Revenue Management in Hospitality and Tourism Sector

This document discusses the concept of revenue management in the hospitality and tourism sector, focusing on a case study of Grand Hyatt Corporation. It explores various aspects such as marketing and branding, management and pricing, and distribution channels and strategies. The document provides recommendations for effective revenue management in the industry.

Revenue management strategy
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Table of Contents
1. Introduction.......................................................................................................................................3
2. Revenue management in the hospitality and tourism sector..............................................................3
3. Overview of Grand Hyatt’s hotel corporation...................................................................................4
4. Grand Hyatt’ Revenue Management Analysis...................................................................................5
4.1Marketing and branding....................................................................................................................5
4.2 Management and pricing.................................................................................................................6
4.3Distribution channels and strategies.................................................................................................8
5. Recommendations.............................................................................................................................9
6. Conclusion.........................................................................................................................................9

1. Introduction
In the modern world, the use of revenue management in diverse industries has
significantly changed. Diverse scholars have had a different definition of the term revenue
management. According to Jerath, Netessine and Veeraraghavan (2010 p.430) revenue
management is a process that allows selling of products to the right customers at the time for
the right price hence maximizing revenues for an organization. Vulcano, Van Ryzin and
Chaar (2010 p.371) also defined revenue management as the prediction of consumer
behaviour in diverse markets in order to optimize price and product availability with the
ultimate of growing revenue. Currently, revenue managers have more roles and responsibility
to undertake than just applying opening and closing rates, analyzing data and forecasting
them for next month. Revenue managers are now mandated to have control of revenue
emerging from other income generating assets. Generally, most companies operating in the
hospitality and tourism sector have their own revenue plan for one year, 5 years and 20 years.
With the hospitality and tourism industry being one of the fastest changing industries around
the globe, companies operating under this industry must meet the demands and needs of each
client and maintain the new standards of customer service. Therefore, the paper seeks to
examine revenue management in the hospitality and tourism sector; a case study of Grand
Hyatt corporation.
2. Revenue management in the hospitality and tourism sector
Revenue management was started by the airline industry in early in the 1970s and later
adopted by the hospitality industry in 1990s (Fu, Zhang and Lei, 2012 p.13). In the
hospitality industry, revenue management uses two different paths; demand-based prices and
duration control. Companies under the hospitality and tourism sector use both paths because
they know the preferences of customers in order to predict the future of diverse markets,
effective ways of doing business, and control time and pricing of room. Furthermore, the

companies also use pricing as more valuable technique. The component of revenue
management in hospitality and tourism revenue management include product distribution,
pricing, revenue management and product distribution. Generally, revenue management is
important in the hospitality industry as it improves branding by ensuring there is occupancy
and generates the maximum RevPAR at all times (Schwartz, Altin and Singal, 2017 p.357).
Revenue management also assists the companies in the hospitality industry to identify right
guests and evaluate spending activities like the amount of money spend in bar, restaurants
and their prices.
3. Overview of Grand Hyatt’s hotel corporation
Grand Hyatt Corporation is a multinational hospitality company which franchises and
manages vacation properties, resorts and hotels. The corporation rose to prominent after
acquiring “Hyatt house” in 1957 (Wu and Chen, 2012 p.5957). In 2018, Grand Hyatt
Corporation had its operations in 54 countries (Hyatt Hyatt Corporation, 2019). Hyatt Hotels
Corporation operates in the hospitality industry as a public company and the corporation’s
headquarters are based in Chicago, Illinois, United States. Patricia Wyatt is the current CEO
of the company. The main products of the corporation are hotels and resorts. In terms of
revenues, Hyatt Hotel Corporation had revenues of US$4.6 billion; operating income of
US$302 million, Net income of US$249 million, total assets of US$7.67 billion and total
equity of US$3.52 billion in 2017 (Hyatt Hyatt Corporation, 2019). Currently, the company
offers accommodation of over 45000 employees working in diverse countries and handles a
portfolio of 14 premier brands. Generally, Grand Hyatt Hotels Corporation operates in
strategic business like general hotels, upscale and branded residentially, luxury and upper
scale. In the category of upper upscale, the company operates a chain of stores such as Hyatt
Centric and Hyatt Regency contributing to the revenue of approximately 50% (Hyatt Hyatt
Corporation, 2019). In the category of luxury including Parl Hyatt, Andaz and Grand Hyatt,

