Companies using revenue management have reported an increase in revenue of 2-5 and in the golf industry these increases can be substantial (Pehlchen, 2003).
As we learned in class, Revenue Management is a technique to maximize revenue through allocating the right capacity to the right consumers at the right price by using different information systems and pricing strategies. Therefore mangers need to know the total worth of their customers. Here, customers have to be segmented into different groups and hotels and resorts need to know which types of customers they currently attract and more important which ones are creating most revenue and therefore who they would like to target in the future.
When looking at Revenue Management, hotels and resorts in the golf industry have to look at different rates they would like to set for different market segments, discounts they offer and when to offer them and to which extend they are planning to overbook and therefore might need to walk their guests. Furthermore, if they know how the client’s price elasticity is, they could for example know whether a raise in prices will increase revenue or decrease due to the loss of demand.
The hotels and resorts have to be aware that demand can be controlled, directed and influenced for example with promotions or requiring a minimum length of stay. Herewith revenue can be increased potentially. By forecasting demand, maximum revenue can be made. Here, managers have to look at demand generators like events, the pace bookings are done as well as historical data.
Today, clients have become more used to revenue management due to the fact that more and more industries have started to implement different rates and packages according to forecasted demand. Only shortly after the airline industry introduced yield management in the 1980s, hotels followed the trend. Today, due to better information systems and more practice, hotels and resorts have become more and more effective with an increasing number of departments following the trend with generally great success.
In the following it will be analyzed why the golf industry is suitable for Revenue Management, by looking at the hotel rooms, restaurants, function space as well as the golf course separately. It will be evaluated why each segment is suitable for revenue management, how demand based pricing is used and the duration of the clients can be controlled, which rate fences are commonly used and implemented and how Revenue Management may be implemented in the analyzed area.
The Golf Industry
Why is the Golf industry suitable for Revenue Management?
Research has shown that revenue management is most effective when the operation has the following characteristics:
Perishable inventory – refers to a product or service that loses its value if it is not used by a given date or time, e.g. unused hotel rooms
Variable demand and relatively fixed capacity – demand varies and can be influenced and directed while the capacity stays the same
Advanced sales – due to reservations being done in advance, demand can be forecasted and prices adjusted
Multiple pricing structure – being able to divide the market into different segments, different prices can be set to attract certain segments at a certain time
Very low marginal costs – fixed costs are high, variable costs relatively low. Therefore selling an additional unit comes with relatively low costs
(Yield Management and the Golf Industry, n.d.)
How to introduce rate fences
The hospitality industry started introducing price fences to give the consumers a perceived feeling of fairness by offering discounted prices which come with certain rules and regulations. These rules and regulations have to be logical, transparent and fixed, often by targeting customers from a certain market segment. These rate fences can be either physical, e.g. considering the view of a room or furnishing of a function space or non-physical, considering e.g. the time of consumption.
Management can divide the market into different segments with special rates which can be according to demand offered or closed. It is psychologically better for businesses to introduce price differences as discounts rather than adding a surcharge during high demand times (Kimes & Wirtz, Has Revenue Management become acceptable?, 2003).
Gathering information on customers is very important. By offering for example loyalty programs most hotels and golf courses can require clients to hand out their personal data which will then be used to promote special offers.
Management also needs to know the local culture. In some countries for example demand based pricing is viewed as rather fair while in others, clients are not so tolerant. For example in Sweden, it is viewed as fair to apply different prices during lunch and dinner periods, while in Singapore clients perceive it as unfair.
How to make sure policies are viewed as fair
Today, most U.S. golfers view most golf course revenue management practices as relatively fair and in general consumers increasingly accept differential pricing policies (Kimes & Wirtz, Has Revenue Management become acceptable?, 2003). According to Kimes, perceived fairness has been found to be a key factor to maintain customer satisfaction, loyalty and long term profitability.
Though consumers view a different price for the same product at a different time often as unfair, managers should either attach lower prices to restrictions or offer additional perceived value to higher prices.
Fixed duration, variable pricing
Why are hotel rooms suitable for Revenue Management
With a fixed capacity in number of rooms, a perishable inventory and time variable demand due to the time of the year and different demand on different days of the week rooms are very suitable for revenue management. The cost structure of a high amount of fixed costs and a low amount of variable costs support the use of revenue management. Being able to manage both capacity and the price by analyzing their RevPAR, hotel rooms are the most suitable area of all discussed in this paper.
Demand based pricing
Today, managers of hotels are very effective when forecasting their demand for a specific night. Clients have become very used to the practice of varying prices in hotels and therefore nearly all hotels and resorts in the world put a great amount of work into analyzing their clientele to see which maximum rate they can charge for on a specific night.
Before the client arrives, the hotel already knows relatively certain how long the guest will stay with them. Therefore only during the reservation procedure, hotels can
increase or decrease the duration of the clients stay. By applying early departure fee or minimum lengths of stay requirement, hotels can influence the duration of a stay.
Physical fences of the hotel rooms could be the view, size and furnishing of a room whereas non-physical fences would be the length of the stay, flexibility, time of purchase or the size of business provided.
To avoid that prices are viewed as not fair, hotels often set their rack rate very high and barely let any customer pay this rate. But therefore when clients perceive a price as too high, the hotel could show them their rack rate to make the client feel like they got a discount to increase guest satisfaction.
First, data has to be collected on the room rate each segment is willing to pay as well as demand variety and booking patterns.
Then, demand has to be forecasted by using historical data in combination with assumptions on effects of new events or trends
When determine pricing and lengths of stay controls the effect that changes of prices have on the occupancy need to be calculated.
Last, employees have to be trained and changes have to be communicated with the clients, preferably by using the properties website.
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