Improving the profitability of a hotel by cost reduction using system dynamic modelling

2. Faizan Ali(32)
Neha Thakur(07)
Chetan Chandak(30)

3. What is Revenue Management ?
‘Selling the right seats to the right customers at the right
prices and at the right time.’
Revenue management helps to predict consumer demand
to optimize inventory and price availability in order to
maximize revenue growth . Revenue management means
not selling a room today at a low price to sell it tomorrow
at a higher price. It also means selling a room at low price
today if you do not expect higher demand.
It challenges the resources to gather information about the
market so that you can be proactive and not reactive.

4. overbooking
market
segmentatio
n
forecasting
inventory
control
nesting
optimizatio
n
pricing

5. HOTEL SHREE KANHAIYA
LOCATION: SITABURDI
TOTAL NO OF ROOMS: 75
AC ROOMS: 25
NON-AC ROOMS: 40
RATES OF AC ROOMS : Rs 850/-
RATES OF NON-AC ROOMS: Rs 650/-
HALLS:-
AUDITORIUM
MEETING HALL
DINING HALL

6. TYPES OF ROOM:
SINGLE AC ROOM
SINGLE NON-AC ROOM
DOUBLE AC ROOM
DOUBLE NON-AC ROOM
DEMAND: MORE DURING FESTIVE SEASON
ADDRESS:
Hotel Shree kanhaiya, Hanuman Gali Lane,
Sitabuldi, Nagpur.
CONTACT:
0712 2544485

7. HOTEL SHREE KANHAIYA

9. HOTEL NIVIUM AND
BANQUET
LOCATION: WADI
TOTAL NO OF ROOMS: 40
AC ROOMS: 13
NON-AC ROOMS: 27
RATES OF AC ROOMS : Rs 650
RATES OF NON-AC ROOMS: Rs 400/-
HALLS:
OPEN LAWN
ADRESS:
Hotel Nivium, Opposite HP Petrol Pump,
Wadi, Katol bypass.
CONTACT: 9764558333
WORKING: 9 am to 11 pm

10. Objective
To maximize the revenue generated through hotel
management using System Dynamics methodology and
obtain a feasible solution in dynamic pricing
The problems
Classical approach to pricing
Linearity of prices
Room allocation
Over booking

11. Causal Loop Diagram

12.  This study addresses the problem of room pricing in hotels.
 It provides a model based on dynamic pricing with a flexible
and efficient support
 Two pillars of proposed framework are -
1. A Optimization model
2. A Multi-class scheme
Obtain different
scenarios
Take 1 scenario and
divide it to n
overlapping
segments
Manipulate
capacity of n
segments to
propose a model

14. Hotel revenue management
tools
Pricing tools
•Price discrimination
•Lowest price guarantee
•Dynamic pricing
Non-pricing tools
•Overcontracting and overbookings
•Room availability guarantee
•Length of stay controls
•100% satisfaction guarantee
Combined tools
•Channel management

15. Price discrimination
•Price is the strongest tool for market positioning of the hotel
– “the chain saw” metaphor
•Involves manipulating the price structure and price
dynamics.
•Price discrimination is not a crime but a desirable strategy
by the hoteliers!
•Carefully thought of and strategically justified decision.

16. Types of prices in
the hotels
Time
Day of the
week
Period of
the year
Special
Events
Booking
date
Length of
stay
Type
Double
Single
Suite
Deluxe
Air
conditioned
Price format
Net price
Commission
rate
Service
Main
Additional
Demand
Characteristics
Age
Guest
loyalty
No of guests
Type of trip

17. Overbookings
•Management of overbookings is a set of managerial
techniques and activities connected with continuous
planning, reservation and control, aimed at revenue and
yield maximization through confirming more rooms than the
available capacity of the accommodation establishments.

18. Length of stay controls
•Requirements for minimum number of overnights during periods
of high demand (e.g. special events, long weekend) or very low
demand (e.g. weekends for business hotels). The goal is maximum
occupancy during that period.
•Nearly always combined with price discrimination and high price
barriers (cancellation deadlines)
•Bookings below the minimum length of stay are not confirmed
•Effective if applied by most of the properties in the destination.

20. Customer satisfaction guarantee
•If the customer is not satisfied with the stay the hotel returns all
the money paid by the customer without the need the customer to
provide explanations for the dissatisfaction.
•In case of a repeat booking the customer does not receive such
guarantee, i.e. the guarantee can be used only once by the
customer,protected interests of the hotel.
•Does not bring revenues but decreases the perceived risk by the
customer

21. Room availability
•Provided by the hotel chains to their regular customers for
accommodation outside periods of high demand. Requires
48/72 hours advance booking.
•Guarantees that the guest will not be walked in case of
overbooking.
•Requires excellent occupancy planning by the hotel.
•Not valid with free overnights.

22. Determination of prices
prices have to stimulate future bookings, not to serve as a bonus
for past sales

23. Allotment management
commitment, allotment, free sale, upon request

24. Determination of booking
terms
release date, cancellation and amendment terms, payment
terms

25. The proposed model -

26.  The solutions suggested to hotel are as follows:
1. Dynamic pricing on the basis of type of stay
2. Overbooking management
3. Length of stay management
4. Special offers and Discounts
5. Lowest price guarantee
6. Customer satisfaction
7. 100% Room availability
8. Service management

27. REMARKS
•Frequent changes lead to uncertainty and mistrust
among customers
•Considering all sources of revenues in the hotel, not
only from Rooms division.
•Optimising the revenues of the single property and the
hotel chain in the destination as a whole.

28. Thank You