Introduction
Revenue management is an important element in the prediction of consumer behaviour and optimisation of product availability in the market. The concept is also used in setting prices for products through the application of analytics.
The objective of revenue administration is to maximise the growth of income generated by a firm (Phillips 2011). Another goal involves determining the right time to sell a particular product, the target market, and the ideal price.
Through revenue management, organisations can determine the right package to sell to the consumers alongside the product (Legoherel, Poutier & Fyall 2013). For this reason, it is said that this concept involves segmented pricing.
Analysts in this field focus their attention on two main factors. The two are revenue growth and consumer behaviour. To predict the behavioural patterns of customers, the availability of the product in the market is optimised with a hope of maximising on revenues.
Tourism is a multibillion industry in the world. A number of organisations offer a combination of tour related services. Just like any other robust sector of the global economy, the tourism industry is characterised by stiff competition among the players (The Emirates Group 2013).
As a result, businesses operating in this segment must make smart choices to maintain or improve on their market share (The Emirates Group 2013). In the tourism industry, yield is the term used to refer to the actual revenue generated by an airliner or a hotel.
The term is used in comparison to the income that would have been achieved in the event that the capacity of the operator was optimally utilised at the same published price (Shaw 2011).
In this paper, the author is going to conduct an up-to-date literature review on revenue management in the tourism industry.
In the essay, the author will identify the various challenges faced by marketers in this sector today. The impacts of these problems in hospitality and tourism marketing will be reviewed. To achieve this objective, a number of academic journal articles will be used.
Revenue Management in the Tourism Industry
To understand the concept of revenue management, it is important for organisations in the tourism industry to familiarise themselves with the notion of yield administration. Through improved yields, organisations can effectively grow their revenue (Harewood 2008).
In light of this, yield management becomes an important tool for marketers since they can use it to strike a balance between the marketing segments they are dealing with.
It is important to establish this equilibrium in order to generate more revenue for the firm. The focus of the organisation should not be limited to the idea of increasing the number of consumers.
Challenges Facing Marketers in the Tourism Industry
As stated earlier, most businesses in the tourism sector include hotels and airlines. The author of this paper puts more emphasis on airliners. It is important to understand that most of the organisations operating in the industry are mainly service providers (McKenna 2014).
The business firms rarely offer tangible goods to their customers. Goods are only used as incentives. At times, they are included in packages to lure customers. They are often small and branded, such as key holders. The goods do not in any way improve the amount of revenue that is generated by the tourism company.
They are considered to be part of the variable costs incurred in the process of doing business. Marketers in this industry have to identify the best combination of segments in order for them to improve the efficiency of their revenue management undertakings.
In the process of managing the revenue of their organisations, marketers in the tourism sector face a number of challenges. Different authors adopt varying perspectives with regards to the challenges facing marketers in the tourism industry.
One of the greatest obstacles encountered by these professionals is the need to comply with Vision 2050 (Cathay PacifiÂc Airways Limited 2012). As the aviation industry grew, it became necessary to come up with ways to address issues related to financial sustainability, conservation of environment, safety, and capacity.
That is where Vision 2050 came in. To comply with the guidelines provided in this document, the airlines will have to invest heavily in the industry. More revenue will need to be generated to enable the companies implement the set guidelines.
For this reason, marketers are required to calculate the best combination of segments. The pricing of the segments should enable the firms to retain and increase the number of customers.
At the same time, the companies need to remain profitable. Striking a balance between the two requirements is a challenge to the marketers (Jones, Lee & Chon 2011).
Players in the tourism industry are also faced with the challenge of cutting on operational costs while at the same time improving the quality of services offered to the customers (AirAsia 2012).
It is important to note that airlines, just like any other businesses operating in the contemporary global market, incur both fixed and variable costs. For this reason, the companies have come up with yield management systems.
They are required to cut on their variable costs in order to remain profitable. Discounts offered by to the consumers should also be reduced. However, such initiatives only increase the amount of revenue collected per seat.
