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.........................................................................................................................................12
Comparison with competitors..................................................................................................................13
Forecast of year 3 month by month of two variables, Room occupancy percent, and rooms revenue: 14
Strategic Recommendation......................................................................................................................14
Conclusion.................................................................................................................................................16
References................................................................................................................................................17
2

Executive summary
This aim of the report aims is to cover the various aspects that are used or determined to evaluate
the performance of any service organization. For analyzing the performance, certain reports are
extracted on the basis of close monitored records. On the basis of these reports, certain
judgments and decisions are taken by the people who are keenly interested in the business affairs
of the provided particular service entities. These people can be categorized as stakeholders,
customers, and governmental authorities along with other people like investors who want to
inquire about the financial performance of the business entity. To consider this purpose, HOTs
hotel has been chosen and all the related variables according to the operations of the hotel are
discussed in this report. The period of observation and recorded data for analysis is 2 years.
Under this duration all the activities and process related with the business operations are duly
covered.
3

Introduction
This report discusses all the variables that arise from the business operations conducted at the
hotel. A complete analysis of the performance of different areas has been presented for better
understanding. The report undertakes all the assumptions that are required to come to the
conclusion. There are various factors that influence the performance of the hotel. It could either
be negative or positive for future aspects. The calculations provided help the managers to
understand the trends and metrics and it leads them in making key decisions. Focus has been
shed on the areas that leads to higher revenue and better growth.
4

Key Revenue Management Matrix
Room occupancy:
The below table signifies or describes the actual as well as budgeted room occupancy along with
its variance. The data taken for calculation for this purpose ranges from current period to recent
30 months.
Month
s
Room_Occupancy_perce
nt
Budgeted
room
occupancy
percent for
third year
Rooms_Revenu
e
Budegted
room
revenue for
third year
1
19.51 20.48 $
77,244.00
$
81,106.20
2
34.35 36.06 $
170,564.00
$
179,092.20
3
47.77 50.15 $
182,678.00
$
191,811.90
4
45.23 47.49 $
164,842.00
$
173,084.10
5
39.25 41.21 $
189,070.00
$
198,523.50
6
45.31 47.57 $
169,934.00
$
178,430.70
7
50.37 52.88 $
177,414.00
$
186,284.70
8
61.71 64.79 $
268,743.00
$
282,180.15
9
55.09 57.84 $
198,682.00
$
208,616.10
10
43.31 45.47 $
164,559.00
$
172,786.95
11
30.22 31.73 $
151,344.00
$
158,911.20
12
36.83 38.67 $
132,588.00
$
139,217.40
13
29.26 30.72 $
163,882.00
$
172,076.10
14
52.14 54.74 $
356,774.00
$
374,612.70
15 66.94 70.28 $ $
5

367,907.00 386,302.35
16
58.8 61.74 $
336,192.00
$
353,001.60
17
51.34 53.90 $
390,601.00
$
410,131.05
18
73.89 77.58 $
426,415.00
$
447,735.75
19
62.01 65.11 $
423,741.00
$
444,928.05
20
76.78 80.61 $
673,492.00
$
707,166.60
21
89.39 93.85 $
637,963.00
$
669,861.15
22
91.72 96.30 $
618,941.00
$
649,888.05
23
81.48 85.55 $
694,858.00
$
729,600.90
24
96.83 101.67 $
696,319.00
$
731,134.95
It is clearly observed that there has been a comparison between the room occupancy % and the
budgeted room occupancy. Variance has been determined on the basis of this comparison. Also,
the variance recorded for the provided period can be categorized as favorable or unfavorable.
6

1
2
3
4
5
6
7
8
9
10
11
12
1
2
3
4
5
6
7
8
9
10
11
12
1
2
3
4
5
6
7
8
9
10
11
12
Yr 1 Yr 2 Yr 3
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Rooms Revenue Rooms Net Income
To present in a comprehensive manner,it can be stated that the computed variance is accounted
favorable at some places and it can be unfavorable in some places. A very important observation
is made that there is a very thin line of difference between the actual and budgeted room
occupancy. The given unit taken for this purpose is % (Enz, et. al., 2015). Thus, room occupancy
has been determined in terms of %.
Under the same manner of calculation, three main variables are taken into consideration for
drawing results. It is therefore concluded that there is an increasing trend in respect of the
variable namely, ‘Room revenue’.
7

