Revenue Management Level of Profitability

Question: Discuss about the case study Revenue Management for Level of Profitability. Answer: Introduction Revenue management is defined as the application of the regimented analytics which helps to predict the behaviour of the customer in the level of micro-market (Tourism Accommodation Australia | Australia, 2016). In this report, the revenue management of an organization named Novotel Sydney on Darling Harbour has been studied and analyzed in detail in order to determine the financial condition of the organization in the overall hospitality industry. In order to optimize the revenue, pricing is considered as one of the two strategic levers that can be used to optimize the revenue of an organization. Thus, in this report, a revenue management strategy for the financial year 2016 July/ 2017 June has been analyzed in order to run the business of the organization effectively and efficiently. For detailed study, market segment analysis, competitor set analysis, demand forecasting and channel analysis have been performed in order to better understand the market and the financial condition of the particular firm. Analysis of the market segmentation The market segmentation of the Novotel Sydney, darling Harbour can be analyzed by taking into consideration several factors that include public, promotions, negotiated rates, groups, wholesales and others. Public: BAR Official Website: The best available rates are marketed through the websites BAR Direct: The Best available rates are marketed through phone, fax and the emails (Casado, 2012). BAR Indirect Commissionable: The Best Available Rates are primarily marketed through different commissionable online travel agents BAR Indirect Net Best Available Rate can also be marketed through the net rate online travel agencies Groups: The market of the Novotel, Sydney can be segmented based on the groups that are mentioned below: Groups Leisure Business Wedding/Special Occasion Events Crew Conference (Testa Sipe, 2012). Whole sale: The target market of the Novotel Sydney Darling Harbour can be divided based on different forms of the wholesale: Wholesale Tour and Travel Operators Tour and Travel Wholesalers (Dunbar, 2013) Consulted Rates: The consulted rate or else the negotiated rates of the Novotel Sydney Darling Harbour can segment the market into different categories that includes the Corporate Dynamic Rates, corporate flat rates, rates for government and other crews (Dunbar, 2013). Negotiated Rates Corporate Rates Flat Corporate Rates Government Crew Other facets of segmentation: The other criteria for segmentation of the market of the Novotel Sydney Darling Harbour include the Complimentary use, barter, walk-in, overbooking, and house use and time share (Folkestone, 2016). Other factors of Segmentation Complimentary use, Barter, Walk-in, Booking, House Use and Time Share Environmental scanning Political Environment The government can overcome different barriers to development of hotels in different parts of Sydney and boost the business environment of the hotel industry in which the Novotel Sydney operates Reports reveal the fact that the increase in the supply of hotels in Sydney from 150 to 550 rooms per year by the end of the year 2020 can permit the increases in the supply in order to meet various demands and at the same time permit the development of a sustainable hotel industry (Home, 2016). In case of the company Novotel, Sydney, the political environment scan reveals the fact that Australia is a liberal capitalistic democracy and the economy persistently interferes in the operations of different nations. The government also affects the policies of the taxation of the economy (Meissner Strauss, 2012). Economic Environment The economic factors that commonly affect the business operations of the Novotel Sydney mainly include the confidence of the consumers, the rate of employment in the economy, rate of interest as well as inflation (Ovchinnikov Milner, 2012). The condition of the economy, system of the economy, policies of the government, the industrial strategies, import as well as export policies are the main economic factors that affect the business operations of the Novotel Sydney (Folkestone, 2016). Reports reveal the fact that the Australia holds the 10th rank in the area of the Ease of Doing Business index (Dunbar, 2013). In addition to this, the Australia based Novotel is also a positively influenced by the persistent growth of the economy of Australia, low rate of inflation in Australia, contained rate of inflation and very low rate of public debt (Ovchinnikov Milner, 2012) (Meissner Strauss, 2012). Socio-cultural environment Australia is regarded as an assortment of diverse individuals residing in a comparatively young community. In addition to this, there is no official religion in the nation with 26% Anglican, 26% Roman Catholic and 24% Christian among many other categories. The increase in the overall level of education of the people of Australia affects the business operations of Novotel, Sydney. Again, there can be high concentration on the assimilation of different cultural groups into different dominant