Revenue Management In Consumer Behavior

Module Code-TH5AH390
Enrolment Number-
“Each guest has a price. It is imperative to understand consumer behaviour to
offer the right price at the right time through the right channel while monitoring
the demand and adjusting rates”. Evaluate this statement in light of the theories
and concept discussed.”
Each guest has their own mentality about how much the price should be for any of the
service. By keeping this in mind hotels have different pricing strategies which are set
according to their policies and needs. “Pricing influences customer’s behaviour”
(Rohani & Nazari, 2012). To make this work the hotel has a revenue management
department working for them so that it can be easy for the hotels for earning the
money and to keep guest satisfied with the pricing. Revenue Management is a critical
tool for coordinating with the organic market, which is divided into several segments
based on consumers' purchasing expectations and limits, so in order to increase the
pay of a certain company (Cheng, et al., 2011). The adoption of technological
advancements provides hoteliers with a greater opportunity to help the information
they provide to enhance their clients' dynamic cycles. For having more business and
generating more revenue hotels have different types of bookings like telephonic
bookings, walk-in bookings, bookings that sales team gives and the distribution
channels.
Price is among the most flexible elements of the marketing mix, with a direct and
immediate impact on a company's profitability and cost effectiveness. (Toni, et al.,
2017). Hotel pricing is a difficult problem because, in addition to setting different
prices for different room categories and customer categories like tourist guests,
business guests, group discounts for corporations, governments, etc. As majority of
guests book rooms well in advance of their scheduled arrival date, a hotel manager
must be able to regularly update and offer a wide variety of future prices. There are
many pricing strategies which are proved to be effective. Many of the hotels uses
forecasting based pricing in which what they do is they adjust the rates of the rooms
in the hotel and try to estimate the number of available rooms for future time. For this,
the hotel's revenue manager must have a full understanding of the hotel's historical
data, as well as occupancy numbers from previous months for the same time period
the previous year. Whereas some hotels use dynamic pricing strategy. Dynamic
pricing technique has now demonstrated to be the most successful (Hotelogix, 2016).
The pricing in this case is determined by the hotel's room supply and demand (Law,
et al., 2015). For example, a hotel raises its room rates when there is a high demand
for rooms or during a certain season that the hotel knows is a peak season, such as
during festivals or other major event in that city, at which point the hotel raises its
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room rates. And, during the off-season, the hotel reduces room prices to encourage
bookings. Many hotels set their prices depending on the prices of their competitors;
this practise is known as competitor-based pricing. In this method, hotels evaluate
other hotels in the same star category and area, as well as the price at which they are
selling their rooms, in order to finalise their room pricing.
The hotel product is increasingly being sold online, and pricing has been highlighted
as one of the most important motivators for customers to buy online. The majority of
hotel companies today employ various electronic distribution channels, making their
product available to a pretty large audience online. Consumers have a realistic
expectation that internet pricing would be cheaper than hotel rates, according to
several research. The online distribution channels include hotel’s own website and
Online Travel Agencies (OTAs). Many studies have shown that the hotel’s own
website have high rates of room then the actual rates. Because of that in today’s
market OTA’s are booming. Because of their growing popularity, online travel
agencies are playing an increasingly important role in hotel distribution channels
(Pan, et al., 2013). Hotels, on the other hand, have to large commission for each
room that has been sold. Commission paid to online travel agencies (OTAs) can be as
high as 15-30%, especially for small hotels (Toh, et al., 2011). OTAs, which
popped up to help the hotel sector, are companies that have no geographical address
and rely only on the internet to supply their services. Expedia.com, makemytrip.com,
and booking.com are all examples of well-known websites. OTAs utilise some or all
of the below business practices to distribute rooms: The Merchant Model: In this
model, the Organization buys rooms at a heavy discount and afterwards resells them
for a profit (Lee, et al., 2012). The agency or commissionable model- Online travel
agencies organise reservations for hotel inventories that is maintained by the hotels
yet made available to them at agreement pricing in exchange for a fee on each
transaction under the agency model (Lee, et al., 2012). The opaque model- The
online travel agencies business model is based on having information about the buyer
that the seller does not have, as well as access to information about the seller that the
buyer does not have. Due to the opaque strategy, sellers can earn without modifying
their current distribution networks or retail price structures (Lee, et al., 2012).
“Revenue management is defined in the literature as the use of an information system
and pricing to make sure the right capacity is available at the right time and in the
right location to boost profit” (Ivanov, 2014). Three factors influence short-run
revenue management (Legohérel, et al., 2013): (1) a capacity to maintain price
fluctuations all across reservations systems, (2) an ability to segment requirement into
uniform groups with different pricing, and (3) a capacity to segment the requirement
into uniformly people with varying market prices. The application of medium and
long-term revenue management, on the other hand, is based on physical features,
strategic considerations, and an understanding of demand behaviour (Vives, et al.,
2018). Price, occupancy, and demand factors are important in deciding hotel revenue,
especially in the short term, given the current status of the hotel sector. Customer
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segmentation - one of the most essential revenue management strategies – is
developed as a result of demand variety and seasonal adjustments. There are three
metrics in this method: (1) the number of advertised items, (2) the number of
guests serviced; and (3) the length of time spent serving them. Market segmentation is
crucial for success in a competitive industry like the hotel industry. Price is seen to be
the most variable and most adaptable of the several revenue managements
instruments in the evolving hotel sector (WeiTing, et al., 2010). The following are
some of the revenue management techniques utilised to expand the hotel's business:
The first step is to have a thorough understanding of the market: It's crucial to have a
clear awareness of the market, where demand comes from, and the many local
elements that might impact consumer needs. It's also important to consider the
public's requirements, goals, and perception1s. Moreover, revenue manager needs to
understand the market competition and make strategic judgments about price,
discounts, and advertising while keeping this competition in mind. The second
strategy is forecasting strategies: Forecasting is among the most important aspects of
yield management since it allows businesses to forecast future demand and income, as
well as make necessary changes. For high-quality forecasting in the hotel industry,
accurate data is essential, such as occupancy, room rates, and revenue. To recognise
patterns, most forecasting systems depend largely on historical data. The third
strategy is Customer Segmentation: Segmentation is the process of categorizing
consumers based on their common needs and demand criteria (Ivanov, 2014). All of
these consumer categories have comparable responses to pricing and marketing
variables, so it's important to know who they are, how they buy, what they value, and
how much they're ready to spend.
Consumer satisfaction starts with advancement in customer segmentation and
understanding (Zhang & Bell, 2012). It is essential for hotels to spend a large number
of resources to assuring the satisfaction of their guests. Because customer satisfaction
is such an important metric for determining service quality, hotels must be well-
versed in the aspects that influence both pleased and displeased guests. On the one
hand, consumers who are really pleased are more inclined to come back and promote
a hotel. Guests who are pleased have diverse behaviour patterns from those who are
moderately happy. But at the other side, displeased (or frustrated) guests are more
likely to share bad review, which somewhat devalues the hotel's reputation and
credibility, but also affects revenue by deterring new consumers. Indeed, one bad
review from a disappointed customer has been shown to result in the loss of 30
customers. (Olsen, 2010). Consumers have become increasingly price conscious in
recent years. A rational customer will always prefer to pay less for a service, as long
as the amount saved is sufficient to cover any expenses connected with the discount.
Understanding customer value judgments, such as satisfaction, is crucial, particularly
in a competitive environment. Understanding customers' value perceptions may lead
to both more sales and larger profit margins. Especially for companies facing growing
pricing pressure in their business environment.
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