The term yield management in hotel industry is based on selling a room and other services to a targeted customer. This has to be done at the right time and at a reasonable (affordable) price. It is also referred to as revenue management and the man behind the term’s invention, Mr. Robert Crandal one’s worked as the chairman and Chief Executive Office of American Airline. He referred to the term as a simple technique that oversaw the development of transport management in hotels (Law & Hsu, 2006). According to a report by Kimes Sheryl, a revenue management scholar foresees the advancement of technology as a boost to yield management (Wirtz & Kimes, 2007). Yield management bases it is concepts on optimal inventory control and demand variable pricing. The demand variable pricing respects the desires of a consumer, thus giving an individual ability to make his or her choices. This means that the customer is at liberty to choose a hotel that he or she is able to pay and stay within a specified duration.
Introduction
In 2000, Saudi Arabia registered more than 190000 internet subscribers. This was the highest increase of internet uses when compared from the previous years. By the end of 2005, the population of Saudi Arabian citizens able to access the internet had clocked 2.52 million, thus portraying a growth of about 1168% (Werthner & Ricci, 2005). Currently, the number of internet subscribers in Saudi Arabia is more than 12 million. This means that out off 100%, almost a half of the population is internet enable. The introduction of internet to business has enabled hotel business industry to thrive since it is targeted customers can now get their desired goods and services by a click of a button. Several hotels are currently making their way into the internet, thanks to the government of Saudi Arabia for making computer prices affordable by reducing it is taxation fee. Hotels in Saudi have created their own websites to act as distribution channels for products they offer. This comes after the management discovered that a wide percentage of the world’s population is computer literate (Hotel Online, 2004; Miniwatts Marketing Group, 2012).
Third party website and room rates
Third party websites are mostly associated with travelling issues. They provide them with a comparison price list for products and services existing in various hotels in Saudi Arabia. Third party websites are also referred to as online travel agents (OTA). The Online Travel Agents encourages the use of two models which include; the agent model and the merchant model. Examples of Online Travel Agents include the Orbitz, Expedia and Travelocity.
In Saudi Arabia, third party websites are largely carried out by Airline companies who are directly linked to the hotels accommodation services. They provide their customers with rooms by selling them directly from the airport. A person in need of a hotel is given identification numbers which is to be presented to the hotel management on arrival. The best thing about third party website is that they are directly associated with the guests and can offer them with the needed services at any time. Regardless of all the best services third party websites do offer to the hotels that are linked to them, they also greatly affect the room rates.
How it happens
Traditionally, people walk in hotels and pay for a hotel room and other services offered or use the hotels’ website to do the transactions without the help of a third party website provider. When this happens, the hotel’s management is able to register it is targeted profits since the property offered to the guest are fully paid for as it is required. This means that at the end of the day when the calculations are done on industrial aggregation, competition set and room rate revenue, the hotelier realises that the amount paid by the guest is what was required.
However, guests in the current world do not make direct transactions for hotel rooms but rather consider using a third party website that is directly linked to the hotel rooms. The guests do not also consider the brand of a hotel since the introductions of third party websites, thus immensely affecting the room rates of a hotel. Basing on the issue of hotel brands, a guest would rather use a third party website brand to identify a room of his or her own choice and not the hotel’s website. The use of these brands has greatly affected hotel room rates since a guest will believes that the hotel belongs to the third party website, thus replacing the actual hotel brand with their own. By doing this, owners of third party websites expects that the guests willing to purchase rooms from their website will be loyal to their brands and eventually take the hotel market.
When signing a deal between a hotel and a third party provider, a required percentage of any transaction made between the provider and the guest must be considered. This makes it difficult for the hotelier to realise it is exact profits because the amount paid for the purchase of the property may be higher than the actual price agreed upon by the two institutions. The third party provider is capable of manipulating the price of room, thus earning more money apart from the agreed commission.
For example in a merchant model, if the agreed upon price of a room in a hotel like ‘Hotel Show’ is $200, then a merchant will have to sale the room at a cost of $180. This means that after the transaction, the merchant will earn a commission of 20%. No hotel room in Saudi Arabia is given to a merchant until a guest or any other visitor makes his or her payment. The difference between the two models is that the hotel management calculates the agent model’s commission after the room has been booked and pays of the money to the Online Travel Agent (Thompson & Failmezger, 2005). On the other hand, the merchant model allows the Online Travel Agent to calculate his or her commission before giving the remaining cash to the hotel management. Thus, creating a difference between what an hotelier get from the guest after a direct transaction and from what the hotel gets from the third party. If an issue like quality is to be considered, then the commission on room rates is raised by the Online Travel Agent to maximize profits. This means that a hotel can negotiate it is commission rates with an Online Travel Agent and rest on 20 percent. But because the hotel would want to be ranked on top of the website list, a 5 percentage will have to be increased to make it 25percent.
