Hospitality Operations and Revenue Management

This document discusses the management of revenues in hospitality operations, including sources of income and financial contribution from different accommodation service areas. It also explores the application of pricing principles to the room's product and the analysis of potential benefits. Additionally, it covers methods to analyze optimized profitability in the direction of dynamic growth and the code of conduct and legislations affecting accommodation procedures.

HOSPITALITY OPERATIONS
AND REVENUE MANAGEMENT

Contents
INTRODUCTION...........................................................................................................................1
1. Sources of income or financial contribution from different accommodation service areas1
2. Application of principles of pricing to the room’s product and analysis of potential benefits
................................................................................................................................................2
3. Methods to analyse the optimized profitability in the direction of dynamic growth.........3
4. Code of conducts, rules and legislations subject to best practice affected accommodation
procedures...............................................................................................................................6
5. Effectiveness of quality management in terms of analysing the customer expectation and
meeting their needs.................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management of revenues within operations has been an utmost requirement in hospitality
operations from past decades (Bodea and Ferguson, 2014). It is considered that adequate
management of revenues helps to increasing reserves for future events as well as forecasting of
revenues of upcoming months. The report covers the sources of financial contribution in
hospitality industry and other revenue generating sectors form the business units. Marriott Hotels
which is one of the reputed hospitality industry is analysed in this report. The pricing policies
and principles elaborated which was used by organisation as an effective practice to enhance
profitability. The profitability optimisation methods are utilised as fixed capacity inventory and
technological development to assess the dynamic growth of organisation. The impact of various
legislations, code of conduct and best practices evaluated upon accommodation procedures. The
quality management process is designed considering the price to analyse how customers’
expectations form diverse markets are fulfilled.
1. Sources of income or financial contribution from different accommodation service areas
The stock of hospitality industry is edible. When an accommodation is vacant for the night,
the chance of earning income by letting it out is lost and cannot be recovered. It's close to a
sector of the airline. For an aircraft which has already taken off, seats could not be resold. Type
of revenue producing services are carried out in hospitality services like room leases, hospitality
sales and conference room rental and so on.
Rooms Revenue and Food and Beverage Revenue: Marriot hotel currently have 729413
licensed, 4735 Contracted rooms and 151 unconsolidated joint ventures with properties of 21196
rooms. Hotel serves different services like spa, garage rental, Wi-Fi, banquet and conference
management and parking facilities. Marriott, often in tandem to hotel growth, uses and licenses
the trademarks for residential property transactions and collects licensing fees for selling of such
marked residential property by others. As per the annual report revenues form rooms, food and
beverage series was recorded as £16,213.55 million (Marriott's Profitability in 2017).
Loyalty Program, Sales and Marketing, and Reservation Systems: Typically, third-
party holders make and sell homes with, if there are any, limited amounts of their investment
capital. Their Ritz-Carlton Reserve, The Ritz-Carlton, W, The Luxury Collection, JW
Marriott, St. Regis, Even, Bulgari, Hilton, Sheraton, Westin, Delta, Four Points and Autograph
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Collection brands including residential property brands were used and approved by the property
(Marriott Annual Report, 2018).
Revenues from Intellectual properties: Marriott operates in a highly competitive market
as labels, products, names, brand names and logos are very important to a promotion of our
properties and services. The brands and other proprietary information are believed to have grown
to represent our buyers, tourists as well as the travel industry with the finest standards of quality,
care, service and cost. It stores and secures and thinks that fits and protects our intellectual
property rights from unauthorized use.
2. Application of principles of pricing to the room’s product and analysis of potential benefits
In the late 1980s, Marriott Hotels was the first one to employ sales optimization. The
business has succeeded in producing great outcomes and developing an effective revenue control
strategy that combines marketing and inventory management actions in individuals, processes
and procedures. Marriott created his own profit system which ultimately concentrated on a "Full
Hotel" plan aimed at improving revenues in all accommodations and commercial areas. In all
hospitality industries, both regional or foreign, that technique is implemented and independently
owned. To implement revenue management in a better way, Marriott has come up with a “Total
Hotel” strategy which was formulated to increase the revenues and profits across all its
properties. Total Hotel offers a unified database for all properties, gives training to employees
based on one program, helps to forecast in a better way about the market situations and is fully
integrated by a reservation system which is common across all the properties of the hotel.