The negative consequence of the move is that the number of customers is likely to go down as a result of the declining quality of services offered. Failure to offer discounts and incentives also makes the airlines lose potential customers, lowering their market share in the process (McCool & McCool 2010).
Another problem faced by marketers in the tourism industry involves inefficiency in baggage handling (Qantas 2013). Airlines and hotels need to deal with baggage in the most efficient way. However, at the same time, they are expected to reduce their operational costs.
Important aspects of baggage handling include arrivals, check-in, manual handling, security, and transfers. Efficiency in this sector translates to improved quality of services. However, additional revenue needs to be allocated to this section to achieve this objective.
The cost of such operations is likely to be passed down to the consumers, leading to an increase in the cost of services offered (Schwartz & Chen 2012).
Businesses in the tourism sector also have to contend with marketing issues related to the environment (Shaw 2011). In aviation, the marketers should take into consideration environmental regulations in their promotional activities. Compliance with these regulations is costly to the airlines.
It translates to an increase in the cost of doing business. The airlines will in turn raise the prices charged on the various packages offered to consumers. Increasing the cost of services discourages customers from using the services of the company.
On their part, hotels are also required by law to adhere to specific environmental policies. As a result, adjustments have to be made in a bid to comply with the regulations. The prices of some of the packages offered are raised to meet the costs incurred in making these adjustments (Vinod 2009).
Change in customer loyalties has also been cited as one of the greatest challenges that marketers in the hospitality and tourism industry have to deal with (Cathay Pacific Airways Limited 2012). Hotels and airlines plan for their capacities in advance.
They estimate the number of customers who are expected to use their services within a given duration of time. In most cases, the services are requested by customers and paid for in advance. However, changes in customer loyalties mean that hotels and airlines are likely to operate under capacity.
The reduced earnings notwithstanding, the organisations are expected to meet their fixed costs. The low revenue generated as a result of lack of loyalty affects profitability, leading to increased prices in some of the segments.
The Impacts of the Challenges on Tourism and Hospitality Marketing
The challenges facing marketers in the tourism and hospitality industry have significantly impacted on the competition among segments in the sector. Such segments include accommodation, attraction sites, food and beverage, adventures and recreation, as well as travel trade (Cathay PaciÂfic Airways Limited 2012).
Today, investors in the industry are engaged in cut-throat competition in an attempt to gain control of the market share. The operators have come up with improved revenue management systems to enhance their pricing schemes. Competition is important as it improves the quality of services offered to the customers.
The costs of operations incurred by the competing businesses are also minimised, which leads to conservation of resources. Through competition, matters to do with convenience, control, and speed when dealing with passengers have improved.
Competition requires businesses to provide unique and quality services in order to retain and attract potential customers (Vinod 2009). Customers are likely to be on the lookout for high quality services, which are characterised by timeliness and consistency.
The revenue management strategies put in place are expected to ensure that the most attractive packages are given at the best prices possible.
Enhanced revenue management strategies among firms in the tourism and hospitality industry have also led to improved customer experiences (Schwartz, Stewart & Backlund 2012). Airlines and hotel companies have devised mechanisms to provide their customers with valuable and vibrant experiences.
Through successful marketing strategies, segmentation is made possible, allowing for different classes of tourists to get the best value out of their money. For example, major airlines have specialised on different classes of customers.
For instance, for the past few years, Emirates has focused on offering the best first class flight services in the industry (The Emirates Group 2013). Cathay Pacific Airline, on the other hand, specialises in the provision of services for business class tourists.
Qantas and AirAsia focus on economy and low class groups of passengers, respectively. It is also possible for airlines to accommodate the four groups of passengers. Likewise, hotels offer different packages for varying groups of people. As a result, they are in a position to attract a diverse base of clientele.
A number of revenue management policies are concerned with baggage handling (Vinod 2009). It is estimated that these strategies will help save over $1.25 billion by the reducing cases of baggage lost and mishandled. The approach is also likely to promote customer loyalty.
