Revenue management in the hospitality industry is a complex of strategies and techniques used to generate profits depending on forecasting the demand and setting prices. Pullman Quay Grand Sydney Harbour is a five-star hotel in Sydney which requires the solution to the problem of increasing the revenue to improve a current stable position of the hotel in the market of Sydney and achieve the further progress.
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This proposal provides an explanation of the solution to the identified problem. The solution includes the simultaneous implementation of the improved or new revenue management strategies, such as the direct online distribution, variable pricing, competitive benchmarking, demand modelling, and capacity monitoring, to regulate the demand, attract more customers, and avoid a high percentage of cancellations. Benefits of applying these strategies are associated with integrating techniques as a system, the components of which affect each other. Possible barriers to the project implementation and its schedule are presented in the proposal.
Pullman Quay Grand Sydney Harbour is one of the leading upscale hotels known under the brand name “Pullman”, which belongs to the group of AccorHotels. This five-star hotel is located in East Circular Quay in Sydney, Australia (Pullman Quay Grand Sydney Harbour, 2017). While focusing on the revenue management followed in the hotel, it is possible to note that managers use a traditional model for making the revenue that is based on forecasting the demand, adjusting prices, and changing the availability of services.
Pullman Quay Grand Sydney Harbour’s revenue centres as operations that influence generating the hotel’s revenue include a restaurant, a lunch area, a bar, a boardroom, a gallery, a sauna, a gymnasium, and room services (Pullman Quay Grand Sydney Harbour, 2017). The problem is that the revenue of this Pullman hotel is at a stable high level during several years, however, changes in customers’ interests in buying upscale services and general tourism trends observed during a recent period of time do not allow for speaking about further significant increases in the revenue (Lu, Berchoux, Marek, & Chen, 2015).
Much attention should be paid to reconsidering the currently applied revenue management approach in order to determine new areas for attracting customers and increasing income (Erdem & Jiang, 2016; Ortega, 2016). The solution to the identified problem should be based on applying the most effective and advanced revenue management strategies to guarantee the financial progress of the hotel, and this solution will be discussed in this proposal in detail.
Thus, the purpose of this proposal is to recommend the implementation of such revenue management strategies as the direct online distribution, variable pricing, competitive benchmarking, demand modelling, and capacity monitoring. The report will provide a detailed discussion of these strategies to demonstrate their effectiveness in generating the revenue for the hotel. The following key terms will be operated in this proposal to explain the recommended solution: a distribution channel as a way to spread the information about rooms for booking, demand modelling as an approach to forecasting requests, and variable pricing as a form of dynamic pricing.
The Solution to the Identified Problem
The proposed solution to the problem identified for Pullman Quay Grand Sydney Harbour is based on the simultaneous implementation of five effective revenue management strategies that are determined and developed to address the needs of this hotel at the current stage of its development. Such strategies as the direct online distribution, variable pricing, competitive benchmarking, demand modelling, and capacity monitoring are expected to be implemented in the hotel as a bundle and in combination with corresponding changes in operations and customer relationship management (Erdem & Jiang, 2016; Richard, 2017).
According to Kimes (2016), the synergistic approach to implementing the determined strategies in the hotel in the context of revenue management will guarantee increases in profits associated with improved marketing and operations. The proposed strategies address the key areas of revenue management, such as distribution channel management, pricing, competitive benchmarking, demand modelling, and capacity management, in order to implement the change in all fields to achieve higher results (Guillet & Mohammed, 2015; Thakurta, 2016). These strategies need to be further explained as they are developed according to the needs of Pullman Quay Grand Sydney Harbour.
Distribution Channel-Focused Strategy
In order to maximise profitability, Pullman Quay Grand Sydney Harbour should change its distribution channel strategy. Currently, the reliance on online travel agents (OTAs) can be inappropriate for the hotel because of its upscale status, high commissions for cooperating with OTAs, and the impossibility to guarantee flexible rates for all rooms in the hotel (Kimes, 2016). Still, an online distribution channel remains to be one of the most effective ones in the hospitality industry today (Yeoman & McMahon-Beattie, 2017).
Therefore, the strategy that should be selected for Pullman Quay Grand Sydney Harbour is the distribution of services through the hotel’s website. This direct online marketing strategy is appropriate to decrease distribution channel costs and increase the demand by using different channels.