British Australian traditions. Trend Analysis The five-starred hotel, Novotel Sydney have acquired high rate of growth in the supply with persistent growth in demand (Ovchinnikov Milner, 2012). Reports reveal the fact that there is a 2.2% increase in the supply corresponding to 1.5% increase in demand for the hotel industry (Casado, 2012). On the other hand, there is a 0.6% decline in the occupancy rate along with a 2.6% increase in the mean daily rate (Casado, 2012). The average daily rate is now registered to be AUD 230.74 in addition to a 2% increase in the revenue per available room (Dunbar, 2013). According to reports, there is a marginal decrease in the occupancy although the absolute level remains high (Novotel Sydney on Darling Harbour | Darling Harbour Hotels, 2016). According to reports provided by the Deloitte Access Economics, the average rate of occupancy of the Sydney hotels has reached the highest level during the year 2016 ever since the year 2000 (Meissner Strauss, 2012). Generational Targeting The management of Novotel, Sydney has positioned itself to engage guests of different generations and serve them something more than just a hotel stay. The management of the company therefore devises strategy for customer engagement that can appropriately attune to the psychological association of the guests to the brand and help the hoteliers in anticipating the desires of the guests in a better way. On an average, one in a five consumer remains potentially engaged. However, this holds true for 22% of the guests belonging to the generation X (Schwartz et al., 2012). Again, the rate of engagement rises for the Millennial to 20%, 25% for the Baby Boomers and 26% or the traditionalists (Semrad, 2014). However, there is relatively lower percentage of young guests that can be engaged with the services of the hotels. The management of the hotel Novotel, Sydney can therefore target the generation Y as the emerging targeted segment in the hotel industry (Semrad, 2014). The hotelier can ther efore concentrate on the pre-purchasing process online, healthy eating as well as eco-friendliness and technology induced services. The young customers also aspire for luxury consumption and depend on the credit as well as thrift culture of shopping. Customer Worth The total Customer Worth can also be referred to as the dollar value of the total customer association founded on the present life-time value. The total customer value refers to the perception of the customer regarding what the customer receives in comparison to what the customer pays (Singh et al., 2016). Therefore, the customer lifetime value makes attempt to make out the economic value those customers can bring in to the business over the entire lifetime of the customers. The life-time value can also be regarded as the prediction of the overall net profit that can be attributed to the entire future association with the customer (Steinhardt et al., 2012). Analysis of the competitor set Identification of the competition The analysis of the competitor set of the Novotel, Sydney reveals the fact that the company does not face the challenges of competition as the company has entered into the arena of premium and luxury hotel industry. The big companies are very much likely to enter into the domain in the near future. Again, the small local hotels do not pose any challenge to the company Novotel, Sydney. The main competitors of the Novotel Sydney include the Amora Hotel Jamison Sydney, Sir Stamford At Circular Quay, QT Sydney and many more. The premium class luxury hotels pose challenge to the business of the Novotel, Sydney as the five star rated hotel offers high level of services and is very organized in their operation (Novotel Sydney on Darling Harbour | Darling Harbour Hotels, 2016). Competitive intelligence The management of the company can develop the competitive intelligence by increasing the revenue by way of smart evaluation of the overall market as well as competitive set having the historical as well as the forward looking data (Ovchinnikov Milner, 2012). The twenty four cycle of the news needs to shorten different time to press of different environmental events as well as business developments that can affect the overall business of the Novotel, Sydney. The competitive intelligence of the hotel also recognizes with different risks as well as opportunities before the events occur (Schwart et al., 2012). Therefore, the competitive intelligence also includes the variances between different widely accessible factual information that includes traditional information accessible from different online, social media and unique perspectives on the developments as well as events that can yield the competitive edge. Therefore, the competitive intelligence of the professionals includes sophi sticated training as well as processes in order to acquire important information and convert the same into intelligence for business decision making. Competitive Advantage The competitive advantage refers to different conditions or else state of affairs that facilitates the company to remain in a favourable or else superior business position. The business advantage of the Novotel, Sydney