Incentive Compatible Revenue Management

Question: Discuss about the Incentive Compatible Revenue Management. Answer: Introduction: The current report encompasses the development of a revenue management strategy in the context of Hilton Sydney Hotel for the financial year July 2017 to June 2018. In order to develop recommendations, it is necessary to consider several aspects confronting the hotel. Firstly, the market segmentation strategy of the hotel has been evaluated along with evaluation of the competitor set in the market. Moreover, the report focuses on critical evaluation of the external environment of Hilton Sydney Hotel, which would help in identifying the competitive position of the same. Furthermore, the demand forecasting strategy and channel analysis of the hotel has been conducted. Based on the output, the revenue manager has suggested an effective strategy that would help in improving the overall business performance of Hilton Sydney Hotel. Analysis of market segmentation of Hilton Sydney Hotel: In the words of Abrate Viglia (2016), market segmentation strategy provides the marketers with an opportunity for positioning the products and services to generate potential customers. Conventionally, the hotel industry goes through both peak and lean seasons in a particular financial year. Based on the two seasons, the hotel owners frame strategies like price and service packaging to maintain constant cash inflows (Afeche, 2013). The market segmentation strategy of Hilton Sydney Hotel is enumerated as follows: Behavioural segmentation: Hilton Sydney Hotel is a high class and elite service provider in Australia. IT has approximately 530 resorts in 78 global countries with strong brand reputation. With such available information in the minds of the customers, it is inevitable for the customers to develop a specific perception, behavioural aspect and knowledge towards the brand. Due to this, the hotel has formed an interesting customer segmentation based on their bard perceptions and knowl4dge. In this context, Agatz et al., (2013) stated that such knowledge and perception help in forming a niche in the high-end community. This has been the main reason that the Australian government and global firms select the brand to conduct their meetings and product launches respectively. As a result, the brand loyalty of the target customers remains resolute. In addition, the hotel has been planning to make investments in Myanmar, in which few people already possess pertinent knowledge of the global reputation of the hotel. Therefore, the management is planning to develop unique launch approach to avoid rivalry from the Asian hotels. Psychographic segmentation: This segmentation is based on the personal activities and lifestyle demand of the potential consumers (Azadeh, Hosseinalifam Savard, 2015). Hilton Sydney Hotel is situated in a place, which serves different market segments in a unique way. The standard of living in Sydney is high and the weather patterns in the tropical areas vary over the year. Therefore, this people spend their leisure time in different ways and outlook the services of the hotel from different perspectives. The main target customers of the hotel in Sydney comprise of the business travellers and visitors from global countries. Demographic segmentation: As commented by Bayoumi et al., (2013), the marketers make demographic segmentation based on occupation, age, race and education level. With the help of such segmentation, the marketers ascertain the preferences, needs and position of the target market. Hilton Hotel has developed an image of targeting the high profile customers of the global countries. Different celebrities, sports personalities, businesspersons and upper ranking politicians use the services of Hilton Sydney Hotel. The middle class individuals are unable to use the hotel services due to its aggressive pricing strategy. This depicts that the hotel needs to target the rich individuals or corporate houses that exist in the Australian market or the high-class foreign dignitaries and tourists. Such focus would help Hilton Sydney Hotel to maintain the desired profit margin (Cetin, Demirciftci Bilgihan, 2016). Cultural and geographic segmentation: This is the most important market segmentation strategy, in which Hilton Hotel Sydney packages its range of services according to the cultures of the customer destinations and geographical coverage. The marketers of Hilton Sydney Hotel segment the target customers based on cities, religions and territories. This is because the individuals generally protect their beliefs and cultures (Chen Schwartz, 2013). For instance, Hilton Sydney Hotel does not offer pork items in its menu list for the Islamic customers visiting Sydney. This is because the hotel has prepared special menu card for this group of people in order to provide with maximum satisfaction and convenience. Analysis of the competitor set: The major competitors of Hilton Sydney Hotel comprise of Four Seasons Hotel Sydney, Pier One Sydney Harbour and Amora Hotel Jamison Sydney. Four Seasons Hotel Sydney has segmented the target market, in which it mainly aims to target leisure, business and premium travellers. This comprises of the higher-class families and big corporate houses, as it positions itself in luxury living and prime location (Poutier Fyall, 2013).The hotel has strong brand recognition by making new technological innovations for enhancing the customer experiences. Hence, the service quality and operational strategy of the hotel is identical in nature to that of Hilton Sydney Hotel. However, the hotel does not market its services through social media and other sources, which has allowed Hilton Sydney Hotel to maintain competitive edge. Pier One Sydney Harbour is one of the luxurious hotels in Australia, which is built over the water. The hotel provides bizarre boutique accommodation to its customers in close proximity with the districts of Sydney. It has a Gantry restaurant and bar, which provides quality food and beverages coupled with a sense of heritage and ambience. However, the hotel does not promote its services through social media and the brand recognition is limited in Australia only. Amora Hotel Jamison Sydney is another luxury hotel, which offers luxurious accommodation facilities to its customers. The big shopping malls, dining and nightlife are on the doorsteps of the hotel, which has increased the occupancy rate of the hotel over the recent years. In addition, it has all sorts of facilities available for the hotel customers like restaurants, bars, spa, gym