To implement this channel-focused distribution approach, it is important to focus on the following steps. Firstly, it is necessary to redesign the Pullman Quay Grand Sydney Harbour’s website for booking (Ferguson & Smith, 2014). It must become more user-friendly and include all features that attract customers of OTAs: demonstrate photographs, represent price rates to address clients with various price sensitivities, including updates, and provide customer reviews (Kimes, 2016). Secondly, it is important to promote this website with the help of social media and Google Hotel Finder. This low-cost channel is appropriate for Pullman Quay Grand Sydney Harbour because it combines the benefits of a direct distribution strategy and an online distribution strategy.
Depending on the status of a five-star hotel which sells a high-quality experience to customers, the value-based pricing strategy was discussed as the most effective for Pullman Quay Grand Sydney Harbour for many years. However, in order to address current changes in customers’ interests in buying upscale services, it is also important to combine this strategy with the tactical pricing approach followed by many hotels in the context of revenue management. The final variant of the pricing strategy for the hotel should be based on the principles of variable pricing (Bayoumi, Saleh, Atiya, & Aziz, 2013).
The first step is to determine price sensitivity and price ratios with reference to the forecasted demand in order to be able to change prices for customers (Appendix A). The second step for this Pullman hotel is to determine the value created for customers and identify rooms which can be offered according to the principle of variable pricing without decreasing profits during the first months of this strategy’s implementation process (Erdem & Jiang, 2016; Phumchusri & Maneesophon, 2014). It is important to guarantee that the hotel has different room types offered for various prices.
The third step is to guarantee changes in rooms’ rates and prices to reflect supply and demand. The fourth step is the revision of messages regarding discounts to make them flexible rather than stable (“save up to 30%” in contrast to “save 30%”).
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For instance, the price for a one-bedroom suite will vary from 679 AUD to 560 AUD depending on the date or season, as well as the period of booking this room. Variable pricing is more appropriate for Pullman Quay Grand Sydney Harbour than other variants of tactical pricing because it provides the hotel with opportunities to accentuate the value and improve profitability without changing the orientation to other audience and significantly decreasing prices (Erdem & Jiang, 2016; Talón-Ballestero & González-Serrano, 2013).
Pullman Quay Grand Sydney Harbour is one of the upscale hotels in Sydney, which services and price can resemble its competitors, including Park Hyatt Sydney, InterContinental Sydney, Sheraton on the Park, and Pier One Sydney Harbour among others. In order to compete effectively, it should improve its strategy in the context of competitive benchmarking typical of revenue management. Changes should be started from monitoring price fluctuations in the market with the help of comparing services and costs online (Ferguson & Smith, 2014).
The next step is the analysis of how Pullman Quay Grand Sydney Harbour’s competitors promote their services with the help of a variety of distribution channels (El Haddad, 2015). For Pullman Quay Grand Sydney Harbour, it is important to monitor the effectiveness of its distribution strategy and compare the booking progress with the industry’s averages in Sydney to remain competitive. One more technique to apply is the provision of more value for customers while remaining to be one of the leading hotels, which belong to the group of luxurious five-star hotels. It is also important to add more value and propose new discount programmes for regular visitors in order to increase the position in the market.
The implementation of an effective forecasting or demand modelling strategy can contribute to increasing the hotel’s profitability by about 5% within a short period of time. Traditional models used in order to forecast the demand in the hospitality industry include additive and multiplicative models. Still, while applying only one of these models, it is impossible to forecast changes in the demand from all perspectives (Schwartz, Uysal, Webb, & Altin, 2016).
Therefore, it is important to recommend referring to multivariate exponential smoothing as a method which combines the strengths of both models. While applying this technique, managers will be able to analyse the demand with reference to the local trend, general tourism trends in the region, customers’ behaviours, seasonal changes, and variations in competitors’ proposals (Claveria, Monte, & Torra, 2015). The hotel requires additional resources in order to integrate the programme for modelling in the corporate system. Depending on the results of demand modelling, it will be possible to determine the number of clients to expect and predict negative effects of cancellations.
