ASSIGNMENT

REVENUE MANAGEMENT
LO 2
Assess the Relationship Between Revenue Management System and
Process and How These Link to Strategic, Tactical and Operational
Hospitality Business Goals

I Putu Very Ferrari

Batch 2

PEARSON BTEC HND LEVEL 5 IN HOSPITALITY MANAGEMENT

SEKOLAH TINGGI PARIWISATA BALI

(BALI TOURISM INSTITUTE)
2019
 Assess the Relationship Between Revenue Management System and Process and How
These Link to Strategic, Tactical and Operational Hospitality Business Goals

Introduction:

Hotel business has fixed capacity and perishable product are a common characteristic in
traditional yield-management situations (Weatherford & Bodily, 1992). Revenue management or
yield management is essential in hotel business nowadays in order to increase the business
revenue by creating strategy of dynamic pricing and capacity management. Smith, et. al. (1992)
as cited in Kimes, (1998), defines yield management as the application of information systems
and pricing strategies to “sell the right capacity to the right customers at the right prices” (Smith,
et al., 1992) (Kimes, 1998). El Haddad et. al. (2019) also defined revenue management as a
practice of controlling customer demand through the use of dynamic pricing and capacity
management to enhance profitability (El Haddad, et al., 2019).

From the definition above, since hotel has fixed capacity and perishable product, revenue
management is related to manage the capacity or room inventory and the price in order to achieve
business goal which is higher revenue. As the Revenue Manager of Langon Bali Resort & Spa, it
is essential to understand the relationship between Revenue Management systems and
processes and how these link to strategic, tactical and operational goals of the hotel. In this
paper we will assess the relationship of revenue management systems and the processes to
strategic, tactical, and operational goals.

1. Examine how structural, procedural and other elements of Revenue Management

support the achievement of business goals in Langon Bali Resort & Spa
Before we related to the relationships between revenue Management systems and
processes and how these link to strategic, tactical and operational goals of the hotel, in this
context we will emphasize first to the list of structure elements, procedure elements and other
elements that available in Langon Resort and Spa.

Structural Elements of Revenue Management.

According to Ivanov (2014), there is a revenue management as a system. Even though

the term of ‘revenue management system’ is often associated with RM software, in this context
the revenue management systems is the systems theory from von Bertalanffy (1969) as cited
in Ivanov (2014). The RM system is defined as the set of structural, procedural and human
resource elements dedicated toward the achievement of hotel revenue management’s
objectives (Ivanov, 2014). This revenue management system is illustrated into the figure below.

Figure 1. Revenue Management System.

Source: (Ivanov, 2014)

According the figure above there are 4 structural elements which are data and
information, hotel revenue centres, RM software, and RM tools. In this context we will examine
what is the structural elements that implemented in Langon Bali Resort and Spa.

1. Hotel Revenue Centres.

Hotel revenue centres determine the potential sources of revenues for the hotel such
as rooms division, F&B, function rooms, spa & fitness facilities, golf courses, casino and
gambling facilities, and other additional services (Ivanov, 2014). According to Ivanov (2014), in
practical point of view, the broader the sources of the hotel the better result the hotel will get.
Having wider scope of revenue source increase the opportunities of the hotel to sell more
service and generate the hotel revenue, not only the revenue from room, but the revenue from
additional service as well.

According to interview with Langon staff, Ms. Astri (See Appendix A for the interview
Transcript), in Langon Bali Resort and Spa, their main revenue centre is from selling the rooms.
However, they also have another revenue centre, such as transport to the airport, laundry
(cooperated with third party laundry) and lunch and dinner service (cooperated with third party
restaurant). Also, as their name Langon Bali Resort and Spa, they also gain revenue from Spa
service. Even though they have 5 revenue centre, however, 2 of 5 their revenue centres are
cooperated with third parties, which means that they gain shared revenue from it.

