Hotel Revenue Management Strategies

This assignment delves into the crucial topic of hotel revenue management, specifically examining strategies to enhance Average Daily Rate (ADR). It analyzes the effectiveness of current practices, proposes solutions for improving yield management, and explores opportunities to apply these strategies to food and beverage services. The assignment emphasizes the role of stakeholder cooperation and customer feedback in achieving successful revenue growth.

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Introduction
STR report is one of the critical tools to monitor the performance of the hotel in comparison
with the competition using key performance metrics (Mauri, 2013). In the given case, a STR
report has been represented for a city hotel for a period of 28 days and the same has been
presented in a weekly manner. The objective of the given report is to analyse the performance
of the hotel and suggest various yield maximization strategies. Further, the communication
plan with regards to the key stakeholders has also been analysed coupled with other areas.
Definition of key terms
a) Occupancy – Occupancy may be defined as the ratio of rooms that have been occupied to
the room available in percentage terms. This is calculated for a given time period usually
on a monthly basis, seasonal basis or any other suitable classification basis (Hayes and
Miler, 2010). The numerical formula of occupancy rate is highlighted below with the aid
of a numerical example.
Occupancy Rate = (Rented rooms / Available rooms in the period under consideration)*100
For instance, if in a given hotel, there are 300 rooms and on an average 280 rooms are
occupied on a daily basis, then the occupancy rate = (280/300)*100 = 93.33%
b) ADR or Average Daily Rate – This may be defined as average revenue per room that is
realised by the given hotel under consideration. This is measured for a given day so as to
highlight the demand as ADR would be higher in the peak season and lower in the lean
season. The numerical formula for ADR is indicated below (Verret, 2008).
ADR or Average Daily Rate = (Total revenue from rooms/ Occupied rooms on a given day)
For instance, if for a given day, the total revenue collected from rooms is $ 1 million and
there are 3,000 rooms available, then ADR = 1,000,000/3000 = $ 333.33
c) RevPar or Revenue per available room – This is a critical performance parameter in the
hotel industry as it takes into consideration both the occupancy and also the ADR into
consideration. This provides an estimate of the average daily revenue generated from each
room which is available. The key difference between ADR and RevPar is that while the
former computes the revenue based on number of occupied rooms, the latter takes into
consideration the number of available rooms. This makes RevPar a more holistic

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performance metric in comparison to the other two metrics discussed above (Ivanov,
2014). The numerical formula for ADR is indicated below (Talluri and Ryzin, 2006).
RevPar = Occupancy Rate * ADR
Key Trends in STR
The given STR presents the performance of the hotel against the competition set for a period
of 28 days. The three key observations based on the STR are indicated below.
 In terms of occupancy, the hotel has significantly outperformed the competition set
which is apparent from a MPI or Market Penetration Index of 139.6. The fact that the
MPI is greater than 100 implies that the hotel tends to have a higher occupancy in
comparison to the competition set. A further positive aspect in this regard is that the
% change in MPI is 30.1 which imply gain in market share in terms of occupancy
which is very positive for the hotel (Verret, 2008).
 However, in terms of ADR, the performance of the hotel has been quite dismal in
comparison to the competition set. This is apparent from a ARI or Average Rate
Index of 58.9. This figure is significantly lower than 100 which implies that the
revenue generated per occupied room for the given property is significantly lower in
comparison to the competition set. The more worrisome aspect is the negative rate of
change for the ARI which clearly reflects that the differential between the revenue
generated is on the rise which clearly is a problem area for the hotel that needs to be
quickly addressed (Mauri, 2013).
 Even though the occupancy rate of the hotel is very high, but the ADR performance is
so dismal that the overall performance indicated by RevPAR is a matter of concern.
This is apparent from the below 100 value of the RGI or Revenue Generation Index
which stands at 82.2. The given number clearly reflects that the revenue generation
has been superior for the competition set in comparison with the property. However, a
positive news for the hotel is that the rate of change of RGI is positive which implies
that the hotel has actually caught up with the competition set in terms of revenue
generation primarily on account of stellar occupancy rate which has managed to
overshadow the dismal ADR performance (Ivanov, 2014).

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The two worst performing days for the given hotel are Friday and Saturday which is apparent
from the lowest values of the RGI index of 67.8 and 58.6 respectively. On these two days, the
hotel tends to underperform in comparison to the peer group both in terms of occupancy and
also the ADR. This may be attributed to the failure of the company in attracting weekend
tourists and belongs to extended stay category which is indicated by the higher occupancy in
mid-week (Duetto Research, n.d.).
Competition Analysis
Two other ways to analyse competitors are analysed as indicated below.
 GOPPAR or Gross Operating Profit Per Available Room – As the name suggests, this
performance metric tends to capture the gross profitability of the given property with
the competition set on a per room basis. This is pivotal because while revenue
generation is imperative but so is profits as revenue covers just one aspect while
profitability is the other aspect which eventually determines the satisfaction level of
the shareholders (Hayes and Miler, 2010).
 TrevPar or Total Revenue Per Available Room – This is a critical parameter since
other revenues besides room rent can be significant and tends to maximise the
revenue generation and therefore is a important parameter. This needs to be viewed
along with ADR so as to highlight the revenue breakup of the given hotel and the
competition set. This is significant parameter which can potentially enable the given
hotel to further exploit the existing facilities at the premises in order to maximise
revenue generation (Talluri and Ryzin, 2006).
Yield Management Strategies
It is apparent that with regards to the given property the key issue is not occupancy but the
revenue realised per occupied room. In order to ensure an improvement in the yields, the
following strategies may be helpful.
 Price Discrimination – It is essential for the hotel to discriminate prices to the
customers and accordingly offer value added services. This will allow the hotel to
increase the yields which currently are inferior in comparison to the competition set.

