Yield Management From Saudi Arabia Hotels

Introduction

Implementation of research results relies fundamentally on the conclusions we mitigate from the results. Quality and accurate findings undergo criticism to evaluate between the conclusions that we make. These conclusions assist humanity to develop and establish incredible strategies of performing to prosper in their day-to-day life situations. It is appreciable that the tremendous achievements that have been advanced so far are the results of research. Consequently, this section targets at describing the data collected within Saudi Arabia in a research activity of yield management (YM) use. The data was collected from Saudi Arabia hotels in Riyadh, Mecca and Eastern Area cities. Practices of the described hotels base their roots on data collected from twenty hotels operating in the three cities. The research described in these results considered a variety of hotel sizes that ranged from small private to the huge operational hotels of national and international levels. In addition, some of the hotels constitute other organizations located and operated in the globe. The target markets of Saudi Arabia hotels are business guests during the weekdays and leisure guests on Saturdays and Sundays.

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Most of the interview participants possessed, at least, some knowledge about yield management. For instance, some had attended courses on YM while others had studied university papers about YM. The few participants, who did not have these qualities, had sufficient experience gained from working in international hotels. It is, also, crucial to note that a high portion of the participants were not citizens of Saudi Arabia. In fact, fifty percent of the participants were from Egypt. Although all five star hotels apply software of yield management, hotels of other levels do not adopt the same strategy. Additionally, five star hotels and other hotels employ revenue managers under different departments. Presentation of the findings will involve a strategic description about the area of location, occupancy, pricing strategy, price-adjustment strategies, human resource, customer management, and third-party websites. After this, the subsequent presentation will assess hotels’ trend recognition, dispositions and the foreign circumstances, and acumen of managing revenue. In this way, people will acknowledge the practices of YM techniques.

This research gathered for information regarding the readiness to exploit the available opportunities within the surrounding of each hotel. The responses retrieved from the participating individuals represented distinct strategies of actions. Most hotels relied on advertisement information as their key source of information. News proved to be the most common way of advertising. The providers of the services included media stations, newspapers, magazines and websites. Secondly, some hotels gather information from the hotels they compete with in the market. Participants stated that they contact other hotel to enquire for information on upcoming events. Additionally, some hotels facilitate development of the strength of this system by hiring authorized officers to gather for such information. The other strategies in which the hotels remain updated is through research of the market. The findings imply that few hotels perform market research either through the use questionnaires or through other strategies. Experience is the other outrageous and unexceptional strategy that was pointed out by the participants. The managers have adequate experience in their location of work. Therefore, they are able to determine the market patterns of the area, and probably hold meetings to establish new events through discussion and information sharing. Lastly, statistics could act as a way of dictating the proceedings. For instance, the trend of the previous years could provide an estimate for expectation in the current year. Also, some hotels subscribe to other companies for statistical information regarding demand and room prices.

Location

Researchers were able to identify and postulate that central location of hotel and easy accessibility facilitates high pricing (Egan and Nield, 2000; Weaver, 1993; Taylor, 1995; Bateman and Ashworth, 1981). The data that was collected through this research implies that hotels located in the city centre had an opportunity to charge highly for their services. Additionally, this postulation is supported, further, by the findings that those hotels located far from the city centre could only charge low. One participant stated that “some competitive hotels located far away from the city centre and government ministers, often offer less prices compared with us” (participant #2). In fact, some hotels suffer low occupancy and decide to request for support from hotels within the city centre. A manager pointed that “… the hotels located far from the city centres have a lower occupancy as they usually ask us to send customers to them and they shall pay commission to us” (participant #9). The city centre is usually the location of government institutions, private sectors and commercial centres. Therefore, it is noticeable that businesspeople and other guests within the country prefer using hotels that are at a close range to their centre of operations. After Bull (1994) completed his research, he found that hotel’s room rates appreciated towards the central region of the Australian coastal town. Why do these prices rise towards the town centre? Since the centre is a location of many institutions, guests prefer using hotels that are near to enhance operational efficiency. A manager from a four star hotel stated that “it will meet the desire of businessmen for time saving, especially, as movement inside Riyadh usually take a great deal of time due to its size and crowded traffic” (participant #1). Probably, the demand increases and causes initiation of other mechanisms to increase revenue.

