An investigation into the application of customer profitability analysis as a strategic decision-making tool in a hospitality environment

The primary objective of this study was to investigate the Applicability of Customer Profitability Analysis as a strategic decision-making technique in a hospitality environment. The study commenced with a review of literature in the fields of Yield Management, Customer Profitability Analysis (CPA) and Activity-Based Costing (ABC), with ABC being identified as an appropriate method of costing to use in CPA. Issues arising from the implementation of an Activity-Based CPA including the purpose of the system, the selection of software and the identification of activities and drivers are considered both in the context of a literature review and are later considered in the context of the primary research undertaken by the author. The primary research involved the development of an Activity-Based CPA and its implementation in a hotel environment. The test site chosen for the implementation of the system was a three star, medium-sized hotel property located in the centre of Dublin city. The time taken to conduct the study at the site was thirteen months. Findings indicate that the concept of CPA, using ABC, is applicable in the hotel environment. Findings also suggest that is technically feasible to apply an Activity-Based CPA in a hotel organisation with results of the analysis at the site providing valuable information to management for decision-making. One of the significant findings of the analysis was that 38% of revenue generated at the site is contributing to 137% of total profits. The study has resulted in the availability of cost and revenue data by customer group, data that was previously inaccessible by management at the site. Management anticipate maintaining the system at the site in order to use the customer profitability information generated by the system in long-term customer-related decisions

Understanding Consumers’ Inferences from Price and Nonprice Information in the Online Lodging Purchase Decision

The sustained success of variable pricing for revenue management (RM) is dependent on the creation of appropriate price points at which to sell a given product offering. To date, few studies have considered the impact of nonprice information on consumer reaction to price, and none have investigated the relative weights that consumers assign to price and the nonprice information available to them during different phases of the purchase choice process. This exploratory study uses a combination of eye tracking and retrospective think-aloud (RTA) interviews to examine how consumers consider the price and nonprice content generated by the firm and the nonprice information generated by other consumers during two distinct phases of the online choice process: browsing and deliberation. This study’s findings suggest that during browsing, firm-generated content appears to be very influential, particularly the image selected to represent the property in search results. Both firm-generated and user-generated content play a role in hotel choice during deliberation, with the interplay among several types of information being an important indication of value for consumers

How Long Should Dinner Take? Measuring Expected Meal Duration for Restaurant Revenue Management

Restaurants have two strategic levers for revenue management: duration control and demand-based pricing. Reducing dining times, especially during peak periods, can add considerable revenue for the restaurant. Managing meal duration, however, can be far more complex than manipulating the price. This paper examines dinner duration expectations for a casual restaurant using an adaptation of a price sensitivity measurement tool, naming it \u27Time Sensitivity Measurement\u27 or TSM. TSM is then used to derive the expected dining time, the optimal and indifference duration points. The results show that there is a relatively wide spread of acceptable dining duration times. Furthermore, the optimal and indifference points were significantly shorter than the mean expected dining time, suggesting that many restaurants may be able to shorten dining duration significantly (some 20 per cent in this present study) without compromising customer satisfaction. Furthermore, the paper explores whether demographic variables have an impact on time preferences and finds only nationality effects to be significant. Specifically, North Americans and Asians have similar duration expectations, while Europeans preferred a significantly longer dining time

Strategic Price Positioning for Revenue Management: The Effects of Relative Price Position and Fluctuation on Performance

Emerging price optimization models systematically incorporate competitor price information into the derivation of optimal price points. While consideration of competitor pricing at this tactical level is essential to maximizing short-term revenues, the long-term impact of competitive price positioning on revenue performance should not be overlooked. This study examines the effect of two key dimensions of strategic price positioning - relative price position and relative price fluctuation - on the revenue performance of 6998 US hotels over an 11-year period. It finds that revenue performance is strongest for hotels that price higher than the competition and maintain a consistent relative price over time. Implications for revenue management practitioners are discussed

Integrating Customer Relationship Management and Revenue Management: A Hotel Perspective

A number of authors have advocated a move towards integrating customer relationship management (CRM) and revenue management (RM). The implications of integrating CRM and RM strategies in the context of the hotel environment, however, have received little attention. The key questions that need to be addressed are: who should be targeted with CRM efforts and how will those efforts affect the RM process? This paper examines the relationship between CRM and RM. By means of the lifetime/profitability approach to customer segmentation proposed by Reinartz and Kumar in 2002, the appropriate customer segments to target with CRM efforts are identified and a supporting RM strategy is outlined for each segment. These include traditional RM, lifetime value-based pricing, availability guarantees and short-term and ad hoc promotions. The impact of these RM strategies on business processes in relation to customer segmentation, demand forecasting, information systems management and human resource management is addressed

Total Hotel Revenue Management: A Strategic Profit Perspective

Hospitality firms are expanding traditional revenue management (RM) practice to focus on customer value and strategic profit management. Participants in series of semi-structured interviews suggested that revenue management is moving away from a sole focus on top-line rooms revenue toward a bottom-line orientation focused on the customer. Thus, RM will expand to multiple revenue sources and encompass a multi-channel demand management approach. The interviews with sixteen senior hotel leaders, RM vendors, and solution providers highlighted the importance of profit, rather than just revenue, given rising distribution and variable costs. Despite the attraction of other revenue and profit sources, such as F&B, spas, and function space, the participants noted that expanding RM to those areas involves complexities not found in the rooms division. Ideally, hoteliers seek to assess the value of each customer’s patronage and develop a specific relationship with each customer. With changes envisioned by these hotel leaders, the practice of revenue management will evolve into the more accurate and expansive notion of strategic profit management