Marriott focusses on offering best product at the right price with the accurate timing to the target
consumer. Some basic principles used by Marriott for pricing used internationally are:
Rational method to Pricing: Hotel set prices based on the value or benefit the customer is
getting and how the value perceived by them (Marriott Business Conduct Guide, 2013). This
pricing reflects the prices which are appealing to the customers and they should feel the worth of
the price they are paying to the hotel.
 Single image inventory: This means whatever channel is used by the customer to book a
room in a hotel, he/she will get the same price at that time for that single accommodation
through all the channels. The technology supports thin kind of feature to the guests.
 Appropriate discount rates: This means that the hotel keeps on providing discounts on
a periodic basis to the guests either for the advanced bookings, bulk bookings, seasonal
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bookings etc. to increase revenues and footfall in a hotel in off seasons also.
 Benchmark Rate Positioning: Under this method, first the hotels look for comparable
benchmarks like looking at the competition and on certain criteria. After this, Marriott
use these benchmarks to identify the strategies and positioning used by the competition
and evaluate them on that basis (Hormby and et. al. 2010). The company is now in a
position to set its own positioning and decide the strategy for pricing like penetration,
skimming and premium pricing which will make the picture clear in the minds of
customers and will strengthen their perception about the brand.
 Regular tracking of performance: Periodic tracking is done to ensure that the prices set
are acceptable by the consumer and they are satisfied with everything. This can be taken
by continuous feedback and monitoring. The methods should be flexible enough so that if
there are any issues, it can be changed quickly without having any impact on the
profitability.
Marriott's main focus before setting any strategy is maximizing the profit potential and
revenues for the company while enhancing the image of the brand in the minds of the customers.
The prices of Marriott rooms are mainly set depending upon the promotional campaigns,
quantity break, fixed amount and quotes offered by the vendors (Weatherford and Kimes, 2013).
To avoid the errors in pricing, they automate the setting up of prices and also estimate the supply
demand situation at that time. They change their prices on a constant basis as per the market
demand and competition to remain competitive, profitable and to retain its position as a market
leader.
3. Methods to analyse the optimized profitability in the direction of dynamic growth
Marriott has gained a competitive edge and is very efficient in using new techniques to
optimize its profitability. The company is very successful in using big data analytics to take
meaningful insights from huge customer real time database and using those techniques to
develop strategies which builds customer satisfaction and profitability in long term (Ferguson
and Smith, 2014). Marriott make use of data to track the brands of the competition and to
generate new streams from where it can earn extra revenues which actually attracts the
customers. With this, the company is efficiently doing revenue management and optimizing
prices for its rooms as well as extra value added services which have a direct impact on its
profitability.
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To manage its revenue, Marriott is continuously optimizing its prices to get the best
margins. Marriott uses dynamic way to set the prices used a technique called “Dynamic Pricing
Automation”. It helps Marriott to identify the different patterns in the way the customers behave
and also support in predicting the actual demand of the customer. This method enables the
company to make use of real time data gathered from varied places like different reports, various
key metrics like ADR (Average daily rate), RevPAR (Revenue per available room), occupancy
percentage of hotels, behaviour of the customers at the time of reservation and operating profit
earned by each room. By using these kind of information and analysing them, Marriott forecast
customer cycle and the way they behave at various situations. It also helps that how their
branches of hotels in various cities are performing when compared to the competitors in that city
itself and uses this piece of information to set and change the prices in that area. Starwood hotel
has invested around $50 million in 2014 before merging with Marriott in the year 2016 to
develop this system which complies both internal as well as external data and then set the best
possible prices which will increase profitability. This method was also named as Revenue
Optimization Technique.
Group prising optimizer: Marriott also uses a method called “Group Pricing
Optimizer” which has again helped Marriott to drive its sales and revenues which directly lead
to profitability (Kimes, 2016). This method takes support from its sales team to set the prices for
its rooms. Price elasticity techniques are used for each target segment to reach to an optimal
price range. It also visualizes various other factors to support the pricing decisions and to
optimize like more data on the acceptance of the prices by the customers, analysis of various
dates and timings, ready to use room inventory, etc.
Yield Revenue management system: Marriott has also come up with an innovative “One
Yield Revenue Management System”. Marriott has compiled two types of systems into one
which has given several benefits like reduction into the staff level by 33% and also local
requirement of IT has reduced drastically (Noone, 2016). The system has also helped in
providing training from distant places and cut a lot of cost in giving physical training. It has also
revamped its ability in predicting the situations of the market. As the system compiles all the
data related to inventory, it helps in better inventory management and better scope for planning
future strategies. Marriott has claimed that this system has helped to increase profitability by
$6.7 million during previous year. The system was developed by the internal team because they
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have a specialized team for revenue management and it is very well connected by the reservation
system of the company. Marriott is one of the market leader in the hotel industry as it is well
known for using new and advanced technologies and the usage of this central system has given
added benefits to stay ahead from the competitive firms. One yield is now implemented in almost
all the properties of the Marriott and with this one system various revenue analysis and
management techniques were even merged.