How hoteliers can solve third party provider problem
Looking at the commissions offered, third party providers imposes a higher rate when making an agreement because all the risks related to the business such as fraud cases are settled by deducting a $ 3 to $ 5 percentage for any transaction made. Hotels with various chains tend to negotiate for a smaller commission because they have an already established market. Hotels depend on Third party website while at the same time advertise their products and services on their website. This can be something of the past if a hotel decides to invest heavily on advertising it is goods and services. Making it is website stand out by use of different and more attractive colour combination will make the guests willing to have rooms in Saudi Arabia to consider the hotels service. Having a simple, unique brand also helps a hotel in identifying itself to the world (Gazzoli, Kim, & Palakurthi, 2008).
Online Travel Agents in Saudi Arabia can also come into an agreement with the hotels management and lower the commission rates if the two decide to partner. This is because Online Travel Agents are always in need of all the rooms in hotel and yet not even five of the rooms are be booked or sold because they have other hotels to take the guest. This will ensure that a good number of guests are brought in the hotel despite their demand. Other ways of solving room rates include:
- A hotel should consider making its room rates consistent for it to attain profits. This will work best if both indirect and direct channels of distribution are involved. Having this process used, the search of rooms online will reduce, thus making the guest to come back to the hotel.
- Low rates should be imposed on a hotel’s direct website and also make an effort of upgrading the room rates.
- Application of yield management rules also facilitated the process of maximizing profits. This can be achieved if the hotelier employ’s a qualified revenue manager (Smith, 2010). A cultural event should be created to recognize the revenue management process.
- Investing on technology enables a hotel company to work on achieving profits if the information concerning the past will be readily available for use as a reference material to help foresee the future.
- When selling a room, several restrictions should be put in place by a hotel company to prevent the third party channel from manipulating the terms of business agreements.
- On booking dates, hotels should not use third party to prevent them from getting commission but rather, hike their room rates on indirect distribution channel and less on direct distribution channel.
- When working on room rates strategies, the hotel manager should focus on consumer, emerging trends and the environment. This helps in monitoring competition from other hotel companies.
Rate parity
It is also known as similar rates and is an important factor for customers in need of hotel rooms. This is because they use it as a channel of confirming availability of rates for same or different hotel rooms. Saudi Arabia hotels do have room services depending on the customer desire. A person uses different channels of distribution in order to decide on the most affordable hotel rates of one’s desire and ability (Demirciftci, 2007). If a hotel offers different cost for the same sizeable rooms on different third party providers, then a guest opting for an accommodation in that hotel will be forced to focus his or her attention on another hotel for services. This came as a result of that hotel having inconsistent information that to same extend confused the guest. Therefore, guests will understand the rate of a hotel room hiking in respect to the changing economic demands, but not different channels portraying same hotel service information and costing different prices (Murphy, Schegg, & Qiu, 2006).
Determining the rate for room services
Under the rate parity, the rates on a hotel website are different from those in third party providers in such a way that the hotel management provides them with a price list for each room. The rates indicated on the list must be adhered to by third party providers for the hotel to maximise profits. This is opposite to the smaller hotels since the third party providers tend to dominate in the process of constructing a pricing list.
Two concepts can be used to show how room rates on third party websites are different from those of hotel website. The concept of “Reference transaction” is used to determine how consumers expect the third party websites to be run. On the other hand, the concept of “reference pricing” is based on the products and services offered by the online firms. Having these concepts in mind, consumers or in this case the guests consider comparing their previous paid rates (posted prices) to the current rates (market price) for the same hotels they have had an accommodation (Campbell, 1999). For instance, if a hotel in Saudi through it is website offers $100 for a room and the same room is sold at $80 in one of the third party websites’, then the pricing is unfair. And because of this, consumers of these goods and services are to be educated on such issues, thus have the right to “reference transaction.” This saves the hotelier from making losses, hence ensuring that the agreement signed between the hotel and the third party website provider is followed to the later. Another issue that can make the rates of third party website to be different from hotel website is the framework that determines the perishable rate for an asset’s yield management. Hotel management monitors the rate of demand, hence forced to work on historical information for them to prepare on the number of guests they need, thus helping the hotelier to meet profits mark. When hotel management realizes that one of it is hotel block is fully occupied in Saudi Arabia, the prices of the remaining rooms are increased (Toh, DeKay, & Raven, 2011).
Economic importance of online distribution
Use of electronic distribution channel by chain hotel and other small hotel is important in the sense that, it struggles to eliminate the process of depending on third party website in hotel business. As an hotelier, the main reason is to make profits, and by use of the internet, people are able to book accommodation services via online. Direct distribution channels create a base for a hotel to market itself, thus gaining long term advantages in the competitive world of business. For example, a booking made via cell phone is charged $ 6, GDS is charged $20 and the one via internet is charged $ 3. According to Kimes and Wirtz (2003), reservations done by calls would costs $ 8 and any direct booking made via internet would cost $ 4, thus the rates of hotels will not be affected. The benefit of using direct distribution channel is that it does not give room for third party providers. It facilitates travel transactions between the travel company and the person (guest).
