Strategic Pricing and Revenue Management: A Case Study of HOTS Hotel

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STRATEGIC PRICING AND REVENUE
MANAGEMENT
1

Table of Contents
Executive summary.....................................................................................................................................3
Introduction................................................................................................................................................4
Key Revenue Management Matrix.............................................................................................................5
Pricing Strategy.........................................................................................................................................15
Comparison with competitors..................................................................................................................16
Forecast of year 3 month by month of two variables, Room occupancy percent, and rooms revenue: 17
Strategic Recommendation......................................................................................................................17
Conclusion.................................................................................................................................................18
References................................................................................................................................................19
2

Executive summary
This report aims to cover the various aspects that are normally included in evaluating the
performance of any service organization. For evaluating the performance, certain reports are
being prepared. Based on these reports, certain judgments and decisions can be taken by the
people who are interested in the business affairs of concerned service entities. These people can
be stakeholders, customers, and governmental authorities along with other people who want to
know about the financial performance of the business entity. For this purpose, HOTs hotel has
been taken and accordingly all the related variables discussed in this report. The time duration of
2 years has been taken in the report for analysis. This period has been taken so that all the related
uncertainties can be duly covered.
3

Introduction
Throughout the report, all the financial variables have been discussed. Not only a discussion but
also a detailed analysis has been given so that a complete understanding of the given variables
has been taken into consideration. All reasonable assumptions have been taken into consideration
for the ease of calculation. This will make the calculation as well as its interpretation easier.
However, there were various variables but only a few variables have been taken so that it will be
easier for calculation.
4

Key Revenue Management Matrix
Room occupancy:
The below table indicates or depicts the actual as well as budgeted room occupancy along with
its variance. The data for this purpose belongs to or pertains to the latest or recent 30 months.
Month
s
Room_Occupancy_perce
nt
Budgeted
room
occupancy
Varianc
e
1 19.51 19.25 -0.26
2 34.35 35.19 0.84
3 47.77 45.66 -2.11
4 45.23 44.1 -1.13
5 39.25 40.25 1
6 45.31 44.19 -1.12
7 50.37 49.36 -1.01
8 61.71 60.45 -1.26
9 55.09 57.25 2.16
10 43.31 44.52 1.21
11 30.22 28.25 -1.97
12 36.83 33.48 -3.35
13 29.26 27.16 -2.1
14 52.14 51.14 -1
15 66.94 65.52 -1.42
16 58.8 57.54 -1.26
17 51.34 52.14 0.8
18 73.89 74.14 0.25
19 62.01 58.21 -3.8
20 76.78 79.48 2.7
21 89.39 94.45 5.06
22 91.72 88.91 -2.81
23 81.48 84.54 3.06
24 96.83 98.45 1.62
25 92.49 89.46 -3.03
26 99.41 96.14 -3.27
27 96.56 96.24 -0.32
5

28 92.06 88.15 -3.91
29 70.56 68.15 -2.41
30 70.94 68.45 -2.49
It can be observed that a comparison has been made between the room occupancy % and the
budgeted room occupancy. It is visible that on such comparison variance has been determined.
Furthermore, the variance of the taken period can be categorized as favorable as well as
unfavorable.
1
3
5
7
9
11
13
15
17
19
21
23
25
27
29
0
20
40
60
80
100
120
Room_Occupancy_percent
Budgeted room occupancy
In other words, the computed variance is favorable at some places and other places it is
unfavorable. Another important observation is that there is a very thin line of difference between
the actual and budgeted room occupancy. The given unit taken for this purpose is %. Thus, room
occupancy has been determined in terms of %.
Room revenue
Months Rooms_Revenue
1 $
6

77,244.00
2
$
170,564.00
3
$
182,678.00
4
$
164,842.00
5
$
189,070.00
6
$
169,934.00
7
$
177,414.00
8
$
268,743.00
9
$
198,682.00
10
$
164,559.00
11
$
151,344.00
12
$
132,588.00
13
$
163,882.00
14
$
356,774.00
15
$
367,907.00
16
$
336,192.00
17
$
390,601.00
18
$
426,415.00
19
$
423,741.00
20
$
673,492.00
21
$
637,963.00
22
$
618,941.00
23
$
694,858.00
24 $
7

696,319.00
25
$
633,595.00
26
$
868,729.00
27
$
689,964.00
28
$
699,957.00
29
$
778,857.00
30
$
727,030.00
In the same manner, major three variables have been taken into consideration. It has come to the
conclusion that there is an increasing trend in respect of the variable namely, ‘Room revenue’.
REVPAR
Months REVPAR Budgeted
expenditure
towards
REVPAR
Variance
1 $
22.07
20.14 $
(1.93)
2 $
38.99
42.15 $
3.16
3 $
52.19
54.15 $
1.96
4 $
47.10
48.14 $
1.04
5 $
43.22
44.15 $
0.93
6 $
48.55
45.46 $
(3.09)
7 $
50.69
51.45 $
0.76
8 $
61.43
59.12 $
(2.31)
9 $
56.77
55.15 $
(1.62)
10 $
47.02
45.16 $
(1.86)
11 $
34.59
38.14 $
3.55
8