the company generates revenue of 20%. Other categories of hotels like Hyatt Zilara, Hyatt
house and Hyatt place generates revenues of 30%.
4. Grand Hyatt’ Revenue Management Analysis
The main sources of Grand Hyatt’s revenues include food and beverages (consisting
of departments like Bars, lounge, in-room dining, banquite and restaurants) and occupancy
and room rates (Zeng, Liu and Zhang, 2016 p.86-96). Other sources of revenues are Spa,
lounge, gym, conference halls, conveyance services (transport services like pickups and drop
city tours) and swimming pools. The rooms department is the most dominant revenue
generator in Grand Hyatt’s company as it accounts for 40% of the overall revenues (Zeng,
Liu and Zhang, 2016 p.89). For effective revenue management of these sources, Grand
Hyatt’s company uses diverse revenue management tactics which includes marketing and
branding, use of distribution channels and pricing strategies (Lim, 2016 p.221).
4.1Marketing and branding
Grand Hyatt’s company has adopted a top-notch marketing strategy which is designed
with the ultimate aim of maintaining positive awareness and promoting brand value by
meeting the needs of diverse customers. Grand Hyatt’s company promotes its business
through responsive social media pages (Facebook and Twitter pages), reward loyal clients
through membership cards called Hyatt Gold Passport that attracts customers by offering
discounts and other additional perks and other schemes. The achievements have been
achieved by the company by providing excellent customer relationship management and high
customer satisfaction. The company also promotes itself by word-of-mouth.
Grand Hyatt’s company positions itself as a prominent player with a culturally rich
brand that is important to the traditions and cultures of the local community. The company
targets bundled services and medium and high-income levels. Furthermore, the company uses

a differentiation strategy to attract customers who want to have experience with 5-start, 4-star
or 3-star hotels or resorts.
4.2 Management and pricing
Grand Hyatt’s corporation benefits from revenue management because the
corporation increases its profitability and revenue through a combination of demand for
rooms to accommodate the suitable profitable segment of customers. The changes of the
organizational revenue management are determined by a number of factors that include the
complexity of the supply chain and inventory controls, groups versus transient, leisure vs.
business operations and occupancy level.
The goal of pricing in revenue manager is to determine the prices for diverse
segments of customers and further vary prices in order to gain competitive advantage and
increase revenues. Grand Hyatt’s Company takes revenue management into account by
segmenting customers in terms of willingness to pay different prices, customers’ traits,
business constraints and needs. Grand Hyatt’s company uses a premium pricing strategy for
its products because it caters for the middle and upper class of society, high profile
individuals and businesses class. The pricing strategy has attained a competitive advantage
over its competitors because the company has still maintained its markets shares.
Grand Hyatt’s corporation also uses variable pricing (price elastic) as it adjusts prices
of products to achieve the optimum balance between income per unit sold and sales volume
based on diverse categories of point of sale. Price elasticity is a common practice by the
company. According to Andreyeva, Long and Brownell (2010 p.216) price elasticity is a
measure of change that occurs between changes in sales as a result of a change in prices.
Grand Hyatt’s Company usually puts elastic prices on leisure activities since a change in
leisure guest shifts the demand significantly. In addition, the company’s also puts inelastic
prices on business guest because small changes in rates may cause a small shift of demand.

The elastic pricing depends on accurate records kept by the company with historical data like
spend per room, revenue, occupancy and revenue. Furthermore, the most reliable data can
also be obtained from reservation books and market trends which can be used to make
decisions of pricing.
In 2018, Grand Hyatt’s recorded an Average Daily Rate (ADDR) of $220 in its leased
hotels which are significantly higher than its competitors Hilton that recorded $142.90,
Marriot 150.30 and Starwood $175 which has the presence of upscale segments and upper
upscale (Poorani and Sullivan, 2019 p.133-155). Grand Hyatt’s company offers the Best-
Available-Rate in order to maintain its customers and survive the competitive edge. For
example, the company masters forecasting to set prices by basing the decision on anticipated
demand meaning rooms rates are charged with demands (when the demand is higher, the
hotel rooms are higher in order for the company to maximize revenues.
Grand Hyatt’s corporation uses both physical and non-physical rate fences to segment
customers and imposes diverse price rates to different segments based on demand. The
physical rates that are used by Grand Hyatt’s hotel include hotel room furnishing, size,
location, extra services and view. Non-physical rate fences imports by the company include
transaction features such as flexibility of bookings (such as duration or time for use) and
buyer features (such as volume or frequency of consumption). The five rate fences and
detailed layers used by the Grand Hyatt’s company include a required period of staying
(weekends and weekdays) which assisted Hyatt’s corporation segment customers into leisure
travellers and business travellers. The second fence rate is changes allowed which shows
whether customers have rights of amending the purchases or reservations. The third rate
fence is refundability which regulates how customers are refunded upon cancellation of
purchases or bookings. The fourth rate fence is an advanced requirement which regulates the
number of days required to make reservations or booking in advance of the anticipated date

