We all like to keep a track of our expenditures, don’t we? A similar thing happens in industries like hospitality. They have something called high fixed costs; i.e. the money they have to spend whatever might be the situation. But, they also have what we call perishable inventory. This means that they cannot store supplies in their vault that will be used up 1 year later.
When you take care of these factors and allocate budget to be spent, this is called revenue management. This is used when you have to optimise the results obtained from financial sources.
What constitutes as revenue management? It is when you sell the right product to the right client on right time at the right price.
Let us take the example of hotels, shall we? Perfect.
Take a look at the sample below to understand the question.
So, in the beginning, the assignment file says that you identified a tourism or hospitality organisation in Assessment 1. We don’t have that, so let us assume that we did. Okay?
After that, we have to now prepare a business report which shall include what a revenue manager should have, describe distribution channels and emerging trends. Also, you need to pitch your strategies to stakeholders.
We hope the question file is understood. Oh, sorry. We promised explaining it as well.
It does not take a Mr Robot to solve the assignment. So, let us tell you what this assignment is.
Tourism and hospitality organisation means a hotel, generally speaking. We shall assume Mantra Group (Melbourne, Victoria) as an example here.
Revenue manager. A revenue manager is a person who is responsible for managing the marketing of the service, the food to be served, the customer service and allocating the financial budget to the sectors to achieve the organisation's targets.
The second part comes in where you have to identify skills. So, what skills should be there? The revenue manager should be a leader who will ensure the success of the profitability goals. With the help of strategies, the revenue manager should be able to increase the revenue generated by the hotels from the lodging tariffs. For this, the experience of the guests should be phenomenal with exceptional services.
The next part is the distribution channel. Distribution channels are small businesses through which the goods or any service passes to reach a customer. For example, the fruits as grown by the farmer are not sent directly to your door. There is a series of checkpoints that they pass through.
Similarly, there are distribution channels in the tourism industry as well. There are tour operators, there are travel agencies, etc.
A tour operator is a person who creates the entire layout of the trip. Right from boarding of the flight to the destination to exiting the airport after coming back, everything is planned by a tour operator. The key factor to consider here is the tourism season.
The travel agency is the person who is responsible for the distribution of the service. When you go for the tour, you are shown various packages and stuff. That is the travel agency.
In the end, you will discuss the emerging trends that are taking over the distribution systems and the revenue management in the tourism industry.
Here, you need to prepare your prices on the basis of the customer trends and the past data. You aim that the customers will pay $50 for one night in your hotel and then prepare the strategies to make them pay this amount. Follow the conditions in the market and the demand among the customers.
The pricing strategies determine what goal the organisation is going to achieve. Then, the pricing tactics tell how the company is going to achieve that goal. These may include lowering the prices than the competitor, giving exclusive deals, etc.
Revenue management in inventory rotates around controlling the inventory at the best price. This means that the manager has to take care that sufficient inventory is maintained in the organisation and it is not adding to any liability.
To capture the market for a new product, the organisation may offer it at a lower price in order to increase the demand and market share. Also, there are cases when demand is high but a threat of loss is also there. For example, the airlines overbook themselves out of the fear of cancelled bookings.
There is a famous tactic of selling large volumes of a good by lowering the price of the same for a temporary period. Here, the revenue management helps in attaining a balance between the growth of the organisation and the profitability.
When the goods and services are marketed well, they generate a high revenue. This is useful especially when the customers are looking unwilling to pay.
Marketing is also useful when the services over a long-term relationship are offered. Long-term good and services always attract customers. Here, the revenue manager optimises the balancing of the roll-off variables.
The revenue management is channelled means driving the good or service through distribution channels effectively. Every distribution channel has a different cost and the associated margins.
For example, the same Adidas shoes will cost different when bought through Amazon, Walmart and the physical store.
Revenue management techniques are useful especially when there are multiple distribution channels available. Here, the revenue manager can calculate the discounts that should be offered to the distributors. This will push a higher volume of the product and the respect for the brand image will not be harmed.
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