times when the demand is extremely low (Crystal, 2007). The fourth group are the rates that are offered to the public along with other services such as recreational facilities or special events activities. This package not only includes accommodation but also tickets to the concerned event and transportation from hotel to the venue and back (Kamath et al, 2008).
Hotel branding has been identified as a key operator in customer satisfaction for customers who are seeking quality and consistency at the right price (Dube Renaghan, 2000) as it gives important information about the product andor sight being seen (Briucks, Zeithaml Naylor, 2000). Moreover hotel brand quality has been echoed as an important asset and a potential source of strategic advantage. Therefore to improve revenue the hotel management ought to improve their brand equity as the more aware the customers are about the brand, the more they perceive it as of high quality and that it can satisfy their needs the more they are encouraged to buy and the less price conscious they become and the more positive word of mouth they generate thus contributing to required growth in customer base and profits (Anderson and Mittal, 2000). According to Oneill and Maattila (2003) well-managed brands are inclined to gain and or increase the market share.
A branded hotel that is beginning to show its age does not indicate creativity. Thus current managers have to initiate updates and a renovation to improve the hotels performance and image, which is deemed to decline with the introduction of newer, higher-rated properties in the market. Owners have to keep adequate reserves to enable them maintain brand standards and hotels flag. A situation that presents itself as an opportunity to acquire new property at a discount and perform subsequent renovations should be sought to strengthen the revenue base (Crystal, 2007). The advantage of a newly renovated property is that it has a significantly lower debt load than its recently constructed competitors.
2.4 Forecasting in the hotel industry
Forecasting daily hotel arrivals and occupancy are core components of a RM system. Thus proper forecasting must entail the use of a correct forecasting technique. The paradigm of forecasting has two competing philosophies with one based on the development of an empirical formula that relates the values to be focussed with recent history. The other philosophy focuses on the development of a model from first principles that relates the value in question with the available variables and simulating that model forward to obtain the estimate. Among the models that are based on simulation of forward in time the actual process of reservations is Monte Carlo fashion. The modelling is quite intricate due to the existence of many interrelated processes such as reservation arrivals, cancellations, duration of stay, no shows, group reservations, seasonality trend among many others (Zakhary et al 2009). To achieve accurate results all the data estimated should be feasible in terms of distribution of different quantities from the actual data and where data is insufficient it should be aggregated.
This method of forecasting is advantageous in that it produces the density of the estimates and therefore produces confidence in the intervals. Secondly the method allows for measuring of other quantities of interest such as the possibility of attaining the hotel capacity limit or a certain predetermined fraction (McCoy 2010). Thirdly this method of forecasting allows for scenario analysis such as the effect of overbooking. In addition, one can investigate the effect of a cancellation penalty beyond some date prior to arrival (Crystal, 2007). Moreover the method allows for estimation of the sensitivity arrivals forecasts and the occupancy forecasts due to changes of some control variables a very critical aspect in revenue management (Zakhary et al 2009). In addition this method allows for estimating unconstrained demand, which is the total demand that would have occurred if the hotel had not been limited by its room capacity and had accepted every single customer. From the point view of RM this is an important quantity (Crystal, 2007). Similarly the approach is very flexible in that it can accommodate any input from the Hotel manager or even any judgemental information such as anticipated rise in reservations due to an expected future event (Zakhary et al 2009).
It is important to have accurate arrivals and occupancy estimates due to the fact that the optimal number of rooms in every hotel category is influenced by future room demand. Secondly the price of each category is fixed according to the future demand as explained by the supply and demand relationship. Thirdly the optimal overbooking strategy can be determined when there are correct estimates. This method undergoes two phases where the estimates of all the parameters of the reservations are identified and explained. These are seasonality, length of stay, reservations, cancellations, group reservations, and trend estimation (Yiiksel 2005). The second phase is the simulation phase where the reservation process is simulated forward to obtain the forecasts using the forecast obtained in step one (Zakhary et al 2009).
Peak-load models assume that firms have information on the peak times of demand in advance. However price dispersion used by businesses using yield management can achieve efficiency in demand shifting to maximize revenues all year round, peak time and off peak time (Dana, 1999). Hotels face uncertain demand and therefore set high prices at peak times to shift demand to off peak times and thus effectively reduce capacity costs (Crystal, 2007). In optimal pricing which examines the efficacy of a price dispersed competitive equilibrium, the first best allocation is obtained with peak load prices when the prices are set after demand is known. Together with the above technique of first best allocation, other techniques in use are uniform pricing where the planner is restricted to offer only uniform prices thus allowing the consumers to use the service at their preferred time except when rationed. Secondly the managers can use dispersed pricing with a zero-profit constraint where persuading a customer to use the rooms off-peak makes everyone better off due to the savings in capacity costs and social cost experienced. Thirdly the managers can use dispersed pricing with a non-negative profit constraints, which allows the high pricing of high-priced rooms strictly above the zero level, which increases the incentive of the consumers who face different prices to reserve off-peak period instead of the peak period. This also increases the number of low-priced rooms available at both times thus reducing the number of consumers who face dissimilar prices for the two times (Dana, 1999).
2.5 Customer loyalty and Revenue management challenges
Customers management is the key to unlocking revenue paths of any hotel. Therefore every Hotel that yearns to manage its revenues and increase its gains must manage its clients whether one-time customers or regular ones. The quality of services offered and quality of foods served play a vital role in not only attracting but also retaining customers. Customers who are satisfied by the services and foods offered will not only come again but also will extend the goodwill of the hotel far and wide and thus increase occupancy and subsequently revenues and overall improve the gains (Kamath et al, 2008).
Revenue management techniques when properly utilized optimises revenues in the small hotels (Crystal, 2007). However the small hotels are beset by a number of challenges that they ought to overcome. To begin with performance measurement of a revenue management system has become an issue in that occupancy of rooms and yield measurement are competition based. Therefore Kamath et al (2008) proposes the use of the opportunity model that supports the fixation of different prices for different customers in different market segments to generate revenue that must be efficiently used. Another hurdle that revenue managers of small hotels face is the displeasure of customers on differential pricing. To overcome this hindrance and have efficient RM system the opportunity cost of generating short-term gains and the creation of long-term loyal customers must be critically studied and evaluated. Moreover Kamath et al (2008) stressed that the success of efficient service delivery within the small hotel is dependent on the motivation of the employees who are the main contacts with the customers. A hotel may have attractive rates but a very poor customers service, which does not get along well in customer loyalty creation (McCoy 2010). Therefore revenue managers of hotels must ensure that the organizational policies and environment motivate employees to serve unreservedly (Crystal, 2007). Proper formulation and implementation of any revenue strategy to maximize gains from any projected demand is a strong basis of overcoming present and future hindrances (Kamath et al, 2008).
2.6 Yield management versus relationship marketing
Yield management and revenue management are used interchangeably in that some scholars seem to define them similarly as the allocation of the correct capacity to the correct customer at the correct time and correct price to optimise the revenues or yield. On the other hand relationship marketing is the understanding and responding to clients needs and preferences in such a way that enables the building of meaningful connections with which benefits are experienced by the key players, that is, the venture and the customer. This idea is based on the economic arguments that the cost of winning one new customer is very high than to retain an existing customer and that the longer the association between a business and a customer the more profitable the relationship is to the firm in the long-run (Crystal, 2007). The definitions demonstrate that the art of giving and getting is what drives the success of relationship marketing.
Companies or ventures that embrace Revenue or yield management system do not seem to care about meeting their end of relationship marketing thus they end up not giving what they ask in return to customers loyalty, friendship and respect. This among other things drives away customers who are vital in any venture that aspires to grow, maximize revenue and consequently profits. Scholars assert that Yield management is used non-selectively to get the best price out of a customer irrespective of their status, which goes against the spirit of relationship building with customers (McCaskey 1999). Therefore an ideal Yield management system is said to be the one that incorporates customer retention. Maximization of revenue earned today at the expense of revenue to be earned tomorrow if customers are driven away is valueless in the current climate. According to McCaskey (1999) the speed at which businesses learn is the modern and only way by which companies can sustain their competitive advantage.
True yield management is a system that delivers bottom line benefits in a holistic and rewarding approach enhancing profitability due to proper relationship marketing that has the capacity to build genuine and meaningful connections. Moreover Yield management as it is currently practised and promoted is very much skewed on the supplier side (Kamath et al, 2008). Therefore due to its mechanistic and transactional biasness it has been plagued with incapability to generate sufficient and comparable revenues and profits to those that may be attained by Relationship marketing in the long run. Yield management overlooks that customer understanding is a pivotal block in building sustainable competitive advantage (McCaskey 1999).
Strategic advantage, which is a crucial element in customer relationship building, can be attained through differentiation of products offered (Crystal, 2007). For any company to outdo its rivals then it must re-establish every difference according to the market demands to develop greater customer value or to produce value at a lesser cost or where possible perform both (McCaskey 1999). Differentiation enhances superior profitability as exemplary value delivery enables a business venture to have high unit prices, which results in lower average unit costs. In this dynamic and ever-changing trading environment particularly in the hotel industry the customer view is the starting point, as it matters very much in any revenue maximization system (Kamath et al, 2008).
With the emergence of wisdom and the revolution of information driven by the progression in technological discoveries McCaskey (1999) stated that only those ventures that are able to manage these transformation will survive the competition but not those that are able to maximize yield at the expense of tomorrows business. To manage the transformation successfully McCaskey (1999) argued that every venture must be able to revolutionize its customer retention rate through tailored customer life cycle management, and attaining the maximum level of the loyalty platform. BCG further stated that every venture must develop a sustainable competitive advantage constantly supported by their ability to adopt new learning skills and capabilities and the highly valued, permanent and exceptional one-to-one communication by its customers (Crystal, 2007).