The findings of this research provide evidence to the high prices in the city centre. Hotels, in Riyadh city centre, are able to improve their revenue due to increment in room rates. Participants showed that their main targets are businesspersons from governmental institutions. The participants who worked within Mecca hotels presented a clear picture that they are reliant to the Holy Shrine. The statement of another manager that “we are in front of the most important building for Muslims which affects room pricing extremely” (participants #19) explains this remarkably. Hotels located at a close range to the holy shrine could provide high prices and attain high occupancy. In contrast, the hotels that are located far from these targets have a tough job of improving the room rates. This stipulation was supported by a participant who stated that “… location has unhelpfully affected room pricing. This is due to about 5km distance from the Holy Mosque , though we offer best services and lower prices by 40% compared with other competitors hotels close to the mosque” (participant #20). Consequently, they sign contracts with other hotels and companies to get assistance in improving occupancy. Ironically, hotels providing similar services and at the same or higher quality standards have far distinct room rates. One manager stated that “there are hotels which offer better services than the kind of services offered by hotels in the city centre, but their room rates are less” (participant #1). This depicts the roles of proper stationing of a hotel. Designers must be careful about the location and target before building a hotel.

The findings on this research show an interest of hotels with hospitals, airports, ministries, private organizations, government institutions, beaches and a holy shrine. Since most of these components are found within the cities, there are high expectancies of room rates. It, further, supports the postulation of Yokeno (1968) that guests are willing to pay more for greater accessibility. This is an indication that success of a hotel is not only gained, it can also be achieved through strategic positioning. Building a hotel, therefore, presents a single component to profit making. However, it must consider location to facilitate significant profits. A manager narrates an example to explain this “For example, there is a hotel nearby to one of the biggest hospitals in Riyadh with a room rate about 600 SAR, whereas another hotel located in an ordinary area in Riyadh has a room price of almost 300 SAR. Thus, a location study should be maintained before going on to construct the hotel in addition to recognition of targeted customers” (participant #7).

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Occupancy

Occupancy rate is a key and fundamental aspect of a hotel’s revenue. Ideally, Hayes and Ninemeier (2006) pointed out that the hotel management should establish strategies of raising occupancy rate of a hotel in a given time. The findings of the research depict that nineteen out of twenty of the hotels under study had occupancy of 50% and above. If this is the case, we can stipulate that there are control mechanisms to improve occupancy. In fact, only one hotel had occupancy of 30%. The participant alleged that this low occupancy was due to the hotel’s new nature. He stated that “… the cause for occupancy percentage decrease is that the hotel has been constructed recently, and all rooms are not yet fully operating” (participant #3). Probably, the occupancy of new hotels could grow to reach the rest. This could be possible because the hotel had a daily room rating of 1300 SAR. Considerably, only two hotels had a higher rating than 1300 SAR. Also, those that had occupancy of 80% were included below this mark. The relationship between occupancy and room rating did not display a clear picture in this research. The data collected stipulates that no concise relations exists between the distinguished terms. For instance, hotels with daily room rating of 2300 SAR, 1100 SAR and 750 SAR had occupancies of 74%, 80% and 78% respectively. However, it is clear that those hotels within the city centre had higher occupancy and rooms rating than those that were located in the city periphery. An example to prove this is that a hotel located in front of the holy shrine had a room rating of 2300 SAR and occupancy of 74%. When this is compared to others located far from the holy shrine, it makes a clear distinction in terms of occupancy and room rating. There is an identifiable relationship between the average daily room rating and the rack rate. Only one hotel depicts a huge difference between these two factors. In this case, the room rating is set at 1100 SAR while the rack rate is 3200 SAR. The others depicted an increment ranging from 40 SAR to 600 SAR.

Ellerbrock, Hitet & Wellst (1984) identified the use of magazine advertisement to have the most favourable impact on occupancy rates. Their research, further, stipulated that interstate highways and radio advertisements have the least favourable impact on occupancy rates. However, hotels’ managements continue to utilize and devise other strategies to reach its customers. One manager indicated that “There are several points which can help raise the occupancy rate and revenue: Advertising through television, newspapers or websites …” (participant #8). Although this and many other hotels do not use magazines, they fall under the same occupancy rate with those that used magazines when advertising.