2. Data and information

The application of RM requires a lot of data regarding different revenue metrics such as
average daily rate (ADR), revenue per available room (RevPAR), gross operating profit per
available room (GOPPAR), occupancy, yield, profit per available room, etc (Barth, 2002)
(Lieberman, 2003) (Ivanov, 2014). In addition, revenue management system require
information about hotel future bookings on daily basis (room types and how many rooms
booked), sale of additional service, competitor’s rate, and other data or information that relate
to the demand, supply, revenue, and financial result of the hotel (Ivanov, 2014).

This data and information can be gathered from some source. As an example, the
booking data can be gathered from OTA or booking engine trough PMS system. And the
competitor’s rate, market demand and other can be gathered from RMS systems that will be
explained in RM tools.

3. RM tools
RM tools is the tools or software that help the revenue manager to increasing the
revenue of the hotel. Revenue management involves the utilization of different RM tools, which
are defined as instruments by which hotels can influence the revenue that they get from their
customers. RM tools can be broadly divided into pricing, non-pricing and combined tools
(Ivanov, 2014). Moreover, according to yieldplanet.com (n.d.), there are 4 key-RM tools of
revenue management which are PMS, Booking Engine, Channel Manager, and Rate shopper
(similar function like RMS) (yieldplanet.com, n.d.). However according to Captera.com RMS is
much better than Rate shopper (Capterra, n.d.), therefore in this context we will emphasize
more toward RMS rather than Rate shopper.

PMS (Property Management System)

Generally, PMS has function as automation for many common tasks such as booking,
check-in and check-out (Tech Target, n.d.). PMS provide critical data, including occupancy
rates, ADR, booking pace, lengths of stay, booking sources (channels) and customer
segments, that help revenue managers identify historical patterns and predict future demand
(Webrezpro, 2017).

According to Ms. Astri, the market of Langon hotel is mainly come from OTA, and other
small market is come from guest recommendation and from website. Therefore, the data and
information are gathered mainly from OTA then the processed through 2 system application
which are VHP (Visual Hotel Program) and Microsoft excel.

VHP is cloud-based PMS that has a complete integration with Microsoft Office tools,
and it is available in many different languages. This PMS integrates all modules Front Office,
POS, Back Office, Accounting, Online Reservation Systems and facilities management
(Hoteltechnologyindex, n.d.). Ms. Astri also said that Langon use Microsoft excel to process the
data.

Booking Engine

A website’s booking engine is the software application being used to secure online
reservations through hotel’s own website or third-party sites e.g. Facebook. There has been such
an increase in accommodations being booked online that even the smallest of hotels can no
longer ignore the need of an online booking engine (Littlehotelier, 2019).

Langon’s website at http://langon-bali-resort-spa-nusa-dua.hotels-nusa-dua.com, already

integrated with booking engine (see figure 2.) and work well (tested 3 October 2019). It shown
that this Rm tools already used and work well in Langon Hotel.

Figure 2. Booking Engine in Langon Hotel’s Website.

Source: http://langon-bali-resort-spa-nusa-dua.hotels-nusa-dua.com

Channel Manager.

The channel manager is necessary to efficiently manage the hotel’s inventory on all
reservation channels from a single monitoring point which updates in real time (yieldplanet.com,
n.d.). According to Ezeetechnosys’ website (n.d.), the VHP system that used in Langon can
integrated with their channel manager, however, Ms. Astri didn’t mention about the channel
manager, therefore it is important to have channel manager in order to controling the hotel’s
inventory or allotment in each OTA in a real-time.

4. RMS (Revenue Management Software).

RMS consolidates and analyzes hotel and market data (such as competitor rates,
destination demand, foreign exchange rates, flight schedules, etc.) on a continuous basis to
produce real-time pricing recommendations based on sophisticated algorithms (Webrezpro,
2017). In other word this RMS help the revenue manager to create an effective pricing and give
insight of the future demand and competitor’s information in order to create strategy. It shows
that this RMS has function has pricing and non-pricing tools to increase the revenue.