Organizational value development is the glue that holds every business together and because a ventures existence is firmly grounded in it. Customers, employees and investors are the business elements that create and help in creating value measurable in cash flow terms. Loyalty determines whether customers will return for more or they will go elsewhere thus initiating a series of economic developments that are vital to revenue generation (Kamath et al, 2008). As the best customers are attracted and retained in the hotel services, revenues and market share grows and repeat sales are built with increased levels of referrals. This enables the hotel to concentrate on profitable and loyal customers by enhancing investments a stimulator of economic growth (McCaskey 1999). This sustainable growth attracts and retains the best employees who due to their consistency in superior service delivery to customers increases customer loyalty as it gives them pride and satisfaction in their work (Kamath et al, 2008). The closely-knit connection between the long serving employees and the loyal long-term customers enables even higher and superior service delivery a component of customer and employee loyalty. Reduced costs and quality improvements brought about by the learning of long term employees deepens the customer value proposition generating superior productivity. The superior productivity is used to fund superior reward and better tools and training to improve productivity of the employees, reward growth and loyalty (Crystal, 2007). Productivity together with increased efficiency generates a cost advantage that is very hard for rivals to match (McCaskey 1999).
Sustainable development and sustainable cost advantage united with the constant and even growth of loyal customers generates revenues and profits that are appealing to potential investors making it easier for the business to attract and retain the correct investors. Correct investors who are loyal act like partners in that they stabilise the system, reduces the cost of capital and works best to ensure that no funds are misappropriated but correct cash is retained in the business to fund investments that overall raises the potential of the business to create value (McCaskey 1999).
The knowledge explosion of this era has greatly affected the decisions made by customers complicating the role of revenue managers and marketing managers. Every decision maker, be it the customer or the revenue manager or the marketing manager makes decision based on what better serves his or her need andor objectives. Therefore the revenue managers and the marketing managers have to join hands to come up with a better system that is able to match the customers needs and preferences with the objective of each department in a manner that as it maximizes revenue does not erode the customers loyalty (Kamath et al, 2008). Similarly a company that fully integrates Yield management and relationship marketing takes advantage of the demand fluctuations and customers needs leading into a wealth of sustainable revenue and business growth (McCaskey 1999).
2.7 Performance drivers in revenue management
Revenue management within some different departments of the Hotel industry is driven by forecasting, pricing and capacity allocation. According to Crystal (2007,p.5) forecasting methods used in RM are based on the general forecasting techniques with great focus on arrival pattern approximations, unconstraining and forecasting. The unconstraining technique provides methods to estimate total demand for products that have sold out thus providing the revenue manager with accurate past data on which to base future forecasts (McGill and van Ryzin 1999, pg 237 Crystal et al. 2007, Ratliff 2006). Arrival rates, unconstraining methods and aggregate forecasting methods strengthens the quality of a forecast and the preferential use by the revenue forecasting experts brings about difference in the quality of the forecasts. Therefore every revenue manager has to understand the benefits of forecasting and the import of quality forecasting evidenced by prudent use of elements of forecasting. The operations management field has made huge leaps in capacity algorithms as it has grown from single leg (Van Ryzin and McGill, 2000) to network control (Cooper, 2002). Crystal (2007) stated that majority of Hotel revenue management systems are based on methods developed more than 20 years ago rather than embracing modern and more developed methods of recent times. Among their many reasons for failure to upgrade their systems is that the potential return on other investments is larger than that of modernizing the Algorithms.
Pricing according to Crystal (2007) in RM has also been cited as another area that impacts performance of hotels. In the model by Bitran and Caldentey (2003) for pricing it is assumed that price is a function of inventory and time until product perishes and this gives them an idea of how to optimally price goods and services given the constraints on pricing functions for a single product with deterministic demand. Regarding a particular product with stochastic demand, it is believed that there is no closed form solution but some researchers have found that the deterministic price heuristic is optimal for a large inventory items to be sold in a sufficiently long selling period. Assumption of a limited set of price changes allowable over time and that the optimal price is non-increasing in the inventory and decreasing in the time remaining were made by Chatwin (2000) and Feng and Xiao (2000). When dealing with multiple products with stochastic demand the problem cannot be solved in a closed form solution thus best suited for approximations of the whole problem or closed form solutions with the simplification of the assumptions.
Ignoring competition when setting prices has been cited as one of many businesses undoing because it harms the venture as well as its revenues (Cooper et al 2006, Jin 2006). Crystal (2007, p.7) emphasizes that there are two marketing activities, that is, pricing and market segmentation that influence revenue management. Given that the marketing function of most of the ventures control pricing decisions based on the firms strategy to either survive, maximize profits, revenue, sales growth or market skimming (Kotler, 1998) their success in achieving their objectives has a positive impact on revenue management while its failure will result to a negative impact on RM. With relative inclination to the ventures strategy upper and lower price bounds may be set with consideration to the three Cs which are Cost, Competitors prices, and Customers assessment of the product (Kotler 1988). Demand volume, price responsiveness, competitors prices, pricing strategy, value of the product and regulatory constraints are among the key ingredients to be incorporated in any prudent pricing choice ((Kotler 1988, Dutta et al. 2003, Monroe 2003). Without the possession of proper knowledge to constantly translate the above listed factors into maximum or near maximum pricing decisions bears disastrous effects to the revenues of any venture. This has made pricing to be a key competitive strength for many ventures even the hoteliers irrespective of size or rating (Dutta et al. 2003, Monroe 2003).
The desirability of any market segment is characterized by identifiability, substantiality, easy access, stability, responsiveness to changes and actionability to sufficiently serve the market needs (Kotler 1988). Crystal (2007, p.8) further elaborates these characteristics with identifiability being the extent to which the hoteliers can recognize distinct group of customers using definite segmentation bases. Moreover Crystal expounds that substantiality measures whether the targeted segments represent a portion large enough to ensure the revenues attained on implementation of target-based marketing programs bring about profits. In addition Crystal explains that accessibility measures the extent to which the target market segments can be reached for promotional, distribution and feedback efforts. Responsiveness according to Crystal measures the degree to which the customers react to different marketing efforts directed to the specific and unique segments. Stability is concerned with the no-change situation or behaviour or composition of the particular target market elaborates Crystal (2007, p. 9). With respect to actionability Crystal states that it encompasses the firms ability to serve its target market given its skills, strategy and structure.
An organizational structure affects organizational performance (Galbraith and Lawler 1998) and therefore the Revenue Management aspect. Therefore every organizational structure even on the hospitality industry where small hotels lie should ensure that their organizational structure fits well with the strategies of the organization and departmental objectives, activities and the ever-changing business environment (Russo and Harrison 2005). The contingency theory stipulates that given that firms are diversified and have unique needs every firm should adopt an organizational structure that best fulfils their objectives and makes them remain competitive in this dynamic business environment. Another theory identified as equifinality theory however proposes that sometimes a given level of organizational performance can be attained by use of different organizational structures even with ventures facing similar competitive pressures and internal processes. According to equifinality theory no single structure can be used to achieve the organizational objectives because even the best structure will have shortcomings whose impact can be lessened by embracing flexibility available in using a variety of organizational structures.
2.8 The value of revenue management in business relationships
Despite the challenging of assertions that revenue management improves hotel performance by scholars and researchers who argue that environmental factors are the great contributors to the revenue enhancement, recent studies demonstrate that proper execution of well thought and formulated revenue management strategy brings about 1-8 percent of profit performance increase in hotels (Jones, 2000, IDeaS Yield Survey,
2001).
Customers are key actors in building or breaking business relationships (Wirtz et al., 2003, p. 217). Therefore customers reaction to revenue management is of great significance in order to build strong and lasting customer relationships. Lack of comprehensive studies on the impacts of revenue management to customers according to Wang and Mitchell (2001) has led to poor relationships building. Owing to the fact that the few studies undertaken clearly point out that financial gains from maximizing revenue damages the relationship between a company and its customers even alienating them completely (McCaskey, 1998 Wirtz et al., 2003), every company must therefore aspire to safeguard its customers highly earned and built relationships. Apart from the potential conflicts arising from implementation of revenue management and companys long-term marketing strategy short-term revenue growth damages customer relationships leading to the loss of tomorrows customer. This is enhanced by the idea that using revenue maximization selling strategies such as demand based pricing, and availability of certain rates to specific customers only may breed a feeling of unfair treatment regardless of the category and thus influencing customer satisfaction (Kimes and Wirtz, 2002).
The solution to successful customer management is the identification of the customer conflict areas caused by revenue management and handling or putting up measures of tackling them intelligently without undermining any player. Revenue management cause customer conflicts due to difference in pricing, inventory control, available control tactics, which are used to optimize hospitality firm daily revenues (Wang and Bowie, 2009). Concerning the revenue management practice of pricing strategy affecting the reference price, which customers perceive as unfair, with a high financial risk the company, must employ marketing strategies such as physical and non-physical rate fences to ensure that only targeted customers benefit from any price cut. Moreover a marketing strategy of bundling of services ensures the reduction of perceived risks (Wang and Bowie, 2009).
In addition concerning the revenue management practice of pricing strategy affecting the reference transaction which customers perceive as a change in the nature of service and a reduction in service quality the company must employ marketing strategies such as spatial segregation of customers, differentiation of service benefits and the setting of optimal capacity limits (Kamath et al, 2008). Other marketing strategies to counteract customers perception on inventory control, capacity restriction, overbooking and length of stay include preferred availability policies for loyal customers, well-designed service recovery programmes and clear communication and positioning of length of stay usage restrictions (Wang and Bowie, 2009).