Shoemaker (2003) identified that customers develop negative perception or attitude towards a hotel where YM is used inappropriately in regard to providing services. However, some hotels persist to use similar techniques in raising their profits. For instance, a manager stated that “there are some factors that would help in raising occupancy and revenue percentages…Apply permanent residence strategy for 3-4 days during seasonal times” (participant #14). Shoemaker describes this as a strategy that delineates the potential customers into other hotels due to mismanagement. Noone and Colleagues (2003) reiterated that the revenue obtainable from a single transaction is maximized by guests’ length of stay, as well as the strategy of closure to arrivals. However, in managing demand, they do not emphasize on varying lifetime value of a guest. Also, they do not provide a way forward on long term profit maximization.

RevPAR, which measures the financial performance of a hotel, identifies whether a hotel maximizes total room revenue (Gurbuz, 2011). It is a function of average daily room rate and occupancy rate. Investigating the variation of financial performance, therefore, relies on each of the two. This research tried to evaluate the hotel’s terms and conditions of the two factors. Participants described their improvements and depreciation of room rating by dictating the factors that lead to their fate or success. Pricing, supply stability, demand, advertisement, modernity and offers seemed to be the most influential factors towards the increment of room rates. For instance, a Mecca hotel manager quoted that “Rooms rates have raised during the last three years from different causes; increase of demand, reasonable prices of the rooms, and increase in the number of travel agents …” (participant #15). On the other side, there are a number of reasons dictating the reduction of room rates. Competition, however, seems to be the most fearsome threat to most hotels. The statement that “There is a reduction of revenues because of; competitive power has increased extensively during last three years, increase of offers delivered by hotels …” (participant #5) depicts this clearly. Other fluctuating events that affected the room rating include political events, lack of maintenance, and increase in businessmen, foreign delegation and local tourists. However, data collected for room rating, in the last three years, was not fully rooted because most participants worked in new hotels.

The evaluation between the category of importance between occupancy and revenue established strong basis of considering the two in the hotels operation. Most managers showed divided interests in the issue. For instance, a manager said that “Both occupancy and revenue … When income is low, we attempt to increase the percentage of occupancy and when occupancy is high we concentrate on maximizing our revenue” (participant #12). Also, this quotation shows the divisions “Occupancy is more important than revenue… but when work portion increases, revenue becomes necessary” (participant #1). However, this does not apply in some five star hotels. A five star hotel manager stated that “Revenue is the most important because we have a five star hotel with high services. Therefore, the income factor is considered more essential than occupancy” (participant #13). Controlling room rates and occupancy seemed to be the most crucial strategy for the hotels. Some hotels achieve occupancy to raise their revenue while others raise revenue to attain high profits. The quote “When the demand exceeds the supply, the revenue will be more important than occupancy. On the other hand, the occupancy will be more important if the supply exceeds the demand” (participant #16) describes this allegation. This, further, stipulates that revenue and occupancy can be controlled to fix the profit. In fact, some of the hotels participating described the use of this strategy to fix profits.

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It is vital for all managers to define the strategies of maximizing occupancy and revenue. This research investigated the strategies that hotel management considers when reaching for high income. The research identified that the hotels under study were able to use the following strategies.

  1. Advertisement
  2. Providing varieties of rooms
  3. Marketing strategies
  4. Providing quality services and ensuring customer satisfaction
  5. Segmentation
  6. Providing offers
  7. Utilizing seasons maximally
  8. Using application strategy restriction, for example by providing the minimum length of stay
  9. Evaluating customers
  10. Contracting with companies and organizations

Although, all these strategies are used to maximize revenue and occupancy, advertising and marketing seem to be the most basic means. Approximately all the managers considered advertisement when answering the question regarding the maximization of revenue and occupancy. One of the managers who considered advertisement stated that “… some factors that would help in raising occupancy and revenue percentages; commercial advertisements, rooms shown via websites, increase of services and hotel facilities, apply permanent residence strategy for 3-4 days during seasonal times, signing contracts with travel agents and the private sector, and implement yield management concept, such as segment hotel customers” (participant #14).