12 $
37.88
39.14 $
1.26
13 $
46.82
48.1 $
1.28
14 $
81.55
79.16 $
(2.39)
15 $
105.12
104.55 $
(0.57)
16 $
96.05
95.15 $
(0.90)
17 $
89.28
91.41 $
2.13
18 $
121.83
124.46 $
2.63
19 $
116.41
118.25 $
1.84
20 $
142.54
139.14 $
(3.40)
21 $
168.77
165.15 $
(3.62)
22 $
163.74
161.15 $
(2.59)
23 $
147.06
152.58 $
5.52
24 $
184.21
181.25 $
(2.96)
25 $
167.62
169.45 $
1.83
26 $
183.86
181.56 $
(2.30)
27 $
182.53
182.53 $ -
28 $
175.43
176.59 $
1.16
29 $
143.57
141.15 $
(2.42)
30 $
148.37
149.15 $
0.78
In the same manner, prominent variables have been duly considered. There has been a
fluctuating trend in respect of the variable ‘Revpar’. Thus, it can be said that either there is no
increase or decrease in the concerned variable.
9

1
4
7
10
13
16
19
22
25
28
$-
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
Budgeted expenditure towards
REVPAR
REVPAR
The above graph indicates the graphical pattern of the taken variables. It can be observed that in
all the taken period (i.e., 30 months) the budgeted expenditure incurred towards the variable
‘REVPAR' is continuously increasing when compared to the actual expenditure incurred. With
time, the difference between the budgeted expenditure and the actual expenditure is increasing.
This indicates that the concerned hotel is unable to correctly predict the expected expenditure
that it will incur in the future.
F&B Revenue- F&B revenue is the revenue earned by the organization from the sale of food
and beverage in the hotel. This sale can be for restaurant sales, room service, and other sales.
Following table shows the details of the sale of food and beverage for the last 30 months
Month Food and Beverage revenue
1 $ 27,145
2 $ 53,740
3 $ 54,675
4 $ 53,003
5 $ 62,436
6 $ 54,451
7 $ 57,605
8 $ 81,820
10

9 $ 61,695
10 $ 52,615
11 $ 50,328
12 $ 45,209
13 $ 58,768
14 $ 113,836
15 $ 86,464
16 $ 79,204
17 $ 115,920
18 $ 111,776
19 $ 83,727
20 $ 124,245
21 $ 109,192
22 $ 101,783
23 $ 134,064
24 $ 107,184
25 $ 122,159
26 $ 189,572
27 $ 169,246
28 $ 170,661
29 $ 164,279
30 $ 168,953
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
Food_and_Bev._revenue
11

After the analysis, it can be seen that the revenue from food and beverage has been increasing in
the later months as the restaurant has been now open for several months and people know of
such a restaurant.
Other hotel revenue: Other hotel revenue includes revenue other than from Room and F&B. All
other revenue including revenue from shops which have been given on rent in the hotel, revenue
from an advertisement in a hotel, etc. It can be seen from the data that there is no other income
for ‘HOTS’ as it is not engaged in any other activity other than renting rooms and F&B sales.
ROCE: Return on capital employed is the operating return of the company in comparison to the
capital employed of the company (corporatefinanceinstitute, 2019). The following table shows
the details of the return on capital employed for the company:
Month Operating Profit Capital Employed ROCE
1 $ 58,021 $ 12,173,464 0.48%
2 $ 162,503 $ 12,140,294 1.34%
3 $ 179,379 $ 12,113,758 1.48%
4 $ 150,559 $ 12,087,222 1.25%
5 $ 163,593 $ 12,054,052 1.36%
6 $ 152,429 $ 12,027,516 1.27%
7 $ 158,488 $ 12,000,980 1.32%
8 $ 245,991 $ 11,967,810 2.06%
9 $ 169,504 $ 11,941,274 1.42%
10 $ 127,653 $ 11,914,738 1.07%
11 $ 99,674 $ 11,881,568 0.84%
12 $ 104,086 $ 11,855,032 0.88%
13 $ 151,424 $ 11,828,496 1.28%
14 $ 377,342 $ 11,795,326 3.20%
15 $ 357,027 $ 11,768,790 3.03%
16 $ 294,784 $ 11,742,254 2.51%
17 $ 328,981 $ 11,709,084 2.81%
18 $ 367,964 $ 11,682,548 3.15%
19 $ 329,123 $ 11,656,012 2.82%
20 $ 578,214 $ 11,622,842 4.97%
21 $ 565,889 $ 11,596,306 4.88%
22 $ 534,355 $ 11,569,770 4.62%
23 $ 595,926 $ 12,327,185 4.83%
24 $ 608,399 $ 12,288,165 4.95%
25 $ 534,265 $ 12,254,145 4.36%
26 $ 744,818 $ 12,211,620 6.10%
27 $ 589,641 $ 12,177,600 4.84%
28 $ 598,478 $ 12,143,580 4.93%
29 $ 606,797 $ 12,101,055 5.01%
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