In Langon hotel, they didn’t mention that they use any of RMS. Therefore, it is important
to have one of revenue management software to do yielding. One of the RMS that Langon can
use is EzRMS. The Accor hotel group also use EzRMS (Infor, 2018), this software automatically
calculates demand forecasts, and recommends the appropriate selling strategies, such as
open/close rates, stay controls, open/close room categories, and overbooking levels by using
Deep learning AI algorithms (Infor b, 2019).

Pricing Tools

Pricing tools is one of the functions of RMS because it needs the competitor’s data to
create effective price. This pricing tools is the tools that process the rate structure, dynamic
pricing, and other techniques that directly influence a hotel’s prices (Ivanov, 2014). This tool
can help to create a strategy for revenue manager to create rate structure and publish the
effective price to get more revenue for the hotel.

Non-Pricing Tools

Non-pricing tools also part of RMS and it do not influence pricing directly. However, it
relates to inventory control capacity management, overbookings and length-of-stay control
(Ivanov, 2014). From this tool, revenue manager can create strategy to maximize the use of
their inventory. As an example, when the data from RMS show that there is a large demand for
today and low for tomorrow, we can create a minimum stay strategy. Minimum stay is an
inventory control mechanism used to optimize stay patterns, primarily to ensure that a peak
demand night does not get filled with one-night stays.
Conclusion of Structural Elements.

From that information above and figure 1., it shown that these structural elements is an
essential element that can be used by revenue manager in order to create strategy to control
inventory, maximize revenue of revenue centre, and as a basis to do the dynamic pricing. This
element can be used before the guest booking. As an example, by knowing competitor’s rate
from RMS, the system will suggest the effective rate that can be sold to the customer. Moreover,
by combining RMS and PMS, we can also control the inventory and create strategy to maximize
the room sale such as minimum length of stay policy or close to arrival policy during high
demand.

Procedural Elements.

The RM system is defined as the set of structural, procedural and human resource
elements dedicated toward the achievement of hotel revenue management’s objectives (Ivanov,
2014). In this context we will emphasize of procedural elements as a part of revenue management
systems. According to Ivanov (2014), the procedural element was illustrated into following figure.

Figure 3. Procedural Elements.

Source: (Ivanov, 2014).

 Create RM Goals.

According Ivanov (2014), the RM goals must be SMART. Specific, Measurable,

Achievable, Realistic and Time Bound. Using SMART goal is essential because SMART RM
goals provide a basis for evaluating the work of the revenue manager/RM team
 Specific: the goals must relate to particular metric.
 Measurable: the goal can be measure or has numerical expression or indicator.
 Achievable: goal is set within reasonable limit
 Realistic: goal supported by marketing and financial budget.
 Time-Bound: the goal including deadline.
From those criteria of SMART goal, as a revenue manager I would like to propose a goal
for Langon Hotel. The goal is Langon increasing 10% RevPar by next month.

Data and Information Gathering.

The second stage of the RM process includes the gathering of necessary operational data
and information provided by the hotel’s marketing information system in order to measure the
process of revenue management.
Analysis.
Operational data is analyzed to provide the hotel’s revenue manager with clues about the
trends in the hotel’s RM metrics for the forthcoming days/weeks
Forecasting
After analyzing the data, revenue manager makes decisions on the basis of forecasts
about the demand, supply and development of various RM metrics (Ivanov, 2014).
Decision
From the forecast revenue management use RM software to produce recommendations
for the optimal levels of prices, rate structures, overbookings, and help the revenue manager
make proper decisions (e.g. closing of lower room rates, inventory management).
Implementation
Once the RM decision has been made it must be implemented. All staff members involved
in sales should be informed about the decision if they have not participated in the decision-making
process (Ivanov, 2014).
Monitoring
Finally, the revenue management process includes the monitoring and evaluation of all
stages in the process and searching for opportunities to improve it at every stage.
Conclusion of Procedural Elements.

Information and figure above from Ivanov (2014), shows that the procedural element is
about the procedure using structural element in order to create goals and measure the
performance of revenue management. It is essential also to implement this to Langon Hotel, by
creating SMART goals, using RMS or RM tools to gather data and analyze data, forecast the
demand and supply then create decision of what strategy that want to be implemented. At last
communicate to in-house staff to implement the strategy then monitoring and measure the
performance and effectiveness of the strategies.