Revenue managers of companies acknowledge that revenue management significantly helps the process of identifying the companys profile and the value of key accounts. However account managers point out that revenue management has damaged business relationships with clients. According to studies by Wang and Bowie (2009) revenue management rationalizes business relationships in terms of identifying and analyzing the value of its customers. Moreover revenue management provides a better understanding of genuine customer value of a client rather than the use of business volume value. In addition revenue management helps to identify market trends and enables the account manager to adopt an upbeat selling approach (Kamath et al, 2008). Similarly Revenue management allows the management to take a proactive selling approach, which provides common benefits for the company and the customers instead of taking a reactive approach towards market demand. Finally revenue management facilitates long-term marketing planning by providing accurate information derived from client behavioural data collected through revenue management (Wang and Bowie, 2009).
On the other hand revenue management diminishes the trust between principal clients and the company because revenue management acts solely in the interest of the company and thus provides constraints to the customer benefits. Moreover revenue management inhibits relationship development because its primary aim is to optimize daily revenues, which in return destroy relationship value. In addition revenue management lessens relationship stability since customers perceive that RM tactics are opportunistic and undermine any trials to build up long term relationships. Inflexibility in revenue management and the managements unwillingness to override the systems decision is detrimental as it leads to the customers paying market rates rather than the preferential rates (Wang and Bowie, 2009).
2.9 Information Technology, Hotel marketing and revenue improvement
It is the responsibility of every hotel manager to work smarter, and harder to secure a place in the already competitive market. A hotels survivability depends greatly on the marketing effort input of its management as it guarantees it a stream of revenues and consequently profit margins (Crystal, 2007). Given that hotels are not travel creators but recipients of travellers, information on location, products and services offered must be made available to initiate a decision that will favour the hotels business. Among the most effective modern way of marketing is internet marketing. In order to make an impression in this dynamic trading environment the hotels management must design an attractive web site considering aspects such as whether potential customers can find it in a generic search. Moreover the hotel management must consider whether the websites outlook can sell the area attractions as well as the hotel and whether just a click on the site can drive the prospective customer to the booking page for reservation. Having considered all these factors the management must be able to analyse the profitability of the site in terms of how many reservations it is producing. However other marketing channels should be explored and used as well to promote new packages and other hotel promotions (Salerno, 2009).
Businesses are cutting back expenditures due to bumpy economic conditions and increased airfares thus resulting into lower corporate transitory demand and lower attendances to non-cancelled events. This has placed hotels at a receiving end necessitating re-negotiation of rates to get business. They are doing these aggressively even making calls to regular clients to offer cut rates. Moreover this is being fuelled by the decrease in volume sales and the realization that not enough of their rooms are being filled therefore hotel proprietors are enticing both the regulars customers as stated earlier and new ones so as to fill the room occupancy gap and raise revenues (Darson, 2008).
An integrated revenue management system must have a supporting IT platform by which to work on. Prudent ideas promote the use of IT in most of the businesss core activities such as demand forecasting a key component of revenue management (Overby, 2005). As such correct alignment of IT initiatives and the business objectives is a necessity in this complex environment of managing the information and the huge analysis to be done by different departments to come up with a coherent strategy that maximizes revenues while at the same time guaranteeing sustainable growth and development (Kamath et al, 2008). The computer system apart from performing its intended task of demand forecasting and pricing also acts as an easier storage machine thus improving the rate of data recovery for evaluation and monitoring. Getting the price right in an industry with fluctuating demand and competitive trading environment coupled with proper inventory control have been hailed as the gateways to maximizing revenue and profits (Overby, 2005).
2.10 Revenue management in a trading slump
RM has been a component of hotel industry for several decades being used by large hotel chains and middle-sized independent hotels. However with the recent economic downturn its approach has greatly changed with revenue managers being left at a hard pan to manage the lessening demand and the mounting pressures to decrease rates. Among many revenue management issues in the current economic downturn, rate resistance, contract renegotiation, price wars, competition, rate integrity, system integration, hiring and training budget standout. Moreover among many other important issues RM professionals are also faced by price wars, pricing methods, rate integrity, marketing, uncertainty, forecasting, and distribution issues in their capacity. To manage price war, for instance, revenue manages have to find creative ways of selling low in stimulating demand and not causing any significant damage to a brands perceived image.
According to Kimes (2009,p.7) in a down market it is important not to offer price cuts across all market segments but in its place to focus on a particular segment of the market and a particular distribution channel taking care that Average Daily Rate is near or above the average of the competitive set. Kimes (2009,p.7) explains that when formulating a reaction to price war the revenue manager ought to evaluate their current and potential guests, the hotel and competitors and the distribution channels. In customer evaluation the revenue manager ought to consider the price sensitivity of certain market segments and the possibility of emergence of new segments if new rates were offered. After assessment discounted rates should be targeted at price sensitive market segments and rate fences should be erected to deter less price sensitive customers from availing themselves of the discounts (Enright, 2009). Moreover Kimes (2009, p.8) states that hotels should identify other potential market segments which can be attracted by a discount considering whether the market segment fits in with the hotel image. Regarding hotel and competition Kimes (2009, p.7) explains that revenue managers must understand that price cuts are affected by the cost structure of the hotel, the capabilities and the strategic positioning of the hotel. Therefore hotels with a lesser cost makeup than that of the competitors can easily, comfortably and profitably offer discounts being able to endure the decreased margins (Enright, 2009). Proper analysis should be done to identify competitor strengths and vulnerabilities and gauge their reaction to a price war. In addition hotels distribution channels should be examined to determine their effectiveness in delivering the business and whether the volume sales will rise if the commission or percentage paid was increased. According to Kimes (2009,p.8) Opaque channels and distribution channels that offer packages in which rooms and other services are bundled together are more attractive because they give a chance to obscure the true rate.
2.11 Combating budget and resource constraints in achieving optimal revenues
Companies in the introduction stage particularly the small ones and the independent hotel chains lack resources and have limited budget for investment. This has made it difficult for them to invest in high-end up to date technology associated with revenue management and therefore has left them also constrained in terms of revenue collection and management (Kohlmayr, 2010). Senior executives in these organizations manage a number of roles simultaneously in that they oversee all revenue departments, which include sales, marketing, e-commerce, revenue and reservations. The senior executives ensure that all these departments are communicating and working together to maximize revenues across the company. In comparison, the large hotel chains have sufficient money to run their operations and invest in technology and people enabling proper definition of roles within the divisions and thus are able to devote their times and efforts to ensure that revenues are maximized across the Hotel chain (Kohlmayr, 2010). Hotel management structures differ and vary from complete independence with a private chain code to internet technology connectivity with a generic chain code to soft branded representation with CRS technology and a branded chain code to hard brands that provide technology and manage hotel operations. Independent hotels can deal with budget and resources constraints by selecting a soft brand that provides technology and resource savings through economies of scale while permitting autonomous management and identity (Enright, 2009).
In this difficult, dynamic and ever changing trading environment proper analysis of technology, distribution technology and costs is paramount for survival. Moreover retention of loyal customers, expansion of distribution strategy for acquisition and market focused view for a balanced competitive price positioning. Enright (2009) explains that in this period of economic hardships retaining resources that possess technical and analytical skills and competitive advantage to continue managing pricing and distribution decisions is vital in improving and strengthening the revenue base. This is because a skilled manager is capable of broadening responsibilities to cover operational departments than for an unskilled revenue manager to broaden responsibilities to cover operational departments. In addition lack or inadequate technical skills are revenue killers. Despite the constraints present in small hotel chains there are numerous advantages, which can be used to strengthen their market competitive advantage if critically examined and used. These range from the simplistic nature of communication within the company to limited barriers to adaptation to new strategies thus easy and faster introduction and adaptation of any change to improve their revenue portfolio (Kohlmayr, 2010). This properly utilized can override any deficiency such as limited scope expertise or non-existence of a crucial expertise (Enright, 2009).
Small chain hotels face a challenge in proper integration of revenue management system and core business functions due to their poor or lack of technology. Owing to the fact that integration is crucial in successful revenue management strategy the small hotel chains should seek alternative ways apart from the capital-intensive investment to amalgamate RM systems and core business decisions (Enright, 2009). Moreover as the technology improves and becomes more affordable, added to the understanding that fully integrating different business interfaces lowers the cost independent hotels should invest to secure them a survival platform presently and even in the future. Similarly the small hotels are advised to negotiate costs of distribution in large scale through contractual agreements.
In addition revenue management must value the profitability of each segment even where they seem to be less profitable because customers are crucial (Enright, 2009). In order for independent hoteliers to successful compete in the dynamic trading environment they have to ensure that they maximize their return on investments (ROI) on all their available resources. For instance proper use of data collected from smaller and independent operations is a cost effective method for determining the best rates to charge in the coming months and consequently building strategy around it (Kohlmayr, 2010). Therefore the independent hoteliers must have detailed data that is comprehensive in that it has all the required information on past room occupancy and revenue collected per day for a minimum of 90 days (Enright, 2009). This is crucial in identifying when demand is high and thus adjust the prices charged accordingly. Independent hoteliers should be well informed of their competitors prices, products and performance as this helps them formulate strategies that utilize their competitive advantage better than their competitors thus improving overall revenues collected (Kohlmayr, 2010).
