Revenue Management for Hospitality

This assignment discusses revenue management and pricing strategies in the hospitality industry, with a focus on the financial performance of Blue City Heritage Hotel. It explores different types of pricing strategies and their impact on market position and profitability. The assignment also analyzes the cash flow and performance metrics of the hotel.

REVENUE MANAGEMENT FOR
HOSPITALITY

TABLE OF CONTENTS
Introduction......................................................................................................................................1
Overview of the Hotel.................................................................................................................1
Pricing strategy evaluation..............................................................................................................1
Financial performance.....................................................................................................................3
Conclusion.......................................................................................................................................4
REREFENCES................................................................................................................................6

Introduction
Hospitality industry is one of those industry that provides different kinds of services and
products to their customers (Beerli-Palacio, Martín-Santanaand Román-Montoya, 2020).
Different types of hospitality industry organizations provide different kinds of services to the
customers. Hotel business is one of the type of organizations in hospitality industry. Each type of
hotel has its own strategy which is used by them in order to attract a greater number of customers
and increase their overall profitability. Financial performance of the Hotel completely depends
upon the type of pricing strategy that has been adopted by them. This assignment will lay
emphasis on pricing strategy and financial performance of Blue City Heritage Hotel.
Overview of the Hotel
Blue City Heritage Hotel is a 4 Star Hotel which is established in city centre at a stunning
waterfall site. Hotel has integrated itself with latest technology in order to provide luxury and
comfort to their guest. They have more than 600 room that are divided into different categories.
They offer 300 guest rooms, 250 standard rooms and 50 premium type of rooms to their guest.
Not only this, they also provide different kinds of luxurious, leisure and business tours to
different kinds of customer segment. Other than this, hotel also provide restaurant facility to their
customers, they have 125 seats restaurant, 50 seats bar longue for their customers. For business
class customers they also provide a 200 people conference and event place.
Pricing strategy evaluation
There are four main types of pricing strategies: economy, penetration, premium and
skimming pricing strategy. First type of strategy is economy pricing strategy in which product or
service is sold to customers at lower prices on the basis of its features and characteristics. Second
type of pricing strategy is Skimming pricing strategy in which products and services are offered
to the customers at higher prices according to the market competition (Sánchez-Pérez, Illescas-
Manzano and Martínez-Puertas, 2019). In penetration pricing strategy high quality products are
offered to the customers in lower prices as compared to their competitors. Last type of pricing
strategy is premium pricing strategy in which high quality products are offered to the customers
at higher prices. Blue City Heritage Hotel adopts two types of pricing strategy on the basis of
demand of their products. For all kin ds of premium services such as premium rooms, luxurious
tours and many more pricing strategies adopted by the Hotel is Premium pricing strategy in
which services adopted by the hotel. This pricing strategy is used for all high-quality luxurious
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products or services that are demanded by the customers. Another pricing strategy which is
adopted by Blue City Heritage Hotel is penetration pricing strategy. This pricing strategy is used
by hotel to offer products or services like guest rooms, standard rooms, restaurant services, bar
facilities and many more to the customer in which higher quality of rooms is maintained and is
offered to the customers at lower price i.e. price at which these services are affordable to the
customers.
Blue City Heritage Hotel has different types of and different segment of the customers
and these two pricing strategies have been adopted by the customers as per their customer
segment. Adoption of these two pricing strategies helps them attract a greater number of
customers and increase their overall profitability. These strategies also help them to gain
competitive advantage and sustain within this competitive market. Pricing strategies adopted by
the hotel never changes however, rate or prices of the products or services that are being offered
by to the customers does vary as per the demand of the products and services and on/ off seasons
as well. However, variation is price of premium products or services is quite less but in off
season slight variation in these services does occur. But in on and off season there is drastic
variation is other standard products and services. In on season when demand of all the products
is higher no discount is offered to the customers. Standard products and services are offered to
the customers is same prices without any kind of discounts. But in off season same products and
services are offered to customers at lower price then usual and lower than the competitors. In this
season’s customers are provided with various kinds of discounts, offers, coupons, additional
services and many more which helps Blue City Heritage Hotel to attract a greater number of
customers and increase their overall profitability.
