Revenue Management in Hospitality Industry

This article discusses revenue management in the hospitality industry, including pricing strategies, customer perception, and room buyer characteristics. It also covers the impact of revenue management on cost and performance. The article provides insights for potential guests and hotel managers to understand the pricing strategy and make informed decisions. It also suggests ways to deal with customer dissatisfaction and increase sales through attractive packages and maintaining quality services.

RUNNING HEAD: COST AND PERFORMANCE
Revenue Management

Cost and performance 2
Chapter 1
Part 3
Being a hospitality accountant, one can easily make its potential guest understand the pricing
strategy of his hotels. There is a situation where demand for the hotel rooms has increased
and the supply is limited. In such situation, generally the prices of the rooms increases as
there is high demand for them. It is justified that increase cost will led to a rise in prices but it
is also true that if the cost reduces the price can remain high. Reason being, there are
basically two types of guest in a hospitality sector, one is transient and other one is group. So
if rooms are booked by a group, then it can affect the transient sales because they are been
occupied for more than one day. Therefore, in such situations it is difficult to reduce the
prices. Also high demand and low supply is taken as a hard constraint for the hoteliers which
force them to increase the prices.
Being a potential guest, after having an understanding of the cost based pricing strategy, one
could easily compare the prices of different hotels and related benefits. As the cost based
strategy provides competitive prices, so it will be easier for the customer to compare and
choose the best hotel. It is very usual that the customer will choose that hotel which offers
less prices and best facilities.
Part 4
First of all, the forecast done by Director of Sales reflects that the hotel is capable enough to
attract its target market. Also the mangers knows their customers very well. As it is the
history of hotel that it sells its room on Tuesday and Wednesday nights to the business
travellers. So from the forecast it can be predicted that the number of business travellers will
be high in the coming six months and they are willing to purchase room on these specific

Cost and performance 3
nights. Another reason that reason for the purchase willingness will be that do not have
another alternative and are truly a willing customer.
Instituting differential pricing strategy will make the hotel managers to face an ethical
dilemma of charging illegally. According to the Robinson-Patman Act, there are
anticompetitive effects of differential pricing and the customers may find it illegal or
violation of price fixing laws (Ivanov, 2014). However, due to the high demand of rooms on
Tuesday and Wednesday nights, the managers are required to keep their prices high in order
to earn more profit.
Part 5
The fundamental difference between the approaches followed by hoteliers and restaurants in
setting their prices is based on the following general concepts:
 Product cost percentage: This pricing strategy is generally followed by the restaurants
as they themselves pay for the ingredients that are been included in their menu. The
logic behind this is in order to serve best quality food, cost will be more. Another
logic is that they need to take into account the factors such as products, labour, profit
and other expenses.
 Product Cost: plus: In this system, the price is been set after adding addition cost
related factors to the initial product cost. The menu prices include the additional cost
and the prime cost of the food along with the profit margin.
 Contribution margin: Another approach is the contribution margin which is to be
maintained by each and every restaurant. A high or low popularity index is been set
for the items presented in the menu as per their degree of contribution (McGuire,
2015).

Cost and performance 4
So, because of all the above factors, the foodservice operators keep their prices fixed for a
certain period of time and do not change them as per the change in demand. From a customer
point of view, the approach followed by restaurants for setting their pricing strategy is better
than the one followed by the hotels. As the prices are fixed, the quality and value of the
products are also maintained. The food service operators does not lower down their prices as
per the fluctuations in the demand. They are required to maintain quality in their menu items,
which require high costs and make the prices high. So the approach followed by restaurants
give more value to the products.
Chapter 3
Part 3
As per the consumer perception, if the customer go for having a lunch that he or she need to
consume in ten minutes, then the individual will look for good quality, fast service and low
price. He would choose the product which has a low price and can be served quickly, as he is
short of time. As a result, he will give more value to the price and service, while the quality
factor remains constant. On the other hand, if he is to enjoy a leisurely dinner with special
someone, then he will look for everything to be the best. The price will be up, quality will be
at its best and the service will be good and smooth, instead of being fast paced. In this case,
more value will be given to the food quality and services, while price factor will remain up
and constant. So, this is how customer value the products as per their perception.
The manner of valuation will differ in both the cases and it surely impact the RMs of
hospitality industry. The value given to service quality will determine the reputation of the
organization and the level of quality maintained by it in its products. Customer feedback is
the most important factor in building the goodwill of an organization in hospitality industry.

Cost and performance 5
The values given by them to the product’s price, quality and service offered will help the
company to have a good position and make profits.
Part 4
Sometimes it is the customer fault that he did not clearly understand the product and its
quality, which led to the dissatisfaction in himself related to the product. And sometimes it is
the seller’s mistake that he is not efficient in communicating the value propositions to the
buyers. Some of the following steps can be taken by the seller to remove such dissatisfaction:
 Communicate clearly everything about the product.
 Deal with them positively and find the reasons for disappointment.
 Improve the product or service as per their requirements.
 Lead the customers to solutions and make them satisfied.
 In some cases, provide refund if possible and apologise for the misconduct.
 Evaluate their problems and give personalized assistance.
Chapter 4
Part 1
A. Identifying characteristics of room buyer
 The potential customer must have a strong purchasing power.
 Quality focused buyer.
 The preferences of the customer in respect of buying a room.
 The buyer must be a frequent traveller.
 The one who are attracted by brand valuation of the hotel.
B. Sharon can advertise and promote about her hotels in order to communicate with her
targeted group. To increase the business sales, she should offer attractive packages to the

Cost and performance 6
consumer such as pre-booking discounts, complementary services and amenities. Such offers
will help her to attract more consumers from her targeted group. Also the pricing factor
should be reasonable and as per the client’s requirements.
C. Instead of lowering down or keeping the prices higher than the competitor, Sharon should
focus on providing more offers to her customers. As the hotel is running from past 20 years,
so as per its brand value, keeping the price lower than the competitor is not a solution. The
hotel must provide different more packages to the consumer and discounts in order to
increase its sales. The other factor which is to be kept in mind is to maintain the quality of
services offered. This will enhance the reputation and increases the profits.

Cost and performance 7
References
Ivanov, S. (2014). Hotel revenue management: From theory to practice. Bulgaria: Zangador.
McGuire, K.A. (2015). Hotel Pricing in a Social World: Driving Value in the Digital
Economy. New Jersey: John Wiley & Sons.