Another method to manage revenue is to ensure that the independent hotelier manager understands the channels and that they are well represented in all channels. Including high quality pictures and up to date information specific to each and every market segment increases the possibility of customers booking through their preferred channel. In order to increase business and extend touch the independent hotelier must establish win-win lasting relationships with the distribution partners while keenly ensuring that they do not entangle themselves in inflexible contracts, which are hurtful when business, rejuvenates (Enright, 2009). Pricing is a key driver to growth of revenues in the hotel business and thus its proper formulation, implementation, and analysis by the use of correct information, competent and experienced staffs are of great importance (Kohlmayr, 2010).
2.12 Hotel efficiency before and after revenue management strategy
The level of competition in the hotel industry demands efficiency so as not to misappropriate the hard-earned revenue and to ensure survivability and profitability. Efficiency is the comparison between the observed or actualized and the optimal values of the output and input. Efficiency compares the performance of the hotel with key competitors in the market. Moreover efficiency measurement enables the performance control of the hotel and its sub-units. With respect to planning efficiency measurement compares the accrued benefits from the use of diversified inputs with varying proportions. In an organizations behavioural goal efficiency is measured by comparing the actualized and the optimum costs, revenues subject to the constraints on quantities and prices. The difference in location and product quality creates imperfect competitive conditions for some hotels, which increases the chances of inefficiencies. Hotels can be inefficient from failure to allocate resources in the most efficient manner as they emphasize on revenue maximization through revenue management systems. They also can be inefficient in their failure to utilize resources once allocated commonly referred as technical inefficiency (Anderson et al 2000).
Managerial inefficiencies are a function of inadequate motivation in a competitive environment despite the realization that the more competitive the environments are the higher the possibility of Hotels operating on their efficient frontier. Efficiency measure provides the Hotel managers with information and insights on the improvement of resources use. Two principal methods have been used to estimate the efficient operating frontier. These are the stochastic frontier approach and data envelopment analysis (DEA) which involves econometric methods and mathematical programming respectively. Hotel performance is based on non-frontier models such as ratio-analysis, aggregate indices of market performance, revenue performance and yield management and the two named frontier models. DEA approach utilized by Morey and Ditman (1995) used input factors such as room division expenditure, energy costs, salaries, and expenses for variable advertising, payroll among others and output factors such as total revenues level of service delivered, market share and the rate of growth to find out that managers were operating at 89 efficiency, which was considered efficient then. Moreover Anderson et al (2000) in his analysis of allocative, technical, pure technical and scale efficiency of 48 hotels using inputs such as full time employees, number of rooms, food and beverage expenses among other expenses and revenues from food and beverages, gaming, rooms among other revenues as output Anderson found out that the hotel industry was operating inefficiently with an efficiency measure of 42.
2.13 Other revenue sources for the small-scale hotels
Hotels can tap revenue from a variety of other venues, which are readily available for them as they enhance the service quality of their customers. For instance hotels can enter into roaming agreements that allows them to own and operate so as to better control revenues (Nomadix, 2005). Hotels can also build a carrier neutral environment that allows them to support different networks and not lock themselves in a single network carrier. Benefits such as revenue from Carrier when subscribers who are customers in the hotels access the network, increased room demand and consequently increased room revenues as subscribers seek hotels where they can roam without an extra charge and provides a room for expansive marketing via the carriers with huge number of subscriber base. Small hotels can sign up with roaming aggregators who partner with individuals HotSpot locations and serves as middlemen between the HotSpot venue and the carriers (Nomadix, 2005). Moreover Hotels can generate advertising revenue through banners, and revenues from local merchants who have interest in promoting their services and products to the hotel guests (Enright, 2009). However, small hotels must partner with a large aggregator so as to attract a significant number of advertisers and thus higher advertising revenues. Another revenue opportunity is the bonus services that come with a room apart from roaming capabilities hotels can incorporate guest applications such as VoIP, which not only enhances the service as superior but also increases customer loyalty. Small hotels must not incorporate these bonus services now but must incorporate them in their long-term strategy and objectives as this are the opening points to competition by building a competitive advantage, which is enhanced by the one-on-one customer relationship (Nomadix, 2005).
CHAPTER THREE
3.0 Research Methodology
3.1 Introduction
This chapter spells out the research methodologies used in this study. The research approach to this study is based on the objectives stated in chapter one. This study will be streamlined to achieve the stated objectives by formulation of research questions. The research questions will be presented in a manner that explores the research objectives. After identifying the research questions, the research hypotheses are then devised. For a comprehensive discussion of this study data will be collected through both quantitative and qualitative methods, which will include literature reviews, questionnaires and interviews. This research used both primary and secondary methods, which are described in details, and their selection and use are justified. These methods will then be integrated accordingly in data collection and data collate analyzed. Findings will then be checked against the hypotheses set to see if they are supported. The study theory development through the literature review seeks to understand the impact of revenue management in small hotels. Therefore, this study developed from exploration of the literature, explanation of the facts and testing of the outcomes. Moreover this study will proceed from the description of research study area, research design, data collection approaches and verifications of the outcomes. Finally recommendations will be made for current findings and suggestions given for future research course.
3.2 Research method and design
According to Austrian (2000, pp.99-100) the generous choice of a study method determines the accuracy of the results. Therefore this study employed several methodologies to completely analyze the results by getting all relevant data required. These methods are rapid structured literature review, and in-depth interviews. The purpose of the study was to examine the impact of revenue management in small hotels.
3.2.1 Rapid structured literature review
Reviewing already written and published materials on the impact of revenue management in small hotels is very important as it investigates academic facts and conclusions arrived at by other scholars examining the same field. This study used the commonly used method in literature reviewing of rapid structured literature review, which used three approaches. These were narrative synthesis, meta-ethnography and realistic synthesis. Rapid structured literature review started with an unambiguous question to be answered and hypotheses to be tested. Moreover the rapid structured literature review entailed precise description of what types of studies were to be included to limit selection unfairness on behalf of the reviewer. In addition there were examination in a coherent manner of methods used in primary studies and investigated potential prejudice in those studies and sources of heterogeneity between the study results. In the end the conclusions were based on the studies, which were mainly methodologically sound as explained, by Armitage and Ramsay (2009). Moreover examination of written materials can shed light on the study question or problem. The use of the literature review is justified because the researcher is able to breakdown the complex nature of the subject under smaller subtitles and sections within a very short time (Yin 2003). Similarly the use of literature review is justified because the researcher can access past examples and discussions in the area under study.
The structured literature review is advantageous in that it is structured thus the work done is well organized to be read by any reader or researcher. Moreover it leads to the flow of the work done in a chronological order. Additionally rapid structured literature review is systematic. In addition there is quality in the work done. This is because of the qualitative analysis of the piece of work. Further more, there is explanation of the study evidence to support pre-given views. More also there is transparency in the piece of work done. This implies that no audience is required for understanding and evaluating an activity other than possession of a pair of eyes. Transparency is achieved by formulating before hand in terms of a set of procedures to be followed.
On the other hand rapid structured literature review is limited to small-scale projects making large projects to use other methodologies. This is due to the scale of the project that was to be undertaken. Those projects of wide scale were not carried out by this method.
3.2.2 Interviews
Boyce and Neale (2006, p.6) elucidated that In-depth interview is very important in a most study types of research because of the involvement of both data transcription and analysis. In addition Boyce and Neale (2006) explains that for a successful and competent in-depth interview one is required to follow the required procedure, which comprises of planning, developing tools, training of data collectors, collecting data, analyzing data, and disseminating results.
An in-depth interview according to Boyce and Neale (2006) is advantageous in that it provides more elaborate information than what is available through other methods employed in data collection. In addition in-depth interviews provide a relaxed atmosphere for data collection as respondents feel more relaxed and comfortable having conversation about their program than when filling in the questionnaires. Moreover an interview offers a secure setting for an investigative study, which is focused in discovering an array of significant matters from each point of view than does other method of data collection. In-depth interview provides adequate time frame especially when the subject to be tackled is difficult in nature. This adequate allows for selection of a comprehensive subject which carry an important level of weight in their relevant fields and it is significant. Personalized in-depth interview permits for setting up of each correspondent, which is more realistic than to pull together a group of respondents from the relevant departments.
Boyce and Neale (2006) provide the following as a few limitations and pitfalls of using in-depth interviews. According to Boyles and Neale (2006) in-depth interviews are prone to partiality because the respondent or the interviewed employee might want to prove functioning of particular machinery or a program, their interview response can be predisposed thus overstated. The biased response could also be due to their stake in the program or the machinery. Therefore, a lot of effort should be used to devise data collection attempt, develop an instrument and carry out interviews to accommodate little or no bias at all.
Moreover according to Boyce and Neale (2006) in-depth interview analysis is time wastingtime intensive process. In-depth interviews are time intensive evaluation activities for the reason that a lot of time is taken to carry out interviews, record them and analyse the results. Besides in order to gather more detailed and rich information from the respondent, the researcher must ensure that the respondent is comfortable and is interested in the subject under study. Therefore, when planning for data collection a lot of caution must be taken to integrate time for recording and analysis of data.
Another disadvantage of in-depth interview according to Hoyle, et al. (2002) is that respondents must be properly trained before an in-depth interview is carried out. Finally, in-depth interviews does not allow for generalization. When an in-depth interview is carried out, generalization about the overall results cannot be achieved since small samples are chosen and mostly random sampling is not used. However, in collaboration with other data collection methodologies an in-depth interview offers valuable information on a phenomenon. According to Boyce and Neale (2006) the general rule on sample size for interviews is that when similar topics, issues and themes surface from the respondents then the sufficient sample size is achieved.
3.3 Participants and sample size
Interviews with general managers, revenue managers as well as other major stakeholders in the small hotel industry will be conducted and documented. Their input will be analyzed and this will be used to test against our hypotheses.