SWOT analysis The market condition of the organization Novotel, Sydney can be better understood from the SWOT analysis as this particular analysis helps an analyst to distinguish between the companys strengths, weaknesses, opportunities and threats. Strengths: Location Service Corporate Social Responsibility Sustainability Brand Accommodation Atmosphere Weaknesses: Price Association to hotel rather than Conference venue Opportunities: Brand Image Flexibility Threats: Competitors Declining Market Strengths: The particular organization Novotel is situated on Darling Harbor at Sydney, in Australia, the largest capitalist nation in the world. This location attracts many visitors and thus it can be said that the particular location is considered as one of the strengths of the organization (Bodea Ferguson, 2014). Additionally, the brand name, high accommodation capability, healthy atmosphere, sustainability of the firm and its CSR activities adds more value to the organization (FitzPatrick et al., 2013). Weaknesses: The price or the rate of the organization Novotel is relatively higher than any other hotels. Thus, it sometimes acts as an obstacle to the revenue generation process of the organization. Moreover, Novotel is more associated with hotel than conference venue, thus, the business people cannot select this particular hotel for the purpose of conference (Novoteldarlingharbour.com.au, 2016). Opportunities: The flexibility of the firm Novotel and the image of the brand act as the opportunities for the particular organization. The reason behind this is that the brand image helps the firm to attract more customers and thus it also helps to enrich the revenue of the organization Novotel. Threats: The hospitality industry is growing in Sydney and new competitors take entry to the market. This increases the competency of the firm and thus it seems to be a threat for the particular organization Novotel. Moreover, it has been found that due to the economic condition, the market of hospitality industry declines in Sydney (Mauri, 2013). Development of strategies as per the competitive SWOT analysis The management of the Novotel, Sydney can implement the Blue Ocean Strategy that can help the company to gain competitive advantage in the market. The blue ocean strategy refers to the process of elimination of the age old existing concept of offering guests with different private rooms (Chen et al., 2012). Again, the blue ocean strategy of the company also includes raising the awareness regarding the concept of the backpacking trips as well as sharing the rooms with the world (Wang, 2012). However, the strategy also involves the reduction of different elements with high cost in order to increase the cost efficiency. Demand Forecasting Supply and demand The management of the Novotel, Sydney can concentrate on the growth rate of the demand for the hotel industry in Sydney. The historical figures reflect the fact that the hotel industry in Sydney has not experienced any long-term growth that is near to the targeted figure of the 4.1% per year (Mauri, 2013). Again, as per the reports published between the year 2000 and 2011, there has been an annual average decrease in the nights spent by the visitors to 1.4% (Bodea Ferguson, 2014). However, based on the historical figures on the demand of the visitors we can arrive at the demand forecast figures until the year 2020. In order to attain the growth targets for the future, the hoteliers can devise long term approaches by taking into consideration different marketing initiatives and at the same time the infrastructure for the investment. Figure 1: Future Demand Scenarios (Source: Bodea Ferguson, 2014) The management of the hotelier Novotel, Sydney can consider the Australian Tourism Accommodation Model in order to recognize with the future conditions of the hotel market. The model takes into account the multi-equation as well as structural model that can incorporate different economic facets in the hotel accommodation market and takes into account the supply, demand as well price in a very dynamic setting. The scenario 1 refers to the scenario when the annual average increase in the demand during the year 2012 to 2020 is 549; the scenario 2 refers to the situation when the mean increase in the demand profile is 395 and the scenario 3 indicates the demand profile that equals to 145 (Hawkins Chen, 2014). The limited growth in the overall supply of the hotels in the industry can also offer some stimulus to the increase in the hotel room in the Novotel, Sydney as well. Figure 2: Future Annual Hotel Room Supply (Source: Hawkins Chen, 2014) Price Elasticity The price elasticity of demand can be calculated by the dividing the percentage change in the quantity demanded by the percentage change in the price (The Digital Economist., 2016). The equation on the price elasticity essentially represents the comparative responsiveness to the demand founded on the price. For instance, in case if the hotelier has 100 available hotel rooms where 20% of the inventory can be marketed at AUD100, then the marketer needs to increase the price of the remaining 80 hotel rooms owing to the lower number