According to the data available on hotel’s website in on season demand of their products
is quite high due to which availability of the products is lower because of which prices of all of
their products and services is quite high at this time. Even in on season their prices vary a bit i.e.
during week days prices of guest rooms, standard rooms premium rooms and other services are
high but till a certain limit but during on season weekend rime or holiday time prices of same
products and services are at their peak. In fact, during festival season or at the time of celebration
it is difficulty to get booking within the hotel as demand of its products and services are
extremely high. But during the peak season it becomes difficult to manage availability of their
products, services and resources that are required in order to provide excellent services to their
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customers. At this time, it is one of the main responsibility of the hotel to make all of their
resources, additional products and services available to the customers in order to enhance their
customer satisfaction. Blue City Heritage Hotel make sure that all of their prices and products or
services that are made available to the customers can satisfy their needs, requirements and
desires in an appropriate manner so that their satisfaction level is high and their can provide
excellent reviews to the hotel even after high prices of their products and services. For this they
focus on maintaining supply of their products, services and resources as per the needs and
demand of the customers. This further helps them to maintain their brand image and brand value
in front of the customers.
Financial performance
Financial performance of an organization is one of the most important factors which is
required to be focused on and worked on by the organizations (Tambuwun, Worang and
Pandowo, 2019). For hotel industry their financial performance is one of the main factors which
should be focused and which helps in deciding whether the hotel is performing well or not.
Financial performance of Blue City Heritage Hotel has been excellent as compared to their
performance in past 5 years. In past five years their gross profit and net revenue has increased
drastically. As year by year their financial performance has enhanced their cost of goods has also
increased. Every year on the basis of their financial performance they renew their prices of their
products and services on the basis of demand of their services and products.
In order to enhance their net profit it is important for them to focus and evaluate their last
year financial performance. As per the revenue history of Blue City Heritage Hotel from 2011 to
2019, every year there is variation in revenue of the hotel. If revenue at the ending of 2019 is
compared to 2018 then there was increase in revenue by 3.50 percent as compared to last year
revenue. Other than this if price comparison of products and services is done then there has been
an increase of 5.40 percent as compared to last year prices of their products and services. In past
two years their national rank has moved up by 3 positions. But as year by year their net revenue
and net income has increased but however in first quarter of 2020 their overall financial
performance has decreased drastically. The global recession and decreasing disposable income of
their customers due to rescission has affected their business in many ways. If their financial
performance of last year is compared then their financial performance has decreased by at least
40 percent.
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According to a report in which financial performance of Blue City Heritage Hotel, their
market position was compared by their competitors it was founded that pricing strategies adopted
by them helps them in increasing their market position and enhance their financial performance
as well. It was observed that financial performance during off seasons was much better then
expected which helps in explaining that the penetration pricing strategy adopted by them does
help them to attract more customers, gain competitive advantage and enhance their overall
market position. This strategy has helped them to increase their profit percentage by 4 percent as
compared to 2018. However, it was observed that every year Blue City Heritage Hotel needs to
bring changes within their products or services or in other words they need to renovate their hotel
in order to attract a greater number of customers. Every year at least 10 percent of their revenue
expenditure is done on renovating the hotel in order to maintain high quality of their products
and services ad attract a greater number of customers. Additional service provided by the hotel
such as restaurant services, travelling services, event services that are provided by the hotel also
contributes in enhancing their overall revenue.
Cash Flow for year 1 and year 2
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Analysing the cash flows of the company it could be interpreted that the Blue City
Heritage hotel will be having required cash flow to run its operations. In the first year it will be
earning revenues from rental and other revenues amounting to around $324,613 on cash and the
collection from receivables will be around $1,213,390 from the previous rentals. The revenues
are high and also the cash received from collection will be enough for making the term payments
of the business. On the other during the same year it will be utilising the collection for making
the payment and meeting the other business expenses. Payment of $755082 will be related to the
wages and salary of the employees, inventory purchases will amount to $310,000 which are
mainly related to the food and beverage and other necessities of the hotel. Operating expenses
around $500205 will be incurred and interest on capital loan will be paid amounting to $162161.
Other expenses are not major, but payments are required to be made yearly. Financial payment
will involve principal payment of capital loan amounting to $135417. Expenses of the hotel are
more than the cash collection and due to this it will out of the cash. It is required to frame
primarily the strategies to improve the liquidity position of company. negative cash will affect
the growth aspects and slow down the operating effectiveness of the hotel. In year 2 after
adopting the strategies it will be returning to the positive status as compared with previous year.
It had positive cash balance of $200000 at the end of January in year 2.
Revenues and business operations
Year 1
Year 2
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Analysis of the performance of business in year 1 and year 2.
Performance of then hotel in year is much better than in year 2. In months prior to
September in year it earned a profits of 20% that declined to 15.42% in month after September in
year. profit of the company continued to decline till year 2. Performance of the hotel remained on
a declining even after adopting new strategies and operational decision for improving the
performance of business. Profits during the year 2 was 3.85 % that some of the new steps for
reducing the costs helped it to increase the profits for business to 8.98%c after September. This
shows that it is capable of managing and framing effective strategies to cover the gap occurring
in its performance. Profits are th most essential part of the business and all the strategies and
operation of the business are framed towards maximising the profits of hotel and reducing the
cost and maintaining the quality of its products and services.