3.3.1 Population and Sampling Procedures
The population of my studies will include revenue managers, employees and other major stakeholders of hotels with less than 60 rooms to let to customers. Therefore my sampling frame will be 200 employees, 50 revenue managers and 40 other major stakeholders. The sampling size used for the studies will be 60 employees, 20 revenue managers and 10 other major stakeholders.
3.4 Methods of analysis
This study used two sets of data to achieve its purpose. These are the qualitative and quantitative data. In qualitative analysis, the use of an outline of general causation and coherent reasoning was preferred. Charts and diagrams will be used as support to pictorially visualize them. These will be based on the literature and interviews. For quantitative analysis data from sources will be retrieved both historically and presently from revenue statistics, hotels performance statistics and published government bodies statistics. These will be evaluated to see the development from where our hypotheses can be verified.
3.5 Form of Presentation
This dissertation on the impact of revenue management in small hotels is presented in a written form with charts, graphs and pie charts.
3.6 Methodological assumptions
The study assumed that the technique used was sufficient to realize all the impacts of revenue management. In addition the study assumed that the technique was sufficient to measure both the financial and non-financial aspect of the small hotels. The study failed to effectively measure the Key Performance Indicators, Balanced Scorecard and Key Business Areas, which are crucial in analyzing any business impact. This calls for the best research techniques, which could achieve adequate results in most of the disciplines.
3.7 Ethical issues
In the course of this study, plenty of contact with Hotel industry experts is much needed. There are laid down protocols to be followed when doing this study and certain ethics to be strictly adhered. These include Integrity of evidence where the study will take all practicable method to establish the integrity of the evidence collected and presented in a pure manner. Secondly there is need for honesty and trust. Regarding this the author will conduct these studies honestly and truthfully and to the best to his knowledge.
In addition all participation in these studies will be voluntary. Similarly the participants have the right to privacy and may choose not to participate in the studies. Besides, anonymity will be maintained and the respondents confidentiality right will be respected. Furthermore the participants will also be informed about their right to recover data they give in. The respondents will also be made aware of all information reachable to all and made aware exactly the types of procedures they are to follow.
3.8 Data collection
In the interview method of data collection the study identified the pertinent characters that were to be concerned such as the revenue team. After recognizing the needed information to be gathered the listing the characters to be interviewed was made, as this is an area that the study must consider before carrying out the in-depth interview. Proper instruments were developed so as to realize the trustworthiness of the outcome. The investigation considered the accepted protocol of interview, which states what to tell the interviewee from the start passing through main body to conclusion according to a study by Gray (2004).
In addition the study considered what should be done through the group session, which was taking notes and audiotaping in line with suggestions from Heaton (2004). Great care was taken after the end of the interview as processes like satisfying comments, examination of audiotapes for clearness, summarizing and submitting written results were taken care of (Kajornboon, 2005). Educating the data gatherers involved assessment purposes, data gathering methods, developing expertise, and discussion of moral concerns as stipulated in Interviewing in quality research (2001).
During data collection the interviewees had to consent before commencing the conference or the interview and then immediate summarizing of major data after the conference session done according to advice by Cohen, et al. (2000). After data was collected using in-depth interview data analysis was which incorporated identification of titles and sub titles that assisted in data organization was done. The key variables were identified to guide in the data analysis.
The last part of any study is data distribution. After the analysis of data the distribution of the results for final integration with other methods used in collating data was done. This was an integral part of the study as it showed the adequate completion of the specific method of data collection in the research. Platt, (1992, 23-24) confirmed that failure to make proper report of the research might be disastrous, because time and resources wasted may never be recovered, and the research would be termed invalid and void. The study ensured that a better report was produced, which readers could easily follow, and apply in their further researches.
CHAPTER FOUR
4.0 Results, findings and analysis
4.1 Results and findings
According to the results of the study most of the respondents were male accounting for 59 while females accounted for 41. This is demonstrated in the pie chart below.
Chart1 Gender of the respondents.
SHAPE MERGEFORMAT
The studies also found out that 40 of the respondents hotels had been existence for between 8-10 years. Moreover 25 of the respondents hotels had been existence for over 10 years. In addition 18 of the respondents hotels had been existence for between 5-7 years and 9 had been in existence for between 2-4 years. Astoundingly a partly 8 had only been in existence for less than two years. This is shown in the column chart below.
Chart 2 Number of years of hotels existence
The studies found out that 26 of the respondents were working in hotels with 41-50 rooms. In addition equal percentages (24) of the respondents were working in hotels with 20-30 rooms and 31-40 rooms. The study illustrates that only 18 of the respondents were working in hotels with more than 50 rooms. Moreover the study found out that 8 of the respondents were working in hotels with less than 20 rooms to let out. This is demonstrated in the chart below.
Chart 3 Capacity by number of rooms of the hotels
The study revealed that the most purchased hotel product category is rack rates with a scoring of 82. Minimal percentages of the group or tour rates and the promotional rates were purchased with a scoring of 8 and 10 respectively. This is shown in the chart below.
Chart 4 the Hotels Product category purchasing
The studies found out that 45 of the respondents admitted using both the revenue management strategy and relationship marketing strategy to maximize revenues. Moreover 30 of the respondents stated that their hotel uses relationship marketing to maximize revenues with the remaining 25 using revenue management strategy to maximize revenues. The chart below shows it pictorially.
Chart 5 Strategies employed by the hotel to maximize revenues
The study found out that every hotel had a different objective of undertaking revenue management with 56 of the respondents undertaking revenue management due to the diversified nature of the customer market facing them. In addition 23 of the respondents scored the non storability of their inventory as their objective of undertaking revenue management. Only 21 stated their objective as fixed capacity of the rooms to let out. This is shown in the chart below.
Chart 6 The objective of undertaking revenue management.
The study discovered that decisions regarding revenue maximization are spread almost evenly within the management and respective departments with 25 of the respondents acknowledging that General Managers make the decisions. In addition 36 of the respondents stated that revenue managers are the decision makers and 39 of the respondents stated that decisions regarding revenue optimization in their hotels are made by relationship marketing managers. This is demonstrated in the chart below.
Chart 7 The decision makers of revenue maximization
The study demonstrated that 24 of the respondents use the internet to market their hotels with a similar percentage using the mass media such as TV and Radio. Most of the respondents (26) uses the telemarketing technique to market their hotels. A minimal percentage of 11 rely on the word of mouth to market their hotels. This is shown in the chart below.
Chart 8 Marketing technique used by the hotels
According to the study revenue management benefits the hotel undertaking the strategy as 59 of the respondents indicated. Employees benefit in a minimum way as only 12 of the respondents acknowledged that they benefit. In addition 29 of the respondents indicated that customers are beneficiaries too of the revenue management strategy. The chart below demonstrates this.
Chart 9 The beneficiary of the revenue management strategies
The study revealed that 32 of the respondents indicated that 31-40 of the daily reservations are done from the hotels site. Similarly 26 of the respondents indicated that 21-30 of their daily reservations were made from the hotels website. According to the study over 40 of the daily bookings were acknowledged by 18 of the respondents. 13 of the respondents indicated that daily reservations from the site amounted to less than 10. A minimal 11 of the respondents indicated that only 10-20 of their daily reservation were from the site. The chart below illustrates this.
Chart 10 The percentage of daily reservations from the Hotels site
The study revealed that 48 of the respondents indicated that there was an increase by 46-60 of the revenues after the implementation of the revenue management strategy. Similarly 22 of the respondents indicated that that there was an increase by over 60 of the revenues after the implementation of the RM strategy. According to the study only 18 of the respondents acknowledged that there was an increase by 31-45 of the revenues after the implementation of the RM strategy. The remaining 12 of the respondents indicated that there was an increase by between 0-30percent of the revenues after the implementation of the revenue management strategy . The chart below illustrates this.
Chart 11a The percentage increase in revenues after implementation of RM strategy
According to the study only 41 of the respondents identified change in the hotel management after the implementation of a revenue management system. 7 of the respondents indicated that they saw no change at all. Moreover 29 of the respondents indicated that they identified a captivating change in the hotel management after the implementation of a RM system. 23 of the respondents indicated that the hotel management became fairly efficient after the implementation of a revenue management strategy. This is demonstrated in the chart below.
Chart 11b The change in efficiency of the hotel management after RM implementation
According to the study only 59 of the respondents were satisfied with the performance of the revenue management system. 8 of the respondents indicated that they were not satisfied at all. Moreover 15 of the respondents indicated their astounding satisfaction on the performance of the RM system. 18 of the respondents indicated that they were fairly satisfied with the results of their RM systems. This is shown in the chart below.
Chart 12 The rating of the performance of the Hotels RM system
The study discovered that 45 of the respondents were challenged by the complex performance indicators of revenue management. Another 16 of the respondents cited that poor service levels were a challenge for the hotels in achieving their optimal revenues. Furthermore 39 of the respondents cited the level of employee motivation, which is interdependent with quality offered, proved an obstacle to overcome. This is illustrated in the chart below.
Chart 13 Obstacles to achieving optimal revenues
According to the respondents of the study 35 used their allocative capacity capability to enhance revenue management. Similarly 33 of the respondents used their forecasting capability to boost their revenue management systems. In addition 32 used their pricing ability to strengthen their revenue management techniques. The chart below illustrates this.
Chart 14 The competitive advantage used in Revenue management
In the investigation of the factors that hotels considers in market segmentation the study discovered that 43 of the respondents considers the responsiveness of the market segment. In addition 16 of the respondents indicated that they use the market stability in their market segmentation. Another 16 of the respondents indicated that to them the ability to formulate strategies that best suits a segment is of great consideration. A paltry 7 of the respondents indicated that they consider Substantiability with only 17 indicating that they considered accessibility of the customers and the accessibility in promotion to the desired segment. The chart below illustrates it well.