of arrival. The fifth fence rate rules type that allows clients to make reservations without or
with the requirement of payments.
The Grand Hyatt’s corporation also offers a discount of up to 10% on its services and
products (Budda and Newsteada, 2014 p.1). The discounting is done when Grand Hyatt’s
corporation wants to encourage future bookings, getting rid of surplus inventory, meeting
sales targets and maintaining customer loyalty. The diverse types of seasoning adopted by the
corporation include volume discounts, seasonal discounts, promotional discounts and loyalty-
member discounts. The corporations increase the perceived value consumers get by
maintaining standardized products, changing the unit of measurement, removing the sign of
monetary value, the offering free trials and publishing customer’s testimonials on websites.
The perceived value customers approach aligns with the target groups they are aiming to
attract.
4.3Distribution channels and strategies
Distribution channels in hospitality industry refer to diverse platforms or methods in
which booking is made. Grand Hyatt’s corporation adopts a direct distribution channel that
enables its client to make purchases directly from the corporate and its subsidiary. Other
distribution channels adopted by the hotel include hotel booking engines, use of the particular
stream of revenue like third-party websites and a direct phone reservation. Tracking down of
the distribution channels is important to the company it has maximized profits significantly.
For example, with the main channel being “voice”, the company has been able to invest in
phone technology, launch particular campaigns, hire additional call center agents and
provided reservation agents with phone call training (Brady, Young and McLeod, 2015
p.255). The corporate also adopts diversifying distribution channels for maximizing potential
sales by reaching a wide geographical coverage or clientele. Furthermore, the company has
been expanding through alliances and acquisitions with the recent one being New Ocean

Resort Casino that was acquired by Grand Hyatt’s corporation in 2018. The increase in
acquisition and alliances formed by the company is to increase the presence of markets.
5. Recommendations
Grand Hyatt hotel should forecast its room occupancy one year in advance. The hotel
should review the revenue history when making an accurate forecast because the provision of
accuracies and will make execution and planning of the hotel easier. Furthermore, the history
allows the revenue managers to understand current and past demands of the Grand Hyatt
Hotel, Australia and create an avenue of determining interventions that are essential for
making meeting set performance targets and make informed decisions when organizational
revenue targets are not met. A research conducted by Boylan and Syntetos (2010 p.227)
shows that an accurate forecast is essential in an organization as it enables the concern hotel
managers to purchase the supplies needed in the right quantity and effectively schedule the
staff. Therefore, if the Grand Hyatt hotel attains accurate forecast, the hotel will be able to
maintain integrity in the supply chain.
6. Conclusion
In conclusion, revenue management is an approach that optimizes and manages
revenues around the recommended timing and capacity. The main reason why Grand Hyatt
Company and other large corporation in hospitability industry use revenue management is to
deal with room inventory effectively and come up with revenue strategies and approaches
that can predict behaviours of consumers, purchasing patterns and optimizing the availability
of product and price. The revenue management of Grand Hyatt Company is divided into
diverse pillars of revenue management that includes overbooking control, forecasting, and
market segmentation and performance measurement. The measurement ensures there is the
best occupancy for all the products such as meeting rooms and guest room in the Grand Hyatt
Company. In addition, the measurement forecasts supply and demand through the application

of market segmentation that determines the type of customers such as leisure or business
guest.
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Appendix 1
Grand Hyatt’s Business segments
Appendix 2
Grand Hyatt’s Target
Market and goals