Artificial intelligence: Marriott also make use of “Artificial Intelligence” which means
developing of smart machines which works and thinks like a human. Marriott has launched an
app in this year which helps its customers to contact them directly (Zhang and et. al., 2015). All
over the world at all the properties of the Marriott, customers can provide their preferences to the
hotel and can enable their phones as their room keys. Real time messages can also be sent with
the use of app and with this personalized suggestion can also be given to the customers
depending upon the information provided by the guest. This has helped in gaining customer
experience and made Marriott to keep its position as a market leader in its industry. All the
strategies of Marriott are highly customer focussed.
To enhance customer experience and in long term to increase customer satisfaction as well
as optimize the profitability, Marriott has launched some newly advanced technologies in its
rooms like it partnered with Amazon to install Amazon echo called “Alexa” in the rooms so that
customers can get the actual feel of luxury as they can control all the lighting systems, TV, can
request for services offered by hotels to Alexa which will in turn directly reach to the front office
department of the hotel (Guha Thakurta, 2016). The check in time at the hotel has also reduced
to less than a minute by the facial recognition method of check-in. All this will delight the
customers and will make them happy and increase their overall satisfaction from the hotel. This
will enhance customer loyalty and repeat purchase and will lead to optimizing the profitability.
Key metrics: Marriott also uses various key metrics like Average Daily Rate (ADR),
Occupancy rate, Revenue per available room (RevPAR) and now the newly used metric
TrevPAR which not only includes the revenue of the rooms but other revenue streams as well
like spa, meeting rooms and events, bars and restaurants, etc. It shows the bigger picture and
contributes significantly to the profitability of the hotels (Mauri, 2016).
By observing at the table below, we can observe that worldwide, Marriott's RevPar has
increased by 3.1% from 2016 to 2017 which comes to $115.02, its occupancy rate is increased
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by 1.4% pts. which comes to 73.2% and its Average Daily Rate is increased by 1.2% which
comes to $157.12 in 2017.
(Source: Marriott Annual Report, 2018)
4. Code of conducts, rules and legislations subject to best practice affected accommodation
procedures
Code of conduct is the compilation of rules and regulations which is mentioned in a
handbook and it is clearly stated that what is acceptable and unacceptable behaviour in the
organisation. It is generally made for the employees, customers, business units, offices,
departments and suppliers of the organisation. At Marriott, there is a guide for it which states
ethical, social and legal norms and responsibilities and standards in detail. Some basic code of
conducts stated in Marriott's guide which directly affect accommodation procedures are:
Tax Cuts and Jobs Act 2017: It helps in making less deduction for individuals but more
deductions for companies. Marriott also have to follow the tax cut and jobs act and is facing
challenges because of complex computations it demands. The act requires significant
forecasting, significant regulations to be followed and a lot of detailed analysis and interpretation
of information which was not much relevant earlier and this may affect their financials in the
period because adjustments have to be made.
Fair treatment to all employees with a harassment free work environment: Marriott
has staff working from all kind of cultures and believe in diversity and providing a best
experience to the customers as well as employees. They adhere to all the laws relating to the
protection of employees on the basis like gender, race, sex, disability, etc. like Fair Labor
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Standards Act, Civil Rights Act of 1964, etc.
Health, Security and Safety: Marriott offers a safe, secure and hygienic environment to
all its guests for best customer experience and it also protects its employees from any harm. They
follow acts like Affordable Care Act and Family and Medical Leave Act to its employees (Chen
and Schwartz, 2013).
Customer and Employees Privacy: No records or details of any customer or employee
can be disclosed like name, financial information, address, contact number etc. These can only
be used for the business purpose and is strictly not allowed to use anywhere else. This conduct
directly affects the accommodation procedures of the hotel (Ng and et. al., 2013). If in any case
these code of conduct and best practices are violated, then strict actions are taken and the
employee has to go through certain legal procedures to get out of the situation.