Chart 15 Factors that the hotel considers in market segmentation
From the study results24 of the respondents considers business relationship very important with 51 considering them to be important. 18 of the respondents consider business relationships as fairly important with 7 of the respondents considering them not important. The chart below elaborates.
Chart 16 The importance of business relationships with the customers
The respondents agreed that they take radical measures during recession and low demand season to boost sales and consequently revenue. 51 of the respondents admitted using price cuts while 49 of the respondents used promotional pricing as the chart below illustrates.
Chart 17 Method used to boost demand and sales during Recession
The study found out that most small hotels are faced with budget and resource constraints and to combat them 31 of the respondents said that they allowed multitasking of the managers. Another 29 of the respondents indicated that they used their efficient communication channels to get the best out of the available resources. 21 of the respondents have embraced strong distribution channels for information to ensure the use of every available resource. 19 of the respondents said that they use their strong customer relationships. This is illustrated in the chart below.
Chart 18 Techniques of Combating Budget and resource constraints
The study found out that there are other benefits that are associated with implementation of a revenue management strategy. 43 of the respondents cited the increase in employee compensation with 265 citing the enhancement and improvement of customers who end up being offered quality service. The remaining 31 cited that new investment opportunities are identified as revenues increase. The chart below demonstrates this.
Chart 19 Other benefits as a result of implementing RM system
According to the study the hotels are exploring new ways of strengthening revenue cash inflow. 55 of the respondents have embraced advertising for other companies within the customer fraternity with another 24 using roaming services available from network service providers to attract customers. 21 of the respondents are using bonus services in their hotel premium charged. The chart below shows this.
Chart 20 Other methods of strengthening Revenue cash inflow
Regarding the statement whether revenue management on its own can optimize revenues a whopping 52 of the respondents disagreed with 3 strongly disagreeing. 11 of the respondents were uncertain and only 15 strongly agreeing. 19 of the respondents agreed with the statement that revenue management on its own can optimize revenues. The chart below illustrates that.
Chart 21 The concurrency with the statement that revenue management alone can optimize revenues
4.2 Analysis
The study discovered that the hotel business has become competitive in that they have embraced equal employment criteria in its employment as the ratio of male respondents and female respondents from the study indicated. The activities of a hotel contrary to many other service sectors incorporate combination of roles that require a proper integration of the two genders given that customers perceptions are affected by their upbringing and beliefs. For instance some customer perceive some roles as men oriented while other consider the roles as any gender oriented therefore most of the hotels seem to have identified this complication and effected measures that have ensured customers are served according to expectations.
The study confirmed that the length of operation of a hotel greatly affects a number of factors. Like every other venture hotel business has to pass through the introduction, growth and decline stages. This study explains that to be able to realize optimum use of revenue the hotels that have existed for a number of years are able to identify their competitive strengths, weaknesses, threats and opportunities. Therefore in the implementation of any hotel strategy, maximum care and analysis is undertaken to ensure that the intended policy is able to achieve the intended objectives given the trading environment and that other important mechanisms are properly embedded in to ensure accurate results are attained. In addition experience teaches a lot in that mistakes done in the past are corrected minimizing self-inflicted revenue losses, which might work against a noble idea of revenue management. To add to the above points hotels that have been existence for a long period of time have built customer relationships and hotels have identified loyal customers who are important to deciding on revenue management strategies to employ (Enright, 2009). Similarly, having existed for a period of time facilitates in estimating demand and identifying peak and off-peak seasons (Zakhary et al 2009).
The study identified that room service is an important consideration of venturing in the hotel business. The number of rooms a hotel has plays a significant role in setting revenue collection limits. In addition the capacity of a hotel determines among other things variable operating costs such as salaries, bills and other operating costs (Kohlmayr, 2010). Administration costs may be fixed over a range of rooms and employees supervised. Other variable costs are dependent on the service utilization and thus efficient use of the hotels rooms by ensuring that rooms are filled to near or full capacity is a driving force of attaining revenue optimization no matter the number of the rooms a hotel has. The introduction of many rooms without adequate number of customers is a disastrous decision that must be avoided at all cost. In many instances it is advised gradual introduction with expansion as the demand increases, as this will lead to efficient use of resources given that a room not sold is a loss forever.
Small hotels are always started as limited service facilities with the hotel prescribing what a package includes. Most small hotels thus end up selecting the normal rates package for the vocational and one time traveller whether for business purposes or any other reason. Thus revenue management with such a scenario becomes complicated but to overcome this as hotels extend their period of operation and is able to undertake meaningful market segmentation making revenue management less complex and highly attainable. Small hotels offer other product categories on request though they highly charge it to discourage its incessant request due to the non availability of resources, skills and man power to manage the extra effort needed for them (Enright, 2009).
The study found out that relationship building is a key to any hotel growth no matter the size of its operation. Good relationship with customers stabilizes hotels revenues and enhances referrals by customers, which is a component of growth as the numbers of customers increase so do the revenues. In addition good relationships with the employees who interact with the customers plays an important role as motivated employees offer services enthusiastically thus enhancing customer loyalty (Kamath et al, 2008, McCoy 2010, Enright, 2009). Reputation and brand image built by quality services offered by a hotel business attracts potential investors who want good returns for their investments thus placing the hotel at a strategic position in relation with other industry players (McCaskey 1999). The idea of relationship marketing, which entails revenue management with the customers consideration of repeated business in the future, has taken root in many hotels from the on-start phase. Every hotel is embracing the idea of optimization of revenues from the available resources with consideration of other stakeholders needs both in the short term and in the long run. According to the study the cost of attracting new customers every time to maintain short run revenues is high compared to the cost of retaining current customers who guarantees the hotel long-term revenues. Although several hotels from the study used each of the two strategies, revenue management strategy and relationship marketing strategy independently, they admitted that they are imperfect and they were in search of a better strategy.
In depth dissection of the hotels under study showed that although the driving force for business may be profit maximization a number of the hotels have other different drivers for undertaking revenue management. The hotel business faces a diversified customer base whose needs vary greatly and therefore similar outlook of the market has proved not to reap maximum benefits thus the need of revenue management strategy that better serves each customer market segment. In serving each customer market segment the hotels are able to charge different prices to customers depending among other reasons the perception the customer holds about the quality of the service received. According to the study Hotels have non storable inventory, that is the rooms, and so as to maximize the revenues the hotels must manage the supply and demand well such that no room is left unsold or no customer is booked when the rooms are already full as it may happen in an overbooking scenario (Kamath et al, 2008, Crystal, 2007). The study revealed that fixed room capacity also drives hotels to undertake revenue management to ensure that any revenue that can be earned from the rooms is put in the revenue basket.
The study discovered that hotels just like other business ventures, have decision makers in a decision making web. The final decision to undertake a strategy mostly lies in the top management who may be an individual or a group of individuals. However the decision web allows input from a variety of stakeholders who will be affected in one way or another by the implementation of any given strategy. The study having explored all this wanted to know who initiates the whole decision making process and is allowed to make the final decision once the relevant data is collected before resources are allocated for the implementation process particularly after the top management approves the strategy. Revenue managers in a hotel are said to be concerned with all activities bringing revenues to the Hotel such as forecasts of break-even sales and therefore they understand the operations of the cash flow system to a greater extent placing them at a strategic position of making well-informed revenue decisions. However some hotels have identified that due to its scope of sometimes not including the impact on relationships it does not serve their revenue management objectives by increasing the cost of attracting new customers at the expense of retaining loyal customers. This has led them to combine the two departments objectives and decisions at the General Managers desk enabling an all-round outlook in decision-making.
Small hotels are operating in a modern dynamic environment that necessitates adapting to changes. Traditional methods of marketing such as word of mouth are becoming irrelevant because of their non-performance and poor impact thus relying on them as some Hotels are doing, will stagnate a business venture and hinder it from attaining maximum resource utilization for optimization of revenues and hinder growth potentials (Wang and Bowie, 2009). As a hotel, the use of captivating adverts on print and mass media such as radio and television is important to increase the customer base. Nevertheless other methods of marketing such as telemarketing have been known to reach customers where they are in the offices and homes heightening the awareness of the services of the Hotel, which is a starting point in marketing a hotels services. In addition technology has placed competition at a higher notch because customers can access information about similar services on offer by other Hotels (Overby, 2005). Therefore use of the internet for marketing should be embedded within the hotel policy ensuring that information on the website is up to date and when compared to competitors offer, it offers the best value for money while at the same time being able to maximize revenues collected and profits earned (Salerno, 2009).
It is advisable to evaluate the performance and contribution of a revenue management strategy so as to correct any deviation from the desired course and also to ensure that the hotels resources are optimally used rather than inefficiently used. In a strategy evaluation the impacts to customers must be properly analysed ensuring that the negative effects of the strategy do not exceed the benefits that the customers receive unless in unavoidable circumstances where considering the customer benefits will include considerable trade offs for the hotel that places the whole process in jeopardy. In addition the evaluation must consider whether the employee contribution is satisfactory and whether the demands on the employee are commensurate with the expectations and remuneration received. The study found out that any disconnect between the hotel management and employee participation renders an otherwise good strategy null and void. As such the study concluded that involvement of employee in any revenue management strategy is a prerequisite for the successful implementation of a revenue management strategy. In spite of the considerations of other stakeholders, precedence is given to the benefits accruing to the hotel, as without any meaningful benefit to a hotel there is no basis to implement any revenue management strategy no matter how beneficial it is to other stakeholders.