Pricing strategy

The research demonstrates that the management of a hotel must be curious about the factors affecting the pricing strategies. It identifies and gathers for information regarding the pricing strategies. This research implies that cost-control cannot optimize the revenues and profits realized by hotels. Using an effective price strategy is the quickest and most reliable way that an hotelier can maximize its profits and revenues (Kim, Han, & Hyun, 2004; Schmidgall, 2002). Consequently, the identified strategies that determine price are location, competition, demand, cost, supply, wholesale discounts and marketing. One of the participants could feel the effects of all these factors on the finger tips. The manager says that “Prices have been set after the adoption of a marketing analysis process, determination of the proportion of demand, and the purchasing power of customers. In addition, we take into account the room rates provided by competitors, especially these competitors who deliver similar services and quality. So we strive for the hotel room rates to be the same price as published by our rivals” (participant #10). The expectancy is, therefore, vivid that if a hotel is located properly, it will have a high demand and establish a competitive foundation for the rest. Initially, we were able to establish that hotels built far from the city centre survive low occupancy and room rate. Probably, lowering their prices and giving offers are the strategies they can maximize their revenue. On the other hand, hotels located within the city can raise their room rates to increase revenue. Do they really require numbers to attain revenue? Ideally, the high seasons of these hotels operate strictly on revenue. They do not mind about the number of individuals to join since the demand is high. In fact, some of these hotels have the concerns of leaving some unrented rooms for emergencies. In relation to this, a manager stated that ‘If occupancy rate rises to 85%, all external bookings will be suspended and 10% of the rooms will be sold to ‘Wake in’, and 5% will be available for emergency situations’ (participant #7). Apparently, all the hotels had rooms with different ratings. The range was between 4 to 10 rates for the distinct rooms.

Room rating was affected substantially by the market, hotel’s facilities, seasons, location, unexpected events, false information and future pricing plans. Gu (1997) noted that the hotel industry requires pricing done on the basis of a quadratic room-pricing model, which considers operating costs, as well as the dynamics of the market environment, especially when operating in a highly competitive market. There are fluctuating competitions and demands that make the managers remain corporative in their performances. One manager does not mind describing the earlier unfortunate hotel management. The manager said that “Room prices have gone down… there was no marketing team that could help in promoting the hotel’s rooms. Further, the previous management was aiming only to collect profit without factual concern about furniture and room maintenance which considerably affected the prices over the last years” (participant #6). It is, therefore, crucial to ensure that we use the knowledge of yield management to evaluate the incidences of performances in all hotels.

Some instance requires that hotels identify the strategies of handling overbooking, cancellations and special offers. This research was able to gather for the most vital strategies on performing this role. Overbooking could either be avoided or controlled. For instance, one manager refutes the strategy of overbooking by saying “If occupancy rate rises, our focus will be on ‘Wake in’ and other reservations will be rejected. When you talk about overbooking, we do not sell products that we do not have. I mean that overbooking needs a correct prediction built on correct foundations. However, we can maximize rooms’ revenues without applying overbooking method. We can force customer to cancel their reservations before 48 hours or the fares are not refundable. In check day, we contact customers to confirm their attendance. After that, we can decide how many rooms should be selling to ‘Wake in’” participant #12. The participant acknowledges and fears the repercussions of overbooking generally. They fear to dissatisfy the customer. However, others use it as a tool of covering cancellation. This is retrieved from a statement made by a participant that “…In the high season, the occupancy rate reaches to 110% due to cancellations and no-shows” (participant #11). In the issue of cancellations, most hotels prefer using penalty to discourage customers and cover the loss they might undergo. The highest proportions of hotels seemed to place the penalty if the cancellation is performed after 24 hours. A manager confirming this says that “… pertaining to cancellation of booking if demand is high, cancellation should take place within 24 hours but if demand is low such cancellation should be within 48 hours from arrival time” (participant #4)

According to Pride & Ferrell (2011), modern hotel managers take into consideration such factors as demand, the competition within the industry, and the need for flexibility while developing their pricing policies. They dictated that revenue managers reject a model that takes, into account only, the operational costs of an organization and ignores the economic aspects of supply and demand. Consequently, this research established the basis of this argument by investigating the follow-up policies in the hotels. Most hotels had policies that influenced, controlled and targeted future booking. In fact, one participant said that “there are monthly meetings regarding future bookings. Usually, booking, sales, and front office mangers meet to discuss all matters concerned with future bookings” (participant #2). However, other hotels do not have any policy about future booking. What effect does this have on the success of these hotels? What are the chances that they miss? Presumably, they do not need to consider these policies since they offer services that are unique in a way. There are different types of room to improve demand and supply. All hotels had at least two room types to facilitate diversity, and influence rising of demand and supply.

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