The report entails an analysis of revenue management with regard to firms in the hotel industry. A background study analyzing the performance of the hospitality industry on a global scale is conducted. This enables in the identification of how the hospitality industry is performing. Specific reference is given to Australia.
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The main objective of the report is to analyze the challenges that small enterprises in the hotel industry undergo with regard to revenue management. In order to underscore the challenge in a real environment, a case study of Hotel 59 Café which is located in Sydney is conducted. The report entails analysis of customer traffic in Hotel 59 Café and identification of the most active business hours.
This aids in illustrating the correlation between customer relationship and revenue management. The various types of food products that the firm deals with are outlined. In its operation, the firm deals with a wide range of food products due to the multicultural nature Sydney.
However, traditional foods are the most prominent to the customers. The revenue management strategy incorporated by the firm in its quest to maximize revenue is analyzed.
Some of the challenges identified to be the major factors limiting implementation of revenue management in small firms include lack of customer reservation system to enable the firm link effectively with the market.
In addition, complexity of the revenue management tools is also cited as a major hindrance to with regard to implementation of revenue management by small firms such as Hotel 59 Café. Finally a conclusion and a set of recommendations are given.
Background to the study
Over the past few years, hospitality industry has witnessed a rampant growth across the globe. One of major factors behind the rampant growth is its lucrative nature (Pizam 65). As a result, the industry has become one of the major contributors of the global economy. This arises from the fact that the industry plays a significant role with regard to job creation.
Globally, it is estimated that there are approximately 8 million restaurants and 300,000 hotels. In addition, the industry has employed approximately 60 million individuals. Its annual contribution to the global economy is estimated to be US $ 950 billion (James1).In the 21st century, hospitality industry in Australia is amongst the industries which have witnessed a rapid transformation.
This has resulted from an increment in the number of Australians who prefer to take their meals out regularly leading to an upsurge in demand. As a result, entrepreneurs have perceived an opportunity within the industry. This has culminated into an increase in the number of cafes and restaurants being established in different parts of the country. One of these cafes is Hotel 59 Café.
According to James (7), Australian hospitality industry is ranted as the 2nd largest in the world. Due to its rampant growth, the industry has resulted into creation of approximately 1,200,000 jobs either directly or indirectly in various sectors. During the period ranging from 2003 and 2010, it was estimated that the industry would create additional 325,000 jobs as a result of increase in tourism expenditure.
Considering the competitive nature of the hospitality industry, it is vital for entrepreneurs to ensure that their firms’ operations are effective and efficient so as to attain a high competitive advantage. According to Brown (1), one of the ways through which this can be attained is via incorporation of operation management in the firm’s strategic management process.
Jones and Lockwood (192) asserts that the importance of operation management to firms in the modern business environment is to excel in areas such as lean and responsive production and mass customization. In order for the small restaurants and cafes being established to succeed in the long term as going concern entities, it is paramount for the owners to integrate the concept of revenue management.
Revenue management would enable the entrepreneurs to forecast the customers’ demand hence their ability to plan. Considering the dynamic nature of business environment, integration of revenue management would enable a firm to develop a high competitive advantage relative to its competitors (Tranter, Stuart-Hall and Parker 79).
For example, via effective forecasting of demand, an entrepreneur can be able to set the price for his products or services competitively (Ng 7). Accurate forecasting of demand is paramount in relation to revenue management. According to Lawrence and Kimberg (2009, p.4), the two principal components with regard to performance of firms in the hospitality industry include price and availability.
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Despite the importance of revenue management within the hospitality industry, small cafes and restaurants are faced with a challenge in its implementation.
The aim of the report is to analyze the highs and lows of hospitality management at a smaller scale with specific reference to revenue management.
Hotel 59 is a family owned firm which was established in 1999. The firm is located at Kings Sydney. In its operation, the firm offers a wide range of services to its customers. Over the past decade of its operation, the firm has managed to position itself effectively in the market. One of the factors which have contributed to its superior market position is its effectiveness in delivery of quality services (Hotel 59 Café, 2010).
The firm has established a policy aimed at offering customized attention and personal care to its customers. According to Dilworth (2000), provision of quality services plays a significant role in a firm’s success. In order to attain success, the firm’s management team has incorporated the concept of revenue management within its strategic management. This has enabled the firm to attain a competitive edge in comparison to its competitors.
Effective identification of customers is one of the key strategies of revenue management (Phillips123). This arises from the fact that it enables the firm to develop products which are in line with the customers requirements. In its operation, the firm’s management team has developed an effective operational policy.
During the week days, the firm operates from 11 am until late in the evening and from 10 am till late in the evening during weekends and public holidays. As a result of operating during these hours, the firm is able to maximize on its customer traffic.
During week days, the most active business hours range from 12 noon to 5 pm. This arises from the fact that it is during these hours when individuals usually take their meals. On the other hand, the most active hours during weekends range from 11 am to 7 pm. During this period, the firm is able to maximize its sales by selling to a wide range of customers.
The firm’s location at Entertainment Quarter in Sydney enables a wide number of customers to access the café. According to Summers and Smith ( 6), there is a strong correlation between customer traffic and revenue management. As a result, firms within the hospitality industry are appreciating the concept of customer-centric within their revenue management policies.
In an effort to be profitable, firms within the hospitality industry are focusing on increasing customer traffic. This means that there is a high probability of the firms increasing its profitability level via creation of customer loyalty (Barber, Goodman and Goh 35).
Food products offered
Considering the fact that Sydney is a cosmopolitan city, there are customers of diverse backgrounds. In order to appeal to their tastes and preferences, the firm offers diverse food products to meet the customers demand. In its operation, Hotel 59 Café offers its products and services to both domestic and foreign customers. The food offered reflects multicultural diversity within the society.
