Yield management was implemented in 1978 after
the deregulation of the US airline industry (Vinod, 2016). Before that,
airlines were operating under a constricted environment. With yield management,
the airlines industry was able to forecast demand and plan ahead to maximize
seats. Currently, yield management is widely known as revenue management. With its effectiveness in
managing inventory and possessing the same characteristics namely
perishability, fixed capacity and segmentation based on customers’ levels of
price sensitivity as the hotel industry, hotels adopted revenue management in
the late 1980s (Kimes, 2016).
In the early stage of hotel revenue management, rates
were set based on the inventory available and demand. Hotels were incapable to
develop different market segments to maximize room sales during low peak
periods. Furthermore, hotels were unable to analyse rates to understand if the
prices offered were ideal (Kimes, 2016). Currently, revenue management aids in
allocating capacity and prices to maximize revenue (Josephi, 2016).
Due to the growth of online booking channels
such as Expedia, Tripadvisor and Travelocity, consumers have convenient access
to multitudinous hotels and prices. Therefore, revenue management systems
provided a platform for hotels to decide the discounts to implement based on
the current demand. Nevertheless, it does not reflect if the rates offered were
favourable by customers. Therefore, the hotel industry has seen the importance
of transforming an inventory management to a strategic marketing approach
Approach 1 – THRM
Approach 2 – CCRM
Customer Centric Revenue Management (CCRM) is
still in the early stage of evolution. The rise in distribution cost, variable
cost and existing high fixed cost motivated the creation of CCRM. Industries that
use revenue management have identified that maximizing revenue is one out of
the many important factors that contributes to a successful organization.
Hotels are shifting their focus to provide more customer-centric offerings.
This means understanding consumer’s behavior, preferences and desires. Moreover,
hotels are attempting to leverage on that and provide offerings at an optimal
time when consumers are the most receptive (Vinod, 2017). This also means
hotels are able to maximize long-term profits, create good rapport and
subsequently, build strong customer loyalty.
Due to stiff competition and price transparency,
CCRM requires a combination of revenue management, marketing and real-time inventory
control. This aids to manage customer lifecycle across all customer touch
points (Vinod, 2017). Furthermore, if the aim of revenue management is selling
the right product or service to the right customer, right time and right price,
in order to generate revenue from perishable capacity, an understanding of
consumers and their behaviour is critical to its effective development and
implementation (McMahon, 2016).
Firstly, CCRM is able to incorporate customer relationship
management into revenue management. This means rates are set according to a
customer’s perceived value and resources are allocated effectively to maximize
revenue. By allocating resources accordingly, it helps to decrease cost and
expenditure of the hotel. According to (Jang & Mattila, 2005), the authors
stated that it cost three to five times less to retain existing customers than
to attain new ones. This is further supported by (Vinod, 2007) who agreed that
it costs three times as much to acquire a new customer than to retain an
existing customer. This suggests establishing customers’ loyalty aids in better
revenue management by increase profits and decreasing cost.
3.1.2 Estimate Demand
Secondly, CCRM is can
be effective in estimating demand based on consumers’ preferences. Demand is
the outcome of a consumer choice decision (Ratliff and Vinod, 2005). This is
possible when hotels focus on the attributes of the consumers’ buying habits
coupled with trends and characteristics of the different market segments.
Furthermore, CCRM is useful to forecast demand for possible new markets and
implement the right marketing approach to attract more consumers.
3.1.3 Understand Consumers’ Behaviour
Lastly, CCRM could be
deemed as an imperative way to understand customers wants and needs. By
understand consumer’s desires, hotels are able to segment them based on
spending power with different rates and room availability. Then, allocating
appropriate rewards and promotions based on the market segments (Noone, Kimes
& Renaghan, 2003). Hotels will also be capable of staying competitive and
compete against a competitive set. Understanding competitors’ rates and the
factors that justifies the rates provides hotels the information to make
decisions to optimize rates and roll out discounts. This means managing
inventory effectively by increasing or decreasing rates to maximize profit.
3.2.1 Inelastic Demand
CCRM might not be the utmost paramount for
bigger hotel chains currently. Bigger chain hotels such as Marriott, Hilton and
Intercontinental have inelastic prices which means it is not easily affected by
seasonality and competitor’s pricing. Due to its reputability, renown hotel
brands are highly sought after with a strong customer database. With properties
in international locations, the loyalty programme is able to retain its
3.2.2 Change in Demographics
Strong loyalty programmes does not necessarily
have the ability to retain customers. With
more consumers seeking for value rather than brand and service, hotels will
find it tough to retain consumers. Furthermore, customers with higher spending
power such as the baby boomers (1954 – 1964) and Generation X (1961 – 1981) will
be replaced by the millennials. With the change in demographics, preference and
traveling habits are constantly changing. This means consumers have the tendency
to switch hotel brands that fits their lifestyles.
Although economic rewards attract rational
customers and prompt them to remain loyal to reward programme, financial
incentives alone cannot prevent customers from switching to competing
programmes (Lee et al, 2015).
Chosen Hotel for Evaluation
THRM ONLY – choice of hotel
revenue management currently focuses on the key revenue generator which is
rooms of the hotel. Other profit-making departments such as F&B, retail or
spa have separate revenue management.
Revenue Optimisation Sources (revenue generating departments)
Why is THRM important?
The total hotel revenue management is imperative
for the hotels to have a clearer picture of their stand in the industry. It
allows them to analyse and implement decisions for the hotel that will
contribute to the revenue of the hotel.
Understanding total revenue à make viable decisions that is beneficial to the
company à decrease cost and resources, maximize revenue à clearer picture of profit à Shows profit making departments à able to make complete decisions (not only for
rooms but as a whole) to aid with the hotel’s financial health.
Shift from revenue to profitability to go beyond
the rooms division
Future of RM is to consider both revenue &
costs associated with other revenue streams to a profit-based approach (Noone,
Enz, Glassmire, 2017).
If the primary aim of
RM is selling the right product/service to the right customer, at the right
time, for the right price, in order to generate revenue from perishable
capacity, then an understanding of consumers and their behaviour is critical to
its effective development and implementation. (McMahon, 2016)