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Performance metrics
Year 2
Scorecard
Till year 2 company will achieve market share of room around 18.6%. Gross operating
profit of the company will be around 31.45% during the year. high gross profit will have enough
left with the company to carry out its further operations. Return over equity of company is 0.17%
for month and in aggregate to 3.19% however this will have to be increased. Return over capital
reduced to 4.63% from 5.03% in year 1. ROCE reflects the efficiency of the company in
managing its resources for generating return over its resources. Assessing the guest satisfaction it
could be seen that satisfaction level has increased in year 2. This will helps in bring further
revenues and also develop loyalty in thy existing customers of the hotel. Staffing engagement
has also increased from the last year which shows that the hotel is performing well in the market
as well as improving the staff engagement.
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Financial Indicators
Liquidity position of hotel in year 2 is strengthened from previous year. It is having
current ratio of 9.74 that is very high and also the quick ratio is high. Hotel can make short term
investments for increasing the value of its money instead of blocking them in company.
Company is having very low financial as compared with other competitors in the company. It is
having interest charges regarding the capital loan. Liquidity and financial position of the
company is strong and has to maintain its strategies for having sustainable growth and achieving
success.
Market Indices
Year 2
Market Indexes is the graphical presentation of the performance metrics discusses above.
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Competitor analysis
Markets share of the Blue city heritage is 14% in the year that is below average rate from
the competitors. RevPar of the Blue city was in comparison with the competitors in year 1 also.
Blue city is having considerable revenues of $1,588,936 that are high as compared with other
competitors. Paradise Bay resort is having net profits above Blue city. However the pricing and
other operational strategies of the company in year 2 increased the market share of the Blue City
it raised from 14% to 16% in the year 2 due to quality services and products provided. This
however decreased the profits levels of Blue City due to high cost of quality goods and services.
Overall market share of the Blue ciry has increased that will help the company to gain
competitive advantage over others.
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Blue City Heritage hotel’s pricing strategies against its direct competitors.
Year 1
Year 2
The pricing strategy of Blue City heritage is penetration prices. In year it provided its
product and services at low cost and low quality for gaining the market share. Low prices helped
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it to build new customer base as people do not take risks in new hotels with high prices. Low
price cuts down the margin due to some quality compromises are required to be made. It could
be seen that many of the competitors in year were providing low quality and high prices of their
services. Constant penetration strategy of the Blue city helped to gain increased market share that
rose its profit margins. Moving on to year 2 it started providing quality products and services
with slight increase in prices that were not provided by its competitors. People started moving
towards Blue City and other started losing their loyal customers. This led the competitors to
increase their quality and reduce the prices of their offerings and services. Blue City has built
brand image in the market and it should maintain the share by providing quality products in
initial years keeping its profit margins to low. It is succeeding successfully giving tough
competition to other hotels of the place.
Market Penetration
Year 1
Year 2
The graph shows how Blue City Heritage achieved success in the two years through market
penetration.
Conclusion
From the above assignment it has been summarized that pricing strategies adopted by a
hotel affects their profitability, customer satisfaction in many different ways. Pricing strategy
adopted by Blue City Heritage Hotel plays a vital role in success or failure of their hotel
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business. It has been analysed that in past five years their business has grown and pricing
strategy adopted by them has also helps them in attracting a greater number of customers and
enhance their customer satisfaction level. Blue City Heritage Hotel have always focused on
fulfilling their customers needs, requirements and desires which helps them to increase their
customer’s satisfaction level and also helps them to maintain their brand image and reputation. It
has also been analysed that Blue City Heritage Hotel does bring changes within their products or
services prices according to their competitors’ prices which helps them to attract a greater
number of guest or customers. But from the above financial performance it has been observed
that chance in market demand or reduction in customers disposable income affects overall
profitability and net income of the hotel. In order to overcome this it is suggested that Hotel
should focus on bringing changes within their pricing strategy in order to overall this situation.
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REREFENCES
Books and Journals
Beerli-Palacio, A., Martín-Santana, J.D. and Román-Montoya, C., 2020. Complementary
services at hotels in accordance with their pricing strategy and the price sensitivity of
tourists. International Journal of Hospitality Management. 87. p.102458.
Sánchez-Pérez, M., Illescas-Manzano, M.D. and Martínez-Puertas, S., 2019. Modeling hotel
room pricing: A multi-country analysis. International Journal of Hospitality
Management. 79. pp.89-99.
Tambuwun, R.R., Worang, F.G. and Pandowo, M.H., 2019. Pricing strategy for hotels in
manado: a qualitative study. Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis
dan Akuntansi. 7(3).
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