Unresolved Tension: the Quandary of Revenue Management Versus Service Management - Parts 1 & 2
Chris, from the International College of Management Sydney addresses the challenges of balancing revenue management and service management in a 6 Part Q & A series - in this article, he explains the revenue management strategy and addresses the issue of hotel pricing policies and their associated ethics.
1. What is your opinion on revenue Management in hospitality today?
Revenue Management is a multi-faceted strategic approach to pricing that can be very effective at promoting the bottom line. It works best for the overall sustainability of a hotel when it takes into account existing hotel standards and systems and especially when it can be flexible to loyal customers.
Do you think that all this heavy discounting and yield management really works (more retention of revenue)?
Discounting is a sometimes effective short-term strategy, but it is unsustainable because it can have long term impacts. Look at the recent closure of the Fairmont Resort, Blue Mountains , a hotel with competitive rates, as one example of a good hotel that priced itself under its market. I prefer value-add strategies for luxury products like hotels (keep the price the same but add-on indirect costs like upgrades and valet parking and shoe-shining), because I think customers equate low prices with poor quality and that has a negative brand impact, which does not sustain them.
In support of my discount-wary philosophy, the Observatory Hotel on Kent St, Sydney, has a 'no discount' policy that has seen it consistently able to charge high rates and generate revenues which are, by my observation, then invested in its people, these people then produce better service, which in turn adds value and can then be reflected in even higher prices... and so the virtuous cycle continues. It is a phenomenon particular to hotels and airlines and other luxury items.
Do you think that hotel pricing policies are giving fairness and satisfaction to all customers?
No, but the nature of service and hotels is that all customers are different and have different needs so this does not concern me so much. What does concern me is the opposite point of view. A lot of RM strategies rely on shifting market trends and movements that classify all people arriving at a certain time as one particular group. Therefore, I am no longer Mr Smith, regular customer who always gets a suite with a beautiful view for a consistent rate, but now I am Mr Smith arriving on a busy Thursday night and so now I must pay more or less than before because that's economics. That is economics, but not service. This is not honouring his loyalty nor rewarding it.
What is your opinion on all this cost cutting which is going on at the moment? Do you thing that employees are working in very "tough" environment, understaffed, stressed....?
Cost Cutting is vital but managers need to see themselves and their departments as 'profit centres' and emphasise revenue generation as well, as this will empower staff to see themselves as part of the success of the business= more motivation= better service. Furthermore, the old adage, you need to spend money to make money, is as apt as ever.
Stay tuned for parts 3-4 from the International College of Management Sydney
Questions and Answers
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