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Also, currently, there is a concern that the higher occupancy currently witnessed by
the hotel may be on account of lower prices which is clearly a concern (Mauri, 2013).
 Market Segmentation – To maximize the revenue realisation and the resultant yields,
it is imperative that the hotel needs to segment the customers so as to effectively
implement price discrimination. This will allow the hotel to take advantage of the
consumer willingness to pay different prices (Walls, 2016).
 Demand Forecast – It is imperative that the hotel should forecast the likely demand in
the near future and plan accordingly. In this regards, the inventory management
should be prudent so as to ensure that rooms are available for the high end clients who
are willing to pay a premium for the rooms and also tend to stay for a longer time.
This rationalization requires active involvement of the hotel management with regards
to estimated demand considering the empirical and seasonal trends besides other
factors (Lockyer, 2013).
 Enhancing the bookings generated from website and mobile app – One potential way
to enhance yield for the hotel would be to manage a greater number of bookings from
the website along with app as it would save on the margin and commission which is
given to third parties. This may be significant considering the high occupancy rate
that the company currently has and would result in higher yields for the hotel (Verret,
2008).
 Leveraging the other value added services – With regards to revenue earning, one of
the ways is through room rent but there are other value added services along with
food and beverages that are offered by hotel. The hotel could focus on generation of
higher total revenues by leveraging this aspect by designing and introducing various
services that are required. This would assure higher revenues and also result in brand
building which currently might be absent (Hayes and Miler, 2010).
The above yield management strategies focus on generation of higher revenues while
ensuring that occupancy is not compromised severely as clearly it remains one of the key
strengths of the hotel. The various strategies outlined aim to enhance the yields of the hotel
by improving on the current weaknesses.
Stakeholder Analysis

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The three key stakeholder for the proposed yield management strategies are the hotel owner
(or top management), staff and the customer.
Owner or Top management – The top management needs to be briefed on the problem aspect
which is the abysmally low ADR and even more disturbing fact that in comparison to the
competition set, the ADR’s for the hotel are slipping. The short term and long term
implications of this needs to be highlighted. Once the problem is clear, then the proposed
yield management strategies can be proposed and the likely benefits of the same. The help
from the management is in the form of support so as to initiate changes and also requisite
resources in order to implement the yield management strategy (Mauri, 2013).
Staff – The underlying problem that the hotel is currently facing must be bought forward
before the staff. Further, the discussion regarding the various yield maximisation strategies
shall be held with the employees in line with participative approach to management so as to
ensure that they cooperate fully. Further, potential incentives that the staff members could get
in case there is improvement in ADR and yield should also be highlighted so as to motivate
the same. Their help would be required in the form of pragmatic ideas and feedback from
customers and other places in regards to incremental services that can be undertaken. Further,
the staff would also focus on providing better service especially to any premium clients
(Talluri and Ryzin, 2006).
Customers – Detailed feedback may be collected from the customers with regards to the
proposed changes so as to gauge the nature of response by the customers who actually are the
buyers of the offering. Further, the proposed strategies may be implemented on a pilot basis
would also require detailed feedback so as to improve the services and design them in a more
customer friendly manner. Also, the role of the customers would be continuous as the hotel
would need to deliver greater value to the customers (Lockyer, 2013).
Other areas for revenue management
Two areas where the yield management strategies may be implemented are food and
beverage along with other paid services that are typically not included along with the room.
The three strategies that can be implemented are highlighted below (Ivanov, 2014).

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 Bundled Services – Instead of providing room and the above services separately, it
makes sense to provide a bundled package based on the consumer preferences. This
would allow the customer to avail the requisite service but at a reduced price and the
hotel would be able to maximise the revenue from the customer.
 Loyalty Cards – Discounted meals can be provided using the points earned on the
loyalty card which would help in brand building for the hotel and ensure that the
customers do not switch to the competition set.
 Complementary Services – For Friday or Saturday, when the occupancy and ADR are
low, a free complimentary meal or any other service might be given so as to enhance
the overall revenue generated.
Conclusion
It may be concluded based on the above analysis that the hotel is performing exceptionally
well in terms of occupancy but the performance is very dismal with regards to ADR. In order
to enhance the yield for the hotel, various strategies have been proposed which through the
able cooperation of the identified stakeholders can lead to better ADR. Further, the yield
management strategies can also be applied to other areas such as food & beverage coupled
with other paid services and the same can also be utilised for enhancing revenues.

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References
Duetto Research (n.d.), The Ultimate Guide to Hotel Revenue Strategy, Deutto Research,
[Online] Available at http://www.duettoresearch.com/resources/ultimateguide.pdf [Accessed
August 19, 2017]
Hayes, K. D. and Miler, A. (2010) Revenue Management for the Hospitality Industry. 7th ed.
New York: John Wiley & Sons, Incorporated.
Ivanov, S. (2014) Hotel Revenue Management: From Theory to Practice. 8th ed. Bularia:
Zangador.
Lockyer, T. (2013) The International Hotel Industry: Sustainable Management . 9th ed.
Abingdon-on- Thames: Routledge Publishing.
Mauri, G.A. (2013) Hotel Revenue Management: Principles and Practices. 3rd ed. London:
Pearson Italia.
Talluri, T. K. and Ryzin, J.G. (2006) The Theory and Practice of Revenue Management. 4th
ed. Sydney: Springer Science & Business Media.
Verret, C. (2008) Hotel Sales and Revenue Management Book 2.0 . Bloomington: iUniverse,
Publishing.
Walls, M. (2016), 10 Key Trends for Revenue Management in 2016, Hospitality Net, [Online]
Available at https://www.hospitalitynet.org/opinion/4075853.html [Accessed August 19,
2017]