Question

Define revenue management and its use in the hotel and tourism industry

Answer 1

Revenue Management is used by management to predict consumer demand to optimize the product availability and the price of the product or service so as to maximize the revenue in the organization. The main purpose of Revenue Management is to keep maximizing revenue and have a growing trend in the revenue in the organization. Revenue Management is applied by gathering information about the consumer behavior in the market so that the organization can be proactive rather than reactive. The market information is used by management to divide the market and adjust the inventory so that the products are distributed effectively to the right customer at the right time and place. Thus, Revenue Management not only maximizes revenue during high demand periods but also stimulates demand during off seasons while slashing the prices. With the help of Revenue Management the organization takes all the revenues including the profitability into consideration so that they can sell at a lower rate in high demand period. A classic example where Revenue Management is used is the hotel and tourism industry. Suites can be sold at a lower price even during off-season periods. Trip discounts can be provided during off-season times. The factors that make Revenue Management possible in the hotel and tourism industry are:

• Fixed capacity
• High fixed cost and low variable cost
• Demand fluctuates
• Segmented market
• Product or service can be sold in advance
• Differentiated pricing
• Perishable product

To conclude, Revenue Management is used in almost all the industries today such as airlines industry. Revenue Management is used to have an increasing trend in the revenue growth of the company. Price and customer satisfaction are variables and the hotel rooms are considered as perishable products as they are limited. Hence, selling the right room to the right customer at the right timing and rate through right distribution channel with optimum commission is referred to as Revenue Management. The hotel and tourism industry benefit a lot with the help of this concept Revenue Management. The two industries yield revenue even during the off-season times.