Human Element in Revenue Management Systems.

In this context is about the skill and attitude of the person that involve in revenue
management systems. According to Ivanov (2014), this human element needed in order to
implementing the strategies of revenue management (figure 3.). The in-house staff must be
capable to perform their job according to the strategies, e.g. if the Revenue Manager want to do
minimum of stay policy to avoid one-night stays in peak demand night, the in-house staff must
has knowledge of what the strategy all about and skill to communicate and operate the system
software to do the strategy.

However, according to Ms. Astri, in Langon never have minimum-of-stay policy or

overbooking. It shows that Langon hotel play safe and the in-house staff less capable to do the
strategy for yielding.

Technological Element in Revenue Management Systems.

Technology element is about the software that require to do revenue management

systems. These technologies already explained in structural element about what is the key tools
of revenue management. As a revenue manager I must able to use those RM tools in order to
achieve the company’s goal.

Conclusion:

The Relationship Between Revenue Management Systems and Processes and How These link
to Strategic, Tactical and Operational Goals of Langon.

As the conclusion, from all information above we can see that there are relationships
between the elements that mentions above. Revenue management system consist of structural,
procedural, human, and technologies elements. And these structural elements are essential in
order to do the process of revenue management systems. The procedural element is the basis of
how the process of revenue management to creating the strategies for yielding. Moreover, by
using the procedural as a revenue manager I can measure the performance and the effectiveness
of the yielding strategies.

Relating to Langon Bali Resort and Spa, as already explained Langon need to have RMS
system to help the properties compete with the environment and increasing the revenue. By
having RMS as a RM tools, Langon can gather data of the competitors. Moreover, Langon also
need to train their staff about the strategies to implement it in Langon. By having RMS Langon
can get valuable data about competitors and environment to create pricing or non-pricing strategy
that can implemented by staff and at the end it can increase the revenue of Langon Bali Resort
and Spa.
References
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14(3), pp. 136-141.

Capterra, n.d. Rate Shopper vs RMS Hotel. [Online]

Available at: https://www.capterra.com/hospitality-property-management-
software/compare/147633-129206/Rate-Shopper-vs-RMS-Hotel
[Accessed 3 10 2019].

El Haddad, R., Roper, A. & Jones, P., 2019. The Impact of Revenue Management Decisions on Customers'
Attitudes and Behaviours: A Case Study of a Leading UK Budget Hotel Chain. [Online]
Available at:
https://www.researchgate.net/publication/266525349_The_Impact_of_Revenue_Managemen
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Ezeetechnosys, n.d. Manage your real-time inventory distribution by availing integration with these
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Hotel-Program-(VHP)
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Hoteltechnologyindex, n.d. About e1-VHP. [Online]

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Infor b, 2019. EzRMS revenue management software. [Online]

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Infor, 2018. Accor Hotels talks Infor EzRMS revenue management. [Online]
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Littlehotelier, 2019. What is a Booking Engine, Channel Manager and Front Desk System?. [Online]
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APPENDIX A.

INTERVIEW TRANSCRIPT.

INTERVIEWEE : I Luh Astri.

POSITION : Staff of Langon Bali Resort and Spa.

CONTACT : +6281246964973.

Q: What is the software that Langon use?

A: Langon use VHP as PMS and Microsoft Excel.

Q: What are the revenue centres of Langon Beside the room?

A: The revenue also come from transport to the airport, laundry, lunch and dinner. However,
laundry, lunch and dinner we cooperate with third party.

Q: Does Langon have strategy such as minimum of stay?

A: No, it doesn’t. Langon doesn’t have minimum of stay.

Q: Ever Langon has overbook?

A: No, Langon never do overbook.

Q: Is Langon ever has cancelation?

A: Yes, but cancelation via OTA, therefore the OTA will take care of it directly.

Q: From what channel is the market of Langon coming from?

A: Mainly from OTA, however, some guest also come from the other guest recommendation and
website.