The evaluation of the contribution from each and every marketing technique allows the Hotel to know which technique to emphasize on given its revenue contribution and which ones to give support given their potential (Wang and Bowie, 2009). The study advocated for a daily evaluation of some techniques such as internet marketing. In evaluating the contribution of the web based marketing, data on daily bookings whether cancelled or attained is benchmarked against data from the total daily bookings from other marketing techniques which can be clearly identified versus their contribution while the non identifiable such as word of mouth classified as others to ease evaluation process. This assists in ascertaining the real impact of a given marketing channel to the generation of revenues of the hotels (Salerno, 2009). In addition proper evaluation called for the collection of daily revenue figures and number of rooms occupied for the period before revenue management strategy implementation and benchmarking them against the daily revenue figures and number of rooms occupied for the period after revenue management strategy implementation. This greatly assisted in determining the impact of the implemented revenue management strategy on the revenues of the hotel. The results indicated a significant change in revenue on the implementation of a revenue strategy with over 70 indicating a more than 46 increase in revenues.
Revenue management strategy has the objective of increasing revenues but on examining the impacts of revenue management it was found that benefits and disadvantages accrue to other stakeholders. Moreover the hotel management benefits in more than one way in that efficiency of every head of pivot department is enhanced, retained at the same level, or hindered. Revenue management strategy exerts pressure on all departmental heads to utilize available resources to get the maximum expected revenues. The study identified that the implementation of a revenue strategy is a blessing in disguise for the management as it contributes to enhancing their managerial efficiency.
A business strategy whose benefits trickle down to the participants even those considered to be at the grassroots find favour with the participants from the start of implementation. Therefore to get an unbiased view of the real impact of any revenue management strategy their input and assessment must be sought. This entailed the satisfaction derived from the part they played in the implementation process and whether it was worthwhile given the outcome. This also unearths the possible recommendations on how to enhance the performance of the RM system and ensure maximum cooperation by implementing participants.
Evaluation is seen as a pivotal tool in assessing the impact of a revenue management system as it entails a variety of variables to be evaluated. According to the results of the study evaluation identifies obstacles that impede the achievement of the main objective of optimizing revenues. Highest among the list is the diversified nature of parameters in use and their complex indicators. Techniques used in revenue management performance such as Yield require extensive training to build competence and extended use to build confidence as such hindering the quick implementation to safeguard the implementation process (Crystal 2007, p.8). In addition quality service delivery is a factor of skilled and competent workforce which has proved to be a challenge to many small hotels as they are faced with resource constraints and therefore not able to up grade the competence levels and skills of its employees in the implementation of the revenue management and effective service delivery (Beck et. al. 2009). This has as a result resulted in low employee morale another identified hindrance to the attainment of optimal revenues.
Every hotel operates within a trading environment that is characterized by rivalry among the small hotels as they compete for the customers, high customer bargaining power given that there are a number of alternatives available to them, easy entry of more players large and small due to the profitability of the industry. Therefore the small hotels have to identify their unique and sustainable competitive advantages and use them in strengthening their revenue management systems (Kamath et al, 2008). In the hotel sector competencies such as high allocative capacity, accurate forecasting capability and attractive pricing capability are important in enhancing revenue management in this dynamic and competitive environment. Although other factors such as legal requirements may prove a hindrance to some of the capabilities every hotel must be able to identify loopholes in the regulations and exploit them to the maximum before they are tightened or relaxed.
The study identified that due to the fact that small hotels operate in a complex trading environment it considers several of the factors considered by all ventures upcoming or already established but want to expand or diversify (Kotler 1998). Literary review suggests that desirable market segment have the following characteristics easily identifiable, substantial, accessible, stable, elastic, and actionable (Crystal 2007, p.8). Hotels that considered the extent to which distinct groups can be identified used the identifiable characteristics. Those hotels that consider the size of the market it serves considered the Substantiability characteristics. To some hotels they considered how accessible the market is for promotional distribution needs analysis and feedback efforts, which determine how reliable a market is, and what will be its contribution in the total revenues achieved. Another determinant of market segmentation used by the hotels is the analysis of how the customers will respond to an increase in prices or a price cut and their effect on the total revenues collected. According to the studies the higher the revenues collected after a price cut the desirable the market while the lower the revenues achieved due to raise in price the undesirable the market. Similarly the lower the response by the customers to either a price cut or a raise in price the higher the likelihood of maximizing revenues by a price increase.
In addition every market segment must indicate stability characteristics where the composition andor behaviour pattern of the customers in a market segment are not expected to significantly change during the forecasted period (Kotler 1998, Crystal 2007, p.8). This ensures that the expected revenues are realistic and attainable even in the worst scenario case of severe economic down turn. Having identified the desirability characteristics the hotels also admitted considering their available strengths and possible threats in executing the market strategy to ensure that revenues from a selected segment are optimized. To most hotels the relationship building path and framework is also given high priority. Customers as well as employees have been identified as valuable assets to drive revenues to a higher level therefore strong relationship building has been embraced by hotels so as to earn both the short-term revenues and the long-term revenues (Enright, 2009).
No matter the size of business a hotel has, the highs and the lows of trading affect every investment to different degrees. Some are hard hit while others are able to hibernate by reducing the size of business to suit current demand and resurface when demand rises again. During the downturn period hotels cut prices to attract and retain customers by showing concern and adaptability to economic situations (Darson, 2008). Although revenues earned during the high demand season boosts the revenue strategy for this period the benefits are considered in the long term operations. Promotional pricing is cited as another method of boosting revenues through stabilizing demand and sales as it indicates that a customer will get more services than previously earned at either a lower price or the customer will get more services at the price usually offered. In reality most small businesses are faced with a variety of constraints ranging from budgetary constraints such as insufficient funds to resource constraints such as insufficient space, lack of and insufficient modern operation techniques, which act as a drawback to achieving optimum use of available resources (Enright, 2009).
The study aimed at finding out how do small hotels combat or overcome these constraints. The study found out that hotels designate section managers with a variety of responsibilities, as they cannot afford to hire an extra manager and be able to optimize their revenues. Although this has the shortcoming of not building competency in one specific area of specialization particularly areas of significant import, the hotels are forced to do this to minimize administrative costs (Enright, 2009). In addition the study revealed that due to the simplistic nature of the small hotel management structure the communication channel is simple (Kohlmayr, 2010). This allows effective and faster communication, which the hotels use to get the best out of the available resources, which as a result maximises revenue. Moreover information flow to the customers regarding services offered and any promotion in place is of great import as it improves the customers awareness and facilitate them not only in making well informed decisions but also favourable or inclined towards the business of the hotel. Therefore the hotels build strong distribution networks and use them to combat constraints facing them or use the already existing distribution networks, which according to them are able to meet the objective of the business of distributing information at the least cost possible. The study confirmed that hotels have the ability to build stronger customer relationships (Kimes and Wirtz, 2002). These relationships enable the customers to stand by the hotel even during hard times and help them in resolving challenges brought about by the budgetary and resource constraints by providing continued business.
The study unearthed that benefits attained by the implementation of a revenue management system are increase in employee compensation, improvement of customer loyalty (Wirtz et al., 2003, p. 217) and identification of a variety of ways of strengthening their revenue base. These methods of strengthening revenue cash in flows include neutral network roaming facilities, advertising platform for other companies and merchants who reach for the customers of the hotels in ways suitable for the clients. In addition the provision of extra services as a bonus for using the hotels facilities. These services are premium charged to cover for the costs of providing them and a margin for the Hotel (Nomadix, 2005). As a concluding remark the study sought to find out whether the interviewees concurred with the statement that revenue management system on its own can optimize revenues but from the analysis done they seemed to disagree. This they cited that revenue management should use an integrative approach that allows the input and participation of all sections or departments in a hotel. According to the studies revenue management can therefore be viewed as a multifaceted phenomenon whose impact when well evaluated cuts across the border because it impacts even the operation of non-hotel business in that they are the suppliers of items used.
Hypothesis testing
H1. Revenue management system is a valuable tool in the achievement of small-scale hotels objectives of optimum revenue collection
From the literature review and the research it can be concluded that a revenue management strategy in the current trading environment is very valuable. In the hospitality industry where small-scale hotels lie proper revenue collection has been identified as it is directly influenced by the amount of effort the managers put. The non-storability of the hotel services further complicates things because non-occupancy is a non-recoverable loss to the hotel. Thus identification and application of a revenue planning and ascertainment strategy has been hailed as a beneficial tool in the attainment of the hotels objectives.
H2. Revenue management when properly implemented enhances business relationships in small-scale hotels.
From the literature review and the research it can be concluded that every hotels survivability is pegged on the ability to attract and retain customers. Quality service delivery and customer concern are identified as forces that drive customer decision in deciding which hotel to seek services . Revenue management strategy is known to improve quality delivery and therefore build stronger relationships with the customers. The care used in information gathering and dissemination before a strategy implementation plays a pivotal role in enhancing how a hotel perceives its customers. Proper care and attention accorded to the customers raises their esteem and enhances relations with the hotel whether booked in or not.
H.3 Embracing Information Technology in Revenue management is a useful way of combating resource constraint and improving attractiveness to customers, employees and investors of small-scale hotels.
From the literature review and the research it can be concluded that with the existing market condition resources for expansion are limited and to small-scale hotels they are accessible therefore necessitating action to enable the organization survive. Embracing of modern day technologies in the revenue management has enabled the hotels to combat resource constraints. In addition due to the availability of the hotels information on the websites customers are given an overview of the hotel operation and its peculiar benefits as compared to the hotels of the same scale or even higher scale. This improves the hotels attractiveness to customers, employees and investors.