Capacity Management Strategy
The strategy followed in Pullman Quay Grand Sydney Harbour regarding its capacity management should be in line with the forecasting approach and the distribution strategy. In spite of the fact that the hotel effectively controls its capacity to satisfy customers’ demand, it is possible to propose implementing the following techniques in order to improve the situation: reduce rates during low seasons according to the data of demand modelling; keep suites in expectation of customers’ demand; prioritise long-stay requests; use a discount system; plan conferences during low seasons (Ferguson & Smith, 2014; Ortega, 2016).
All these techniques are viewed in revenue management as advanced to be applied in the hospitality industry to control the hotel’s capacity and maintain it in balance with the demand. Assuming the fact that Pullman Quay Grand Sydney Harbour is characterised by stable demand rates during low and high seasons, these approaches are easy to be implemented in the hotel.
Benefits of the Solution
Recent studies in the field of revenue management in hotels demonstrate that managers are able to achieve higher results when they implement certain strategies and techniques simultaneously or as bundles (Di Foggia & Lazzarotti, 2014; Erdem & Jiang, 2016). The reason for using this approach to improve the profitability of the hotel is that revenue management strategies depend on each other, and changes in one of them lead to changes in other management areas (Richard, 2017).
For instance, in Pullman Quay Grand Sydney Harbour, changes in the distribution channel strategy cause changes in analysing competitors’ offers and forecasting the demand. Changes in the approach to forecasting lead to changes in capacity management and pricing. The benefits of focusing on these strategies and tactics are that they cover all basic revenue management areas while allowing managers of the Pullman hotel to maximise profits.
The direct online distribution is important to oppose OTAs and high costs associated with using their services without limiting customers’ access to options for booking. Variable pricing allows the hotel to propose flexible prices without compromising its value and expected revenues. The competitive strategy and demand forecasting techniques allow for preparing rooms and discounts with reference to the predicted number of clients to avoid wasting resources (Ortega, 2016). Therefore, the capacity strategy is correlated with demand modelling.
Task Schedule, Budget, Experiences Required for the Project Implementation
The table representing a schedule for completing tasks that are determined according to the strategies implementation plan is provided as Appendix B. In order to maximise profitability for the hotel, it is important to start with demand modelling and preparing the distribution channel. Other strategies to implement should be pricing, capacity, and competitive strategies (El Haddad, 2015; Erdem & Jiang, 2016).
Two main tasks that require additional financial resources for their implementation are the improvement of the website for direct booking and the integration of a new demand modelling or forecasting programme. Thus, the cost of creating an appropriate website is about 7,000 AUD, and the cost of integrating the programme for making forecasts is about 3,000-5,000 AUD. Additional costs are associated with attracting specialists who will consult employees regarding the work with the programme for multivariate exponential smoothing.
It is possible to pay about $4,000 AUD to an expert with experience in working with multivariate exponential smoothing models for 2-3 training sessions. Other skills and knowledge that are required for the project implementation are associated with the capacities of the revenue manager and team.
Opposition and Barriers to the Solution Implementation
In order to implement the solution in the most efficient manner, it is important to identify possible barriers to the project implementation and propose ways to overcome them. The application of a new pricing strategy and a competitive benchmarking strategy is in line with the current research and evidence in the hospitality industry. Still, the reference to the direct online distribution after the period of using OTAs can have negative effects on the process of attracting customers (Erdem & Jiang, 2016; Ferguson & Smith, 2014).
To avoid these negative effects, it is necessary to cooperate with partners with the help of social media and promote advertisements regarding an advanced approach to booking rooms in Pullman Quay Grand Sydney Harbour. Furthermore, opponents of the complex demand modelling approach state that similar results can be achieved while using more simple programmes (Kimes, 2016; Lu et al., 2015). However, it is important to note that the accuracy of forecasting can be guaranteed only if different models are applied simultaneously, and multivariate exponential smoothing provides managers with opportunities to analyse different factors while influencing pricing and further operations.
The implementation of improved revenue management strategies in Pullman Quay Grand Sydney Harbour can result in increasing its profitability because of addressing the interests and needs of more customers. The five-star status of the hotel provides certain limits regarding the orientation to new customer groups because of the phenomenon of price sensitivity.
However, while applying the variable pricing strategy supported by the results of multivariate exponential smoothing and analysis of competitors’ approaches, it is possible to attract more visitors and control supply and demand with reference to the proposed effective distribution and capacity strategies. This solution to the problem of the absent increase in profits can be viewed as appropriate for Pullman Quay Grand Sydney Harbour.
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