and swimming pool. It mainly targets the upper segment of the society, which includes both rich individuals and big corporate houses. The strategy is similar to that of Hilton Sydney Hotel; however, the organisation has no online portal and uses trip advisor to market its services. Analysis of the external environment of Hilton Sydney Hotel: The external environment of Hilton Sydney Hotel could be evaluated with the help of SWOT and PESTLE analyses. SWOT analysis: Strengths: Strong brand name and global image, which has helped in creating loyal customer base Large capacity of tangible property and real estate Adoption of most advanced technologies to address the needs of the customers and other stakeholders (Enz, Canina Noone, 2012) Weaknesses: Set-up costs and maintaining the daily operations for running a large hotel premise Expansion plans, which increase the need of new structures and buildings, result in rising cost Weak internal structures due to indifferent attitude of the management Opportunities: Emergence of new markets in African continent, in which it is anticipated that the industry would experience considerable growth Weak competition level due to support from media and other sources Introduction of new services in the form of additional rooms for increasing the hotel capacity and occupancy rate Threats: Instability in the political conditions of Australia might result in huge losses Rise in the prices of general items, which could increase the hotel cost in future The competitor are modifying their strategies to increase their presence in the Australian hospitality industry Loss of potential customers, as similar services would be available at cheaper cost (Gallego, Ratliff Shebalov, 2014) Table 1: SWOT analysis of Hilton Sydney Hotel (Source: As created by author) PESTLE analysis: Factors Analysis Political Stable political conditions in Australia and support from the government agencies to the hospitality industry of Australia Actively engaged in lobbying to influence certain political factors of Australia by spending nearly $1.5 million over the past four years (Kimes Wirtz, 2016) The terrorist attack in Australia is another major political issue in recent times, which could reduce the number of visitors in the nation Economic The conduction of Cricket World Cup in Australia and New Zealand has increased the rate of occupancy in Hilton Sydney Hotel. This is because many cricket fans have visited the nation, especially the Indians The fall in AUD in terms of USD by -0.30% in 2016 could significantly affect the profitability of Hilton Sydney Hotel Stable rate of inflation over the years, which depicts the stability of the economy and therefore, better potential for Hilton Sydney Hotel (Mauri, 2016). Social Constant support from media and other sources, which has reduced the competition level for Hilton Sydney Hotel Change in demography of Australia, which urges the need to change pricing strategies of the hotel (Noone, 2016). Rise in young consumers from China and India could offer potential opportunities to the hotel in increasing its sales revenue Technological Adoption of most advanced technological equipments to increase the convenience and comfort of thee guests Direct booking facilities available for the customers through online portal of Hilton Sydney Hotel (Hiltonsydney.com.au, 2016) Promotion through social media and trip advisor to attract more customers into the hotel Legal Rules related to immigration and processes of obtaining visa have become stringent in Australia. As a result, it has affected the business profitability of Australia indirectly Environmental Increase in the rate of carbon emission, which has aggravated the issues of global warming (Ovchinnikov Milner, 2012). Introduction of ISO 14000 series to maintain the quality of services, which could increase the expenditures of Hilton Hotel Sydney Table 2: PESTLE analysis of Hilton Hotel Sydney (Source: As created by author) Demand forecasting: Demand forecasting is a significant aspect for any organization as it tries to evaluate the future demand and thereby, tries to undertake necessary steps to increase the demand in the market (Guhlich et al., 2015). In this current scenario, Hilton Sydney Hotel has undertaken a demand-forecasting model to analyse their expected demand in the future. It is seen that the hotel initiates its demand forecasting by using the correct data. There are certain managers in hotels who try to bite off more they can chew. This step therefore involves the hotel management to look into the historical data from the system of the hotel, which shows the occupancy and the revenue for the past few years. The data from the last three years is an ideal situation and the management can undertake an accurate forecast. The most important that needs inclusion is the rate code, arrival and departure dates and profit earned each day. Another step Hilton Sydney carries out is the segmentation of the forecast into various groups. For example, the hotel can differentiate between the outline-booking customers who book hotels very early. It is seen that these customers are conscious about price and thus, they need to be analysed separately from the customers who book directly and are ready to pay more for the services in a hotel. The segmentation can further be done by making subsets of the customers who have similar behavior. It is important for Hilton Sydney to monitor closely their websites from time to time. The demand forecasting of Hilton can clearly be understood by evaluating the popularity of the hotel through the traffic in the website. This process can be a complex one, but it provides significant insight on the present and future demand. If a proper tracking is made by calculating the number of people visiting the site and the total number of bookings, a clear image about the true demand can be estimated (Kocabiyikoglu, Popescu Stefanescu, 2013). Hilton Sydney even monitors the upcoming events in the yearly calendar. It is of great importance to look into the upcoming events near the hotel. The list of events that can increase the demand for the hotel are the holidays like Christmas and New Years Eve, weekend etc. the major sporting events that are going to occur in that area also needs to be noted as these events even attract customers. The essential aspect is to understand how these events will influence the business and assign greater value to them. The historical data is crucial in finding out the list of annual events. Thus, the hotel can take necessary steps to by evaluating the pace of booking, type