As a result, traditional delicacies are the “bread and butter” of the firm. For example, the café sells food products of aboriginal flavors. Due to its location, the firm offers different sea foods such as barramundi, prawns, calamari, snapper and mussels. In line with the multicultural diversity of the city, the firm also deals with Italian, Asian, Japanese and European cuisine.
Revenue management strategy
Understanding customer’s tastes and preferences is paramount in the success of firms in the hospitality industry. This is due to the fact that it enables firms in the industry to sell products which are in line with the market demand. One of the most important aspects which firms in the hospitality industry should consider while implementing revenue management understands the customers’ requirements.
For a firm to be successful in its revenue management it is paramount to integrated marketing concepts. In an effort to increase its customer base, the firm has incorporated the concept of customer relationship management (CRM). This has been attained via implementation of CRM software. The CRM software enables the firm to interact effectively with its customers.
As a result, the firm’s manager is able to understand customers’ behaviors, preferences and traits. For example, through the CRM software, the customers are able to put across their complaints and compliments to the firm’s management team. As a result, it has become possible for the firm to develop strategies aimed at improving its operation basing on the market feedback obtained.
For example, during the recent financial crisis, small cafes in the hospitality industry had a superior performance compared to large enterprises. One of the main reasons behind their performance was due to their effective pricing mechanism. In its operation, Hotel 59 Café’s management team appreciated the impact of the financial crisis on the customer’s purchasing power.
As a result, they were able to sell at a relatively low price while at the same time maintaining the quality of its products. Effective pricing was attained by considering the fact that the firm was able to identify the increment in consumers’ price consciousness as a result of the economic crisis.
This knowledge was attained from the market feedback obtained from the CRM software.This culminated into an increment in the level of customer loyalty.
Lack of customer reservation system
In their operation, restaurants and cafes collaborate with other firms in the hospitality industry such as travel agencies. This enhances their probability of increasing their customer traffic. In order for the collaboration to be profitable, restaurants should have a well implemented Customer Reservation System (CRS).
In their operation, large enterprises are able to establish a strong connection between their CRS and Global Distribution Systems (GDS) such as Amadeus, Galileo, WorldSpan and Sabre. This gives them an upper hand in providing travelers with information relating to the services they offer.
However, most of the small firms such as cafes have not implemented either CRS or the GDS. This limits their operational efficiency since it is difficult to forecast future demand for using data generated by the CRS (Andrews, n.d, p. 170).
Apart from dealing with various food products, the Hotel 59 Café provides accommodation services. Both individual and institutional customers patronize the facility. However, booking the accommodation is done manually.
This is due to the fact that the firm has not implemented an effective customer reservation system. This limits the firm’s efficiency in forecasting demand despite it implementing the CRM software. As a result, the firm is not able to forecast demand effectively thus limiting it from attaining a high competitive edge with regard to pricing.
Complexity of revenue management tools
According to Bardi (170), it is paramount for firms in the hotel industry to implement revenue management in their operation. Revenue management is based on computerized mathematical model. Despite the model being complex, it utilizes a very simple concept. The model utilizes inventory and pricing control mechanism to enable firms in the hospitality industry to maximize profit.
However, application of revenue management concept requires the firms to have well trained staff due to their complexity. In addition, the firm must have up-to-date software and programs to ensure effective implementation of revenue management. For example, one of these programs is RevenueDashBoard which enables hoteliers to forecast demand.
In addition, the system enables the management team to identify need periods and peak thus enhancing their capacity to make decisions which will improve the firm’s level of revenue and profit and hence its competitive position (Bardi, 2006, p.170).This presents a challenge to small firms in their quest to incorporate revenue management.
From the analysis above, it is evident that hospitality industry has witnessed a rampant growth in Australia. As a result there has been emergence of a large number of small scale firms in the industry. However, the success of firms in the hospitality industry is dependent on the effectiveness with which they incorporate revenue management. This arises from the dynamic nature of the industry.
As a result, it is paramount for firms in the industry to be able to forecast future demand. This plays a significant role in the firms’ effort to maximize profit. In addition, revenue management system enables a firm to minimize the cost of its operation while at the same time ensuring that the quality of its services is maintained.
For revenue management to be effective the firm has to consider its customers. This arises from the fact that there is a strong correlation between the customers and its revenue management strategy.
This means that there is a high probability of a firm to increase its revenue management by considering its customers. This is due to the fact the firm can be able to forecast future demand for its products and services hence its ability to make decisions such as pricing.
However, effective implementation of revenue management by firms’ in the hospitality industry is dependent on other variables. The firm should have an effective customer reservation system. Large enterprises in the hospitality industry are in a better position to implement the concept of revenue management.
This arises from the fact that they have sufficient capital to implement the system compared to small firms (Turner and Guilding 278). Effective implementation of revenue management requires a firm to implement an effective computerized programs and software.
Despite Hotel 59 Café implementing a CRM system, its ability to undertake revenue management is limited by the fact that the firm has not implemented the customer reservation system. In addition, the operation of the revenue management system requires a high level of skills which most small firms do not have. This means that implementation of revenue management by small firms is challenging.
In order for small firms in the hospitality industry to improve their competitive advantage, they should consider the following recommendations.
- The firm should source for finances to enable it implement customer reservation system. In order to ensure effective utilization of the system, it is paramount for the firm’s management team to train its employees on how to utilize the system.
- The firm should collaborate with large firms which have a well established customer reservation system. This will increase the probability of the firm increasing its customer base.
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