H4. The benefit of implementing a revenue management system in small-scale hotels far surpasses the intended ones thus justifying the costs incurred.
From the literature review and the research it can be concluded that the benefits of the implementation of a revenue management are felt all around the hotel starting from the management, customers, employees and other indirect stakeholders as it not only optimizes revenue but also utilizes resources effectively. In addition proper revenue management implementation enables the small-scale hotels to identify new revenue sources that the hotels can use increase their revenues. Moreover suppliers of hotel benefits by the hotels increase in sales as it too increase their sales to the hotel. This therefore justifies any investment to revenue management considering its far-reaching effects. CHAPTER FIVE
5.0 Implications, Recommendations and Conclusions
5.1 Implications
Revenue management is a complex phenomenon whose intent is often narrowed to the management of revenue related activities. However not all revenue related activities are independent, they are mostly intertwined together with other activities of other departments as such when revenue management strategy is put in operation there are effects that can only be identified by expanding the scope of performing an evaluation process. The business environment facing the hotels further complicates things because their operations are dynamic and changes as the behaviour pattern and lifestyle of the customers. The result of all these is the non-stability of demand and thus non-predictability of the revenues to be raised. This realization has therefore driven hotels to seek ways by which they can be able to forecast demand and as result be able to estimates the expected revenues to almost precision given the input of the different expected scenarios. To the hotel managers, revenue management is a precision system for sustainable revenue growth and management supporting customer decision and building long-term business relationships with value.
Correct pricing of services is plagued with numerous decision making processes but with revenue management system individual input is already catered for and the process is made faster thus saving time which is appropriated to other revenue earning activities. This enables the timesavings to be translated into revenue improvements. Mega events distort demand by increasing it to excessive rates, which forces the hoteliers to raise their charges. This distorts the price despite their extraordinary revenues earned. Mega events have intangible benefits and costs to local economies and hotel businesses too. Mega events make hotels to operate at near or full capacity throughout the event period and this instead of supporting the small hotels, supplants them by sending away or affecting the loyal tourist customers who are crucial when the events come to a close.
The emergence of technological advancement has brought about tremendous changes that are impacting the trading environment in both positive and negative ways. The emergence of the internet has facilitated marketing by ensuring that by a click of a button the information can be accessed by a large section of the population locally and globally. However the impact to business operations cannot be emphasized as only positive because the availability of the diverse number of hotels in the internet provides a customer with a touch of services offered and prices charged by different hotels advertising on the internet each with its customer wooing tactics which other hotels must match to remain competitive. To compete well in this environment hotels have to allocate resources such as time to the planning and execution process to which they are limited in.
5.2 Recommendations
Revenue management has found favour in the eyes of many business operators whose aim is to ensure that the available resources are used optimally in attaining efficient and effective management of their ventures, small hotels inclusive. The study recommends that before any revenue management strategy is formulated the benefits expected should be stated clearly in a measurable manner. A clearly stated objective of a strategy ensures that resources are used for the intended purpose and any deviation from the outlined can be marked, queried and corrected. In addition it avoids the inclusion of objectives whose real contribution to the optimization of revenues is not commensurate with the costs incurred. The study also recommends that hotel businesses starting up should endeavour to make revenue management part of their organizational policy objective rather than an after thought. A well-incorporated revenue management strategy ensures that from the start all activities are aimed at optimizing the use of resources. The study also recommends that given that revenue management is an intricate system the hotels intending to implement them satisfactorily should perform a gap analysis to identify the already available participant skills and competencies as it relates to the implementation, monitoring and evaluation of the system. Gap analysis enables the small hotels to custom make their training programs to specifically aim at bridging the gap in skills and competencies. Training program should also take into consideration the role of each participant and the level of involvement.
Training plays an important role in identifying the perceptions of individuals and prescribes how best to tackle these differences in order to harness them in the revenue management process to achieve the best. Negative perception can act as drawback in the implementation, monitoring and evaluation of revenue management strategies if not well considered. Training should also encompass the proper and effective way of communicating in the implementation to avoid insubordination and conflicting of information conveyed. To achieve this, a proper communication channel should be adopted and the reporting relationships plainly indicated. Training should also incorporate the role of each individual in ensuring that the before any implementation procedure is effected every participant knows what is expected of them and any unclear role should be clarified in this session.
Participation in the implementation of a revenue management system should be encouraged. This should be done by making plain the benefits that will accrue to every participant whether the benefits accrues to an individuals or to a group. The benefits to the Hotel should also be clarified not disregarding the fact that employees will be motivated best when they see positive contribution and compensation commensurate with the effort employed. To ascertain the progress of a revenue strategy a continuous evaluation strategy should be adopted. This may be part of the implementation process or independent but which must be implemented concurrently. An on-going implementation will be advantageous in that feedback from the process give an up to date data on operations enabling fast decision making to correct any deviation from the desired course. In addition continuous evaluation enables the observation of performance with respect to the targeted results at every stage and ensures that a process that seems not to perform as expected and the performance deemed to be unsatisfactory is stopped before a significant amount of funds are sunk never to be recovered.
A revenue management strategy should be flexible in such a way that it is possible to add more objectives or reduce some if their implementation will not be of significant importance once completed. The flexibility of a revenue management system allows for adjustments in times of recession and low demand to ensure that optimal use of available resources is done and from these maximum revenues is realized.
The study also recommends that new managers should be properly oriented and trained on the efficient use of the revenue management systems and the complex performance indicators. Training allows the managers to become acquainted with the organization objectives, policies, and systems. To build confidence on-job training should be provided to new revenue managers. Moreover the use of simulations programs in new revenue management trainings should be enhanced because this does not only improve the revenue managers confidence but also it enables them to be defender of the system at various stakeholders meeting. In addition the managers should be taught to translate the skills they already possess to meaningful revenue strategies. Training should also be continuous to allow for incorporation of emergent ideas and tips on the successful implementation of a revenue strategy.
The marketing of a hotel is very critical and therefore every hotel apart from using the marketing methods discussed in the review should also have a sales team. A sales team in collaboration with the management or the sales manager should formulate their strategies such that there is no conflict of activities between the implementation of a revenue management strategy. Evaluation of the process, which is very critical, should be made by an external evaluator who does not have any stake in the operations of the hotel to reduce bias and increase the credibility of the evaluation results.
Current market trends indicate that the market orientation is changing to accommodate the changing preferences of the customers. Information technology is very much spread across any market segment making it a necessity in the service industry to evolve too and offer services that suit the customer needs and raise their revenues. One such development is the need to access internet wherever one is to enable them be productive whether on the move or not. As such hotels should equip their rooms with internet connectivity either wireless or wired for use by the customers. In addition these new age technologies should be tailor made in such a way that they incorporate flexibility depending on the needs of a customer without causing so much havoc in its implementation. In ensuring this every hotel with a high-speed connection solution should have a designated champion to take ownership of the connection. In addition the designated champion should be knowledgeable in the technology so that every employee in the hotel can be trained on the application and use of the connections to achieve an all technology savvy hotel.
In addition problem-solving capabilities should be made available when customers face problems. The hotel staff should be trained on resolving commonly reported problems and the non-technical guest issues so as to save the guest time and therefore improve guest satisfaction. The hotel should ensure that it is able to monitor the usage times, network uptime, and Wide Area Network consumption.
The study recommends that the revenue management system should be able to accept new application necessary for its improved performance. In accordance with the changing trading environment hotels should consider performing future oriented analysis and realigning and reshaping their rooms to suit the dynamic nature of its customers such as providing in-room devices that enables users to access their hard disk drives and play it via a wireless network in a TV.
5.3 Conclusions
Small hotels are on the rise despite the harsh economic conditions facing the trading environment. Like any other venture the small hotels invest in this industry for a variety of reasons among them to provide quality services and to earn profits. Therefore the utilization of the hotels resources to earn maximum profits is the aspiration of every hotel manager. This means getting the best out of the services and products on offer, employee service, customer needs and investor funds. Developing effective management strategies and proper analysis of trends in the Hotel industry are of great import to the revenue managers success. Every revenue management strategy must be formulated in such a way that it is able to handle the daily activities of the hotel plus other important revenue components such as properties and consumables. In addition revenue managers must be equipped with the necessary skills as this places them in a better decision to make well-informed decision, which they are able to take responsibility regardless of the course the strategy takes. In addition with the increasing use of revenue management strategies which are identified as crucial marketing and pricing strategies, the process of maximizing revenues and profits have been made easier and complex by the technology. The technology has made forecasting of demand and tracking of management in this competitive environment easier. As the literature revealed a hoard of communication skills that revenue managers have enable them to be clear, flexible and credible. In addition every revenue manager who is able to translate market intelligence into revenue management strategy, an attribute reminiscent of exemplary leadership and communication ability, and who communicates well with the sales team bridges the gap between successful performance and development. Moreover to achieve maximum revenue, personality types of the management, revenue managers and employees are to be integrated in way that benefits the Hotel bringing in the best out of every individual.
Every hotelier has the responsibility of ensuring that strategies employed in the attainment of any hotel objective are clearly stated. Overbooking ought to be undertaken with great caution and care as it can cause detrimental effects when a customer arrives only to be told that the hotel is at full capacity. Every attempt to pacify and even relocating the customer to a nearby hotel at the Hotel has cost may not undo the harm already caused. Thus customer care services training to handle such cases makes the difference and should be a delight of every hotel as it deals with a diversified human population. In addition overcoming challenges that prevent the effective application of revenue management strategies require skill and competency in identifying and analyzing the market conditions. Every Hotel has the responsibility of remaining relevant in the industry while ensuring that no division is overlooked but all are given equal attention in the support of the hotels business.
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