of inventory and thereby need to decrease the number or else the quantity to be marketed. The basic principle of the revenue management is to market at the highest possible price (The Scholarly Commons | Cornell University School of Hotel Administration Research., 2016). The total availability in the market place can also affect the price elasticity of demand. Finally, it can be said that the price elasticity of the demand or else the internal compression as well as the demand competitor pricing is equivalent to the price optimization (Tourism Accommodation Australia | Australia, 2016). Management of Demand The changes in the procedure of the distribution, rise of the internet among many other factors have affected the demand management process in the hotels. The staff members, members of the regional chains and the managers of the chain manage the demand factor in the hotel. The factors that the managers of Novotel can take into consider for management of the demand include gauging the response of the market, appropriate segmentation of the market and the related pricing strategy along with the price response to different competitive sets. The process of enumeration of the market response is the enumeration of the response of the consumers towards the pricing policy, promotional strategy and different marketing initiatives adopted by the hotelier. Impact of the elasticity of price on the consumer spending and revenue There exists a relationship between the elasticity of demand with the total revenue of the corporation. The inelastic demand can lead to increase in the prices and at the same time increase in the revenue. Again, the elastic demand can lead to fall in the prices and in turn a rise in the total revenue of the firm Novotel, Sydney. Figure 3: Effect of Price Elasticity of Demand on Revenue (Source: Hawkins Chen, 2014) Channel Analysis Reservation Evolution The evolution of the hotel reservation system is also considered as a vital factor in the hospitality industry. As per the organization Novotel, booking is one of the important parts of service thus; here evolution of this booking or reservation system has taken place. This includes online booking system, reservation through phone call and in person booking is also available for the firm Novotel (Walker Walker, 2012). All the systems have been evolved and designed in order to suit both the domestic and international customers. The evolution in the reservation system has taken place, thus, confirmation of the booking is done by Novotel over the phone only or over the e-mails (Hawkins Chen, 2014). These evolutions and modifications are considered by Novotel in order to earn more new customers and also to retain the existing ones. Global Distribution System (GDS) The GDS system helps to maintain both local and international commercial contracts with every type of client. It has been found that Novotel has generated more than 500 major corporate client accounts across the world by negotiating with the leisure, business and intermediary partners (Novoteldarlingharbour.com.au, 2016). Preferential agreements and strategic partnerships with the leading OTAs (online travel agencies) also help Novotel in GDS (McMahon-Beattie Yeoman, 2014). In addition to these, the contracts with 200 major airline companies, biggest international travel organizers and agreement with leading events procurement agencies (like meetings, conferences, incentives and seminars) also help Novotel in GDS (Novoteldarlingharbour.com.au, 2016). Property Management Systems (PMS) PMS is also known as Hotel Operating System (Hotel OS) that is used in the particular organization Novotel. These are computerized systems which help to facilitate the personal property, equipment and management of properties (Novoteldarlingharbour.com.au, 2016). Therefore, Novotel uses the cloud technology and software-as-a-service model for better running of the organization. Distribution Costs It has been found that Novotel has planned to invest an amount of 220 million euro in next four years in order to serve the common interest in the best way (Novoteldarlingharbour.com.au, 2016). The particular firm is ambitious regarding the digital strategy and thus it considers the foreseeable future to be digitalized, as it will help to decrease the distribution costs. Channel Selection The strong reservation system of Novotel acts as an efficient distribution platform that helps to meet all the requirements of the organization from online reservation and online payment to optimization of sales value and management. Moreover, the direct sales distribution channel of the firm like a stronger online presence, growth of presence of mobile, after-sales service and call centres helps Novotel to earn more revenue (Arenoe, van der Rest Kattuman, 2015). Conclusion The above study helps in gaining a deep understanding regarding the market segmentation of the hotelier, business environment of the hotel in which it operated. In addition to this, the current study also helps in understanding the existing trends along with the total worth and the lifetime value of the customer. 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