of rooms booked and the booking pattern so that a clear picture is available about when to estimate a rise in demand (Masiero, Pan Heo, 2016). The other step involves knowing their competitors better so that all the steps taken by the rivals are known and Hilton can take necessary steps to overpower them and maintain a competitive edge in the hotel business. Hilton Sydney even needs to maintain a proper partnership with the sales and marketing team so that they can influence and increase the amount of customers and bookings through promotional activities and advertisements (McKenna, 2014). Therefore, it is seen that Hilton Sydney requires evaluating their demand forecast by looking into all these aspects so that they can come to an efficient solution. Channel analysis: Channel analysis refers to the evaluation, which states that how and where the products or the services of a company should be sold. Three type of channel analysis can be seen in any kind of business. The first channel is to sell directly to the customers; the second channel is sell the product of service to the end customers through retailers or wholesaler and the last channel is to sell the product or the service to the end customers with the help of both first and second channel. As per the study, Hilton Sidney Hotel is one of the best luxurious hotels in Australia. The hotel offers a large variety of services to its customers; they are accommodation, bar and restaurant, health and beauty services, provides conference rooms for meetings and various events and many others. Thus, it can be seen that Hilton Sydney Hotel mainly offers various kind of services to their clients. Hence, the channel used for Hilton Sydney Hotel is the first cannel, which is to sell the services directly to the end customers. The hotel avails some advantages due to the selection of this particular channel. The details about the channel are discussed below: There are some reasons behind the selection of this particular channel as this channel has some major advantages. Firstly, the company operates in the sector industry. This is one of the main reasons to choose selling directly to the customers. The customers of the hotel include tourists, business people, people on holydays and many others. Selling directly the products to the customers gives the hotel the control over the sales procedure. The hotel can control the overall sales process as there is not any intermediary between the hotel and its customers. On the other hand, due to the absence of intermediaries, the various services of the hotel reach to its clients in reasonable price. However, there are some complexities in this particular channel. A large sales team is required in order to maintain the wholesale procedures, as there are no intermediaries. Hilton Sydney Hotel has a large and efficient sales team to take care of the sales procedure of the hotel. Secondly, the large number of customers of the hotel requires a quick and efficient service from the hotel side. One of the thumb rules of service industry is to deliver the product in time with great quality. Having the presence of intermediaries may take time deliver the product to the end customers. This is another important reason. Thirdly, the majority of the products of Hilton Sydney Hotel are sold to the premise of the hotel. Thus, it is suitable for the hotel not to go for any intermediaries as they the services are produced in the hotel. However, there are some intermediaries or whole sellers of the hotel to deliver various raw materials like materials for foods, garments for the clients and others; but Hilton Sydney Hotel does not use any intermediaries for their core services. Conclusion: Based on the above discussion, it has been evaluated that Hilton Sydney Hotel mainly targets the higher-class individuals and large corporate houses by providing superior quality services. The major strengths of the organisation include strong brand image and large capacity to accommodate its guests. However, the aggressive pricing structure and fall in AUD value might reduce the business profitability of the hotel in future. The hotel has designed a portal for the guests to sell its services directly to them. In addition, the constant support from media and other sources has helped the hotel to enjoy competitive advantage in the Australian hospitality industry. Recommendation of a potential revenue management strategy: In accordance with the above discussion, the most feasible revenue management strategy that would help Hilton Sydney Hotel to maximise its profit margin would be the yield management system. This strategy would help the hotel to analyse certain factors, which are discussed as follows: Booking patterns: By reviewing the booking patterns, the managers of Hilton Sydney Hotel could view a specific night three months in advance regarding the number of reservations, which came in from different market segments each day. With the help of this analysis, the managers could view the path of performing better in contrast to the current performance. Patterns of demand: The management of Hilton Sydney Hotel needs to accumulate information pertaining to historic demand. For instance, this information might include the methods of selling concierge rooms at a particular time of the year during a specific season. This data could be used to anticipate the future demand for the different market segments. This is the basic requirement of implementing yield management system to ensure effective functioning of the prposed strategy. Overbooking policy: By implementing the yield management strategy, Hilton Sydney Hotel could state its overbooking policy. This policy needs to include the level at which the management is intending to overbook for increasing the occupancy rate. For instance, overbooking policy could be conducted during the festive season of December to ensure the maximum occupancy rate of the hotel. Impact of price fluctuations: The yield management strategy would help the managers of Hilton Hotel Sydney to have a clear insight on the impact of price fluctuations on hotel demand. This is because the airlines increase or decrease their prices several times in a particular accounting year. Hence, the yield management strategy would help the managers of Hilton Sydney Hotel to be aware of the price charges and the impact it could bear on the demand of the hotel. References Abrate, G., Viglia, G. (2016). Strategic and tactical price decisions in hotel revenue management.Tourism Management,55, 123-132. 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