Revenue Management in Hospitality Industry

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).