The airlines and hotels that pay attention to the luggage of their customers are viewed as responsible and attract more clients. Complaints from customers are also reduced.
Enhanced revenue management strategies have made it possible for persons to travel from one point to another with ease. The development is brought about by improved price regimes in the industry (Lindenmeier & Tscheulin 2008).
As a result, many flights are been made to different destinations across the globe. The result of the increased movement of persons is increased congestion in many tourist destinations (Nason 2007). Tourists also pollute the environment around their destinations.
Gases produced following the combustion of fuel by the airplanes also cause massive air pollution. It is worth noting that degradation of the destinations will lower the number of visitors. The development will hurt businesses in the sector as a result of reduced number of customers.
In light of this, stakeholders should strive to deal with the problem of pollution in order to remain in business. A number of airlines, such as Emirates, have in the past engaged in charitable activities, which include cleaning the environment (The Emirates Group 2013).
Conclusion
Revenue management predicts customer behaviour through analytics. It is used to optimise the prices of goods and their availability in the market in a bid maximise revenue generation. Organisations can determine the most profitable packages through revenue management.
In addition, segmented pricing can be implemented using this approach. Competition in the industry is stiff. For this reason, businesses have to come up with appealing packages to remain profitable.
Revenue management provides such organisations with a chance to offer high quality services. At the same time, the businesses remain profitable without having to hike the prices of services provided.
References
Air Asia, 2012, AirAsia annual-report. Web.
Cathay Pacific Airways Limited, 2012, Cathay PacifiÂc Airways Limited stock code: 00293 annual reports. Web.
Harewood, S. 2008, ‘Coordinating the tourism supply chain using bid prices’, Journal of Revenue and Pricing Management, vol. 7 no. 3, pp. 266-280.
Jones, D, Lee, A. & Chon, K. 2011, ‘Future issues in sales, marketing, and revenue management in greater China: what keeps you up at night?’, Journal of Travel & Tourism Marketing, vol. 28 no. 6, pp. 598-614.
Legoherel, P., Poutier, E. & Fyall, A. 2013, Revenue management for hospitality and tourism, Goodfellow Publishers Limited, New Jersey.
Lindenmeier, J. & Tscheulin, D. 2008, ‘The effects of inventory control and denied boarding on customer satisfaction: the case of capacity-based airline revenue management’, Tourism Management, vol. 29 no. 1, pp. 32-43.
McCool, B. & McCool, A. 2010, ‘Incorporating lessons learned into tourism industry strategic planning for disaster management’, International Journal of Revenue Management, vol. 4 no. 3, p. 259.
McKenna, R. 2014, ‘Revenue management for hospitality & tourism’, Journal of Revenue and Pricing Management, vol. 13 no. 1, pp. 74-76.
Nason, S. 2007, ‘Forecasting the future of airline revenue management’, Journal of Revenue and Pricing Management, vol. 6 no. 1, pp. 64-66.
Phillips, R. 2011, ‘Efficient frontiers in revenue management’, Journal of Revenue and Pricing Management, vol. 32 no. 1, pp. 229-236.
Qantas, 2013, Qantas 2012/13 full year financial results. Web.
Schwartz, Z. & Chen, C. 2012, ‘Hedonic motivations and the effectiveness of risk perceptions-oriented revenue management policies’, Journal of Hospitality & Tourism Research, vol. 36 no. 2, pp. 232-250.
Schwartz, Z., Stewart, W. & Backlund, E. 2012, ‘Visitation at capacity-constrained tourism destinations: exploring revenue management at a national park’, Tourism Management, vol. 33 no. 3, pp. 500-508.
Shaw, S. 2011, Airline marketing and management, 7th edn, SSA Ltd., Oxfordshire.
The Emirates Group, 2013, The Emirates Group complete financial report and accounts, 2012-2013. Web.
Vinod, B. 2009, ‘The complexities and challenges of the airline fare management process and alignment with revenue management’, Journal of Revenue and Pricing Management, vol. 9 no. 2, pp. 137-151.