Hotel Revenue Management Strategy – Impacts and Consequences of Changes in Management

Abstract

Revenue Management (RM) is a set of practices for businesses to improve their revenue generation tactics and strategies. RM originated in airlines and spread to the hotel industry as a successful set of tools. This case study focuses on a contemporary study of hotel RM, namely the implementation of RM strategies. Using a fictional scenario, the case study examines different RM strategies and guides readers to distinguish each strategy’s characteristics. Furthermore, the case study leads readers to question and research the potential impacts and consequences of implementing RM strategies. To contextualise the case study, readers will get access to data from Smith Travel Research (STR), presented for the Wollongong market. The case study follows Alec Weiss as the owner of the Landorn Hotel Wollongong, and his dilemma facing the choice of RM strategy for his hotel. For the past 5 years, the revenues of the Landorn Hotel have been decreasing steadily, consequently affecting the profits. Landorn International is a multinational hotel company that has been managing Alec’s property for the past 5 years. Their contract is due to expire in 2020 and Alec is wondering whether to renew it or change the hotel management, and therefore its RM strategy.

Teaching Note

Case Summary

This case study highlights different Revenue Management (RM) strategies currently in use in the hotel industry, illustrated in a fictional scenario. This case study follows Alec Weiss, owner of eight hotel properties throughout New Sales Wales (Australia), and the description of RM strategies within his independently run properties. Alec faces a dilemma with an underperforming hotel that is managed by an international hotel brand and asks himself whether to change or not the management, and therefore the RM strategy, at that property.

Students will use two articles as the foundation of their argument: Altin (2017) and Altin et al. (2017a). The first one presents a taxonomy on the different RM strategies that exist; while the second one compares the growth of RGI (revenue growth index), a key hotel metric, with each RM strategy in place at a sample of hotels. These two studies will be explained further below in the Framework.

A key benefit of this case study is its polyvalence, as it can be used for both undergraduate and postgraduate students. Learning objectives and sample questions were built to reflect this aspect of the case study. Moreover, postgraduate students can be led towards a deeper understanding of the importance of a hotel’s ownership as a key factor for choosing a revenue management strategy.

Target Audience

The case study can be utilised for both undergraduate and postgraduate students. The overarching theme of RM is generally found in both level of studies. However, the theme of RM strategies is typically part of a strategic-focused topic within a RM class, which undergraduate studies do not always include. Postgraduate studies will often focus on a holistic and strategic approach to RM, which may contain an analysis of RM strategies.

Teaching and Learning Objectives

This case study has three learning objectives for students. The objectives focus at both levels of undergraduate and postgraduate students. The first two aim at the undergraduate students, while all three can be used for postgraduate students. The learning objectives are:

• 1. Evaluate various Revenue Management Strategy in use in hotels, identifying their benefits and drawbacks.

• 2. Appraise the potential impacts and consequences of the implementation of a new Revenue Management Strategy.

• 3. Critically analyse the context of ownership and management of a hotel as key factors in the choice of Revenue Management Strategies.

Teaching Approach and Strategy

This case study can be utilised for individual, group or assessment work, though it is not advised to use it for exam, as it entails a great deal of research. This case study can be provided prior, during or after class delivery, for students to familiarise themselves with RM strategies, for students to apply concepts, or for students to provide an in-depth understanding of the topic, respectively. A suggested lecture plan is drafted in Table 9.1, taking into consideration when the case study is introduced:

Table 9.1 Lecture plan for using the case study in class

Theoretical Perspectives for Guiding Students’ Discussion

The use of Altin’s (2017) seminal work on RM strategies will help students to evaluate the use of each strategy applied in Alec’s hotels. Altin examines RM strategies used in hotels and lists five possible methods: in-house, centralised, corporate outsourced, third-party outsourced or mixed method. Altin defines in-house strategy as having all RM decisions made at the property. A centralised method takes place when more than one property are being managed together, by a corporate or a regional office. Corporate outsourcing however differs from a centralised model, as a branded hotel purchases RM services from the corporate headquarters (such as IHG’s Revenue Management for Hire program). Altin then explains third-party outsourcing as the subcontracting of RM services, whether through a vendor or only for a system. Lastly, a mixed strategy refers to the use of more than one of the aforementioned strategies. Moreover, Altin’s study also describes each strategy’s benefits and drawbacks and provides illustration and support from the industry.

Furthermore, the follow-up study of Altin et al. (2017a) on matching a hotel’s RM strategy to its RevPAR (revenue per available room) can also be used to appraise each strategy through time. Altin et al.’s research focuses on RGI, a key hotel metric that compares a hotel’s RevPAR to that of its competitors. Altin et al.’s study attempts to highlight the RGI’s evolution through time, comparing hotels implementing different RM strategies. Using a sample of 602 hotels throughout the United States, their findings display that mixed methods produce the highest RGI at $109.11 of average, followed closely by corporate outsourcing ($107.39) and centralised method ($105.87). In-house RM is the next best performing strategy ($100.59), though at nearly a $10 difference of RGI than the mixed method. Last is third-party outsourcing ($94.99), found a full $15 below mixed method. This study is limited to hotels in the United States, but it provides a strong foundation for an argument in favour of mixed methods.

Individual or Group Work: In Class Discussion

The case study can be utilised for in class discussions with students working individually or as part of a group. In either case, students will be asked to regroup to work together to answer the questions developed in the discussion. The activity should take approximately one hour to one hour and half in total, with reading the case study, answering the questions, researching further materials or concepts and discussing the answers found. It is advised to work with small student groups, in order to maximise engagement.

Assessment: Business Report or Group Presentation

Using this case study as an assessment, lecturers can ask students to either write a business report, present their findings in a group presentation, or both. The questions developed in the discussion can be used as the focus for the assessment, while lecturers can add more to design the assessment towards a particular aspect of RM.