5. Effectiveness of quality management in terms of analysing the customer expectation and
meeting their needs
Organisation believes that the product collection provides the widest and most convincing
collection of hotel brands and assets, with dual overall hospitality models — Traditional,
providing moment-honoured comfort to the traditional tourist, and Unique, offering memorable
experiences with a different perspective. The quality management of Marriott is mainly
categorised in three different levels as per customer requirements as
Luxury provides excellent goods and facilities to suit your to guests requires luxurious
services. the luxurious hotel chain as the Ritz-Carlton, JW Marriott, including St. Regis are
its Classic Luxury hotel products. W Hotels, The Luxury Series, EDITION, including Bulgari
are among our characteristic hotel labels.
Premium provides modern products and facilities that are attentive. this facility
mainly preferred by the medium class income groups. Marriott Hotel rooms, Delta Hotels,
Sheraton, Marriott Vacation Marriott and Executive Houses, Club are among its Classic
Premium hotel products. Westin, Hilton, Le Méridien, Souvenir Series, Gaylord Restaurants,
Homage Valuation, and Custom Restaurants are among our recognizable luxury hotel brands.
Conferences and banquet management: Through our longer visit labels providing
facilities which mimic the comforts of home, Selection provides quick yet simple products or
facilities. The brands are Patio, Domicile Inn, Marriott Brentwood, Spring Hill Rooms, Three
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points, Towne Place Rooms, or Jacaranda Hotels. Up in the air, AC Hostels by Marriott,
Essential, and Moxy are among our distinguishing hotel labels (Ng and et. al., 2013).
CONCLUSION
The above context is critically analysed and it clearly states that effective hospitality and
accommodation services are the key sources of financial contribution to run hotel groups. It is
resulted that pricing strategies and principles helps in assessing products and services provided
through room services. It is concluded that different profit optimised methods and technological
advancement assist business structures and provide growth of entity. Evaluation of code of
conduct and diverse regulators helps to maintain an ethical environment in hospitality industry
and have positive impact upon accommodation procedures. Assessment of quality management
states that if customers’ expectations are effectively fulfilled by hotels than it will definitely be
able to build a new customer base as well as competitive advantages.
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REFERENCES
Books and Journals:
Bodea, T. and Ferguson, M., 2014. Segmentation, revenue management and pricing analytics.
Routledge.
Hormby, S. and et. al. 2010. Marriott International increases revenue by implementing a group
pricing optimizer. Interfaces. 40(1), pp.47-57.
Weatherford, L. R. and Kimes, S. E., 2013. A comparison of forecasting methods for hotel
revenue management. International journal of forecasting, 19(3), pp.401-415.
Ferguson, M. and Smith, S., 2014. The changing landscape of hotel revenue management and the
role of the hotel revenue manager. Journal of Revenue and Pricing Management, 13(3).
pp.224-232.
Kimes, S. E., 2016. The evolution of hotel revenue management. Journal of Revenue and Pricing
Management. 15(3-4). pp.247-251.
Noone, B. M., 2016. Pricing for hotel revenue management: Evolution in an era of price
transparency. Journal of Revenue and Pricing Management. 15(3-4), pp.264-269.
Zhang, Y. and et. al., 2015, March. A study of the commercial application of big data of the
international hotel group in China: Based on the case study of Marriott International. In
2015 IEEE First International Conference on Big Data Computing Service and
Applications. (pp. 412-417). IEEE.
Guha Thakurta, P., 2016. Revenue management: the ever changing landscape and the need to
innovate. Worldwide Hospitality and Tourism Themes. 8(4). pp.461-468.
Mauri, A. G., 2016. Pricing and revenue management in hotel chains. The Routledge Handbook
of Hotel Chain Management. pp.262-273.
Chen, C. C. and Schwartz, Z., 2013. On revenue management and last minute booking dynamics.
International Journal of Contemporary Hospitality Management. 25(1). pp.7-22.
Ng, F. and et. al., 2013. A revenue management perspective of management accounting practice
in small businesses. Meditari Accountancy Research. 21(2), pp.92-116.
Online
Marriott's Profitability in 2017: Could it improve?, 2017. [online]. Available through
<https://marketrealist.com/2017/02/marriotts-profitability-in-2017-could-it-improve/>
Marriott Annual Report 2018, 2018. [online]. Available through
<https://marriott.gcs-web.com/static-files/8799734e-b9e0-4e53-b194-7bd24a381118>
Marriott Business Conduct Guide, 2013. [online]. Available through
<https://www.marriott.com/Multimedia/PDF/CorporateResponsibility/Marriott_Business
_Conduct_Guide_English.pdf>
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