Revenue Management in Hotels: Fixed Cost Optimization

In the hotel industry, optimizing the cost of rooms and services has always been a difficult affair. The pricing strategy is facing challenges mainly due to product perishability, a variety of customer segments, variable demand and fixed room inventory, which lead to price fluctuations. The industry has been looking at yield management pricing strategies to capitalize on the rising challenges. Hotels fixed cost optimization is another new trend that is being followed for handling the challenges of cost optimization.

The new trend that has been emerging in the market recently shows an ongoing inclination towards cost optimization even when the demand is not exactly high. This growing trend is popularly referred to as price optimization. This technique is aimed at charging the highest rate possible in the industry with no loss in the market share. Hotels fixed cost optimization aims at maximizing the revenue at the fixed cost charged.

Traditional cost optimization and revenue management tools are offered after execution and analysis of demand estimation algorithms. A number of research papers have been published by reputed organizations such as IEEE, which detail various effective estimation algorithms. Revenue management can be described as a scientific technique which combines statistics and Customer Relationship Management (CRM), and categorizes the customers on the basis of services and price brands. Statistical analyses of the previous data are quite helpful in revenue management and in enhancing the efficiency of hotels fixed cost optimization.

 Hotels: Fixed cost optimization versus traditional methods

The advent of social media has contributed largely to hotels fixed cost optimization. They help in promoting low prices and hence play a great role in customer preference. Global recession has also played a leading role in promoting the new trend of fixed cost optimization. The high fixed cost for the maintenance of buildings, repairs and other services places a high demand on revenue.

With the new trend of hotels fixed cost optimization, cracks have appeared in the solid foundation of traditional revenue management systems. The characteristic features of traditional systems such as demand forecasts, overbooking and rate buckets are being replaced with the fixed cost system that seeks to optimize revenue while maintaining the levels of fixed price. Hotels fixed cost optimization focuses more on effective market pricing strategies.

While implementing hotels fixed cost optimization, it is prudent to take into view the critical challenges that the industry currently faces. The ability to predict the current potential capacity and development of appropriate fixed price strategies would help in increasing revenue. Cost reductions are to be achieved without compromising the security, safety, and service levels of hotels.

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