1
3
5
7
9
11
13
15
17
19
21
23
$-
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
Budgeted expenditure towards
REVPAR
REVPAR
With the same manner as earlier, prominent variables have been duly considered. It has been
noted that there has been a fluctuating trend in respect of the variable ‘Revpar’. Thus, it can be
said or concluded from the above data that there is neither increase nor decrease in the concerned
variable (Enz, et. al., 2015).
1
2
3
4
5
6
7
8
9
10
11
12
1
2
3
4
5
6
7
8
9
10
11
12
1
2
3
4
5
6
7
8
9
10
11
12
Yr 1 Yr 2 Yr 3
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
ADR RevPAR OCC
$
%
8

The above graph represents the graphical pattern of the chosen variables. It can be duly observed
that within the periods of consideration (i.e., 30 months) the budgeted expenditure that has been
incurred towards the variable ‘REVPAR' is consistently increasing when it has been compared to
the actual expenditure that has incurred. It can be seen that the difference between the budgeted
expenditure and the actual expenditure is gradually increasing over time. It shows that the
concerned hotel is lacking somewhere to predict the expected expenditure that may incur in the
organization in near future (Enz, et. al., 2015).
Since there are various variable in the given set of data, it is advisable to have go through data
analysis one by one variable. This will help to understand the impact of one variable on another
variable or variables. Furthermore, pictorial representation in the form of graph and linear chart
may help to get a clear understanding regarding the nature and relationship of the given
variables.
Although data pertaining to 30 months was collected but data of initial 4 months has been taken
for the purpose of data analysis and representation. This will reduce the ambiguity and
complexity. Apart from that, an attempt has been made to identify and determine which variables
are dependent and which are independent (Enz, et. al., 2015). Considering all the variables at a
single point of time is not easy and is a cumbersome task which makes it difficult to understand
the data in the required or intended manner.
Besides, some of the variables have been ignored since they are relevant for the data analysis
purpose. There is no direct or indirect relationship between such variables and other variables.
For two variables, namely, room occupancy and REVPAR budget has been prepared which will
be utilized to determine the related variances. It can be clearly observed that there is a minor
difference between the budgeted and actual values in respect of both the variables. At some
points, the variance is favorable and at remaining points, there is unfavorable variance.
It has come to the notice that there are different units for varied variables. However, major
variables are expressed in terms of money ($). Variables such as room occupancy have % as
units (Enz, et. al., 2015).
9

F&B Revenue- The revenue that is earned by the hotel from the sale of food and beverage other
than what is served in packages is known as F&B Revenue. This sale can be for restaurant sales,
room service, and other areas (Enz, et. al., 2015). Following table shows the details of the sale of
food and beverage for the last 30 months
Month Food_and_Bev._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
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
10

21
$
109,192
22
$
101,783
23
$
134,064
24
$
107,184
After the in-depth analysis, it is evidently noticed that there has been an increase in the sale from
food and beverage in the later months as the restaurant has been now open for quite a long time
and people are noticing the good services and food that is been provided by them.
Other hotel revenue: The other areas from which the hotels gather revenue other than from
Room and F&B. These include the revenue earned from shops which have been given on rent in
the hotel, revenue from an advertisement in a hotel, etc. The report shows that there is no other
income for ‘HOTS’ as it has not engaged itself 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. The following table shows the details of the return on capital
employed for the company (Enz, et. al., 2015):
Month Operating Profit Capital Employes 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%
0.84%
11

11 99,674 11,881,568
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%
The above table suggests that the ROCE obtained by ‘HOTS’ is witnessing increase with every
month which reflects the performance of the hotel. It shows that the company is gradually
improving day by day and it is focusing on continuous improvement (Enz, et. al., 2015). It also
reflects the change in the efficiency and profitability of the company as they are increasing with
every passing month and it is highly suggested that the company should frame and implement
policies and strategies that would further improve the return on capital employed.
Staff Turnover: The ratio that depicts the number of employees who leave the organization due
to any provided reason in a particular frame of time when the new employees join the
organization is known as the Staff Turnover ratio. The following table shows the staff turnover
annual percentage for the months:
12