Strategies of attracting hotel customers
The best thing a hotel can do to maximize profits and enable it win over the Online Travel Agents is by establishing strategies that will facilitate it is progress. These strategies include:
- Taking social media (facebook and twitter) as a consideration will help increase the relationship between the customer and the hotel. This increases the level of customer loyalty it helps in maintaining contact with customers while bringing the new ones to the system.
- By developing a hotel’s logo and printing on t-shirts will also help to publicize the hotel. This can be achieved if the t-shirts are distributed freely to the customers thus when worn, they increase the rate of the hotel’s exposure (Brewer, Feinstein & Bai, 2006).
- Promoting other services (such as catering) and publicizing them to the world will also help in attracting more customers for the hotel services. This can be achieved by providing full information concerning the services on one side of the website.
- Also, an hotelier should consider what their customers like. Involved the customers in different promotions will keep them coming because they will always think of what they once did.
- When working on the website wall, one should ensure that the photographs used speak portray the truth concerning the hotel. The bathrooms and toilets should be exactly the same as what is on the picture.
- Make a direct contact or send the guest a mail asking them to come back (Kim, Bojanic & Warnick, 2009). When inviting them, the management should have a token in store for him or her. This can be a program bonus based on frequent visits.
- Use of Google as an advertising agent for the goods and services offered in a hotel also creates a boost on daily sales. Google is used by a large population and if considered, then the information will be among the best listed, thus making it known to the world. The other internet search engine that can be used to advertise the products and service is Yahoo. One is only required to pay a consultant fee for him or her to be given with a keyword which enables the information to appear on top of the list.
- Allowing the guest to use the office machines such as telephone and offering their vehicles with free parking space, also encourages a guest to frequently visit the hotel. Free breakfast and a free wi-fi encourage a guest in coming back for the services offered. One thing a hotel management has to do is to encourage their receptionists who are also referred to as front desk to always give a highlight of the goods and services offered in the hotel.
- Guests who frequently use the hotel’s website can be tendered free upgrade as a way of motivation them in coming back. These include packaging of different goods and services and making an addition of a free service. At this point, a free service may include offering free internet services and photocopying.
Observations
Online Travel Agent, greatly gained advantage over the hotel businesses in the sense that they act as advertiser for various hotels goods and services (O’Connor, 2002). They help in rating hotels in Saudi Arabia on top of the list, thus convincing their targeted customers, and thereafter encouraging them to purchase their goods and services. Considering economic issues, Online Travel Agent provide their hotel counterparts with packaging services which helps in the reduction of overall cost of expenditure. This include bundling services such as room accommodations provided by hotels, air travels and transport issues required by their customers. By bundling all these services together, a guest is given a discount as a way of appreciation towards their acceptance of services. Online Travel Agents in Saudi Arabia use the term “price bundle” to refer to goods and services they offer for purchase. This team allows an individual to separately purchase more than two services as a bundle with a discount added advantage. An example of the bundle services offered by Online Travel Agent in Saudi Arabia is purchase of air seat and at the same time given a room, thus also referred to as one stop shopping. Online travel agents provide their customer with discounts because they do not want them to loose the hotel website (Luo, Feng & Cai, 2004). It acts as a way of promoting the website to ensure that their frequent customers remain loyal to them, hence familiar with their terms programs and destinations.
Conclusion
The introduction of internet to the global market is a blessing to many businessmen and women. The internet has provided guests from all walks of the world with an easier option for making a reservation of ones own choice while still at home. This is due to the formation of Online Travel Agent who acts as the consultant firms or advertiser (Gronflaten, 2009). A lot of creativity is required when designing these websites; hence it is for the benefit of a hotel company to make it attractive for their consumers to consider them their number one choice.
Basing on the issue of rate parity or similar rates, most of the hotel companies in Saudi Arabia have not made their room rates constant. This is a factor that has hindered these hotel companies from securing a maximum profit. For a hotel to achieve these, direct and indirect distribution channels have to be involved (Schultz, 2008). The policies or strategies used for attaining maximum control of customers without depending on Online Travel Agents is also another way of generating more income for the hotel. It helps in establishing a relationship with a guest who will frequently be using the hotel services. People visit countries on various occasions and they are guided by a number of season. One of the seasons that mostly generate income for hotel industries is the sporting seasons which includes, football, and athletics. Another area that promotes hotel businesses in Saudi Arabia is the tourism attraction sites. Tourism contributes a larger percentage to the government revenue thus hotels should thrive and make use of these facilities for them to make profits.
Depending on the website an individual is using, the internet has greatly influence the modes in which they perceive the rates offered by hotels on rooms, and good and service. Hotel.com is an international websites that provides several hotels around the world with information regarding goods and services offered. According to Wirtz and Kimes (2007), these kinds of services make the website to be termed as an Online Travel Agent. Hotels in Saudi Arabia do not see the need to expose their room rates on the internet for fear of competition. For instance, when a guest is looking for a hotel via the internet, he or she goes through several hotels and therefore weighing on a cheaper and well furnished hotel. Another hotel company having the same qualities and offering the same services for a room, and goods and services will loss the guest, thus the reason as to why pricing is considered a secret (Campbell, 1999; Lockyer, 2007).
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