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Running head: AUTOMATED REVENUE MANAGEMENT

Automated Revenue Management System at Intercontinental Sydney

Name

Institutional Affiliation

AUTOMATED REVENUE MANAGEMENT 2

Abstract

Revenue management is defined as an art and science used to enhance a firm’s revenues while

selling, in essence, the same amount of product (Talluri & Van, 2006). Revenue management

purpose is to drive higher margins, revenues, and profitability of a given company that uses it.

The conducted study so far indicates that hospitality companies that employ this system have

experience about 3 to 6 percent in regards to the increase in revenue. When a company integrates

revenue management in every organ, the success rate of increasing their income is doubled thus

the overall growth of the business is also doubled digitally. This research paper therefore

illustrates and discusses the findings of the ARMs in the Intercontinental Sydney and discusses

the various outcomes from the results.

AUTOMATED REVENUE MANAGEMENT 3

TABLE OF CONTENT

ABSTRACT ............................................................................... Error! Bookmark not defined.

INTRODUCTION ..................................................................... Error! Bookmark not defined.

LITERATURE REVIEW ......................................................... Error! Bookmark not defined.

FINDINGS AND DISCUSSION ............................................... Error! Bookmark not defined.

CONCLUSION .......................................................................... Error! Bookmark not defined.

REFERENCES .......................................................................... Error! Bookmark not defined.

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Automated Revenue Management System at Intercontinental Sydney

Introduction

In simple terms, revenue management can be defined as an art and science used to

enhance a firm’s revenues while selling in essence the same amount of product (Talluri & Van,

2006). Revenue management purpose is to drive higher margins, revenues and profitability of a

given company that uses it. The conducted study so far indicates that hospitality companies that

employ this system has experience about 3 to 6 percent in regards to the increase in revenue.

When a company integrates revenue management in every organ, the success rate of increasing

their revenue is doubled thus the overall growth of the company is also doubled digitally. For the

hospitality industry, revenue management is very helpful in predicting the consumer demand,

which in turn help in the optimization of the inventory as well as the price availability to double

or triple the revenue growth. However, the purpose of this system is not to have the company sell

rooms at a low price this time and then sell at a higher price the next day (Talluri & Van, 2006).

For the latter case, the revenue management system demands that rooms be sold today at a low

price if the company does not expect higher demand and vice versa when the predicted demand

is higher.

Revenue management gives more details on the importance of collecting data about the

targeted market so that the resources included later be proactive and not in any way reactive. The

received data would, therefore, be used in the division of the market and the product adjusted

through distribution so that the right customers have access to it at the right place and the right

time. The significant function of revenue ensures that there is no pricing cannibalism since it

only ensures price maximization when the demand is high and minimization when the demand is

AUTOMATED REVENUE MANAGEMENT 5

low (Chiang, Chen & Xu, 2006). What makes it ideal for Intercontinental Sydney is its long-term

strategies. The strategy involves selling low rates even at high demands periods just increase the

profit margin.

Intercontinental Sydney is one of the world’s largest hotel as it is one of the hotels under

the group of hotels known as Intercontinental, which has branches all over the globe. It is

suitable for this hotel to apply revenue management for a various reason, which includes demand

evolution, market segmentation, fixed capacities and the fact that they can sell products in

advance. Other reasons that make it suitable for the application of revenue management also

include its high fixed costs as well a low variable cost and the fact that they price their products

different.

Revenue management background can be traced to the industry that first used it. The

airline industry was the first who employed the use of revenue management but since other

industries have adapted to it. Some of the industries that started using and are realizing the

purpose of revenue management are theaters and Cinemas, hotels, train companies and car

rentals (Talluri & Van, 2006). IKEA also uses this management system of revenue since they

offer a lower price at least once or twice a week when the demand is quite low.

Having discussed the purposes of revenue management and the importance of it, it is fit

to discuss how an Automated Revenue Management system can be integrated into the

Intercontinental Sydney to maximize profit and realize growth. The Automated Management

System should, therefore, be able to calculate the hotel's revenue and compute the requirements

as per the manager's specification (Foggia & Lazzarotti, 2014).

AUTOMATED REVENUE MANAGEMENT 6

Literature Review

The world is advancing each day when it comes to technology, and with social platforms

used for marketing and publicity, it is essential for hotel industry especially the Intercontinental

Sydney adopt an Automated Revenue Management System (ARMS). Before a company takes

this system, however, they will require or ask to know the importance of this system; this is

because for centuries or even decades, some industries have operated on manual methods to

calculate revenue and this has had its failures. ARMs system has the capacity of analyzing data

based on the provided rates that are included in the historical data as well as market data

obtained in real time. For our case, the market data include various variables, which are useful

and essential for the success or the failure of a company. The market data include guest reviews,

the star ratings, trends, rate averages, the region as well as sub-regions. They also include the

sold-out hotel, overall demand and page positioning (Poston & Grabski, 2001). Any other system

would not take into consideration all this set of data, and therefore they would not reflect the true

nature of all the revenue income or received. ARMs can compute the mentioned data and output

the general output or picture on how the hotel or the said industry is operating in regards to

revenue. The ARMs is also able to compare the data with historical data to bring out the true

reading which can help in making decisions or coming up with objectives on the way to improve

or maintain the current situation.

The cloud technology is currently used all over the world due to its efficiency to store

data into one document. This has, therefore, influenced the hotels using the ARMs since the

collected information is made available in the cloud if the system is programmed to do so. The

system thus cuts down on the paper storage of documents, which would take time to compute,

and helps in securing data since it cannot be erased by natural phenomena such as rain and fire

AUTOMATED REVENUE MANAGEMENT 7

outbreaks (Bell, 1997). This, therefore, makes it ideal and therefore an importance to the hotel

industry. Unlike any other system ARMs provides real-time data, which the client, as well as the

managers, can use to make a decision. For example, if they were booking a room online, the

system can provide them with the best rates, and this saves time and gives the feedback to the

managing body thus cutting down the number of people who would queue to access specific

services. Therefore there is need to automate the revenue management since there is so much

data which are complex. The changes thus require an automated system since the reality in

today’s hotel industry focusses more beyond the manual process (McGill & Van, 1999).

Some of the requirements for ARMs include having in place data-driven analytics,

dynamic bundling for subscribers through a self-care portal, rules engine which manages the

pricing personalization’s, product and service management, cloud and hybrid solutions. All these

requirements are essential as they enable the system to function successfully (Hayes, Miller&

Allisha, 2011). The benefits of having this system in place are that it gives the customers and the

client the first time to market and ensures they have pricing bundles and personalized bundles.

The requirement also brings about channel creation and management for market penetration and

a high rate.

AUTOMATED REVENUE MANAGEMENT 8

Findings and Discussion

Intercontinental Sydney as mentioned earlier is one of the branches of the most extensive

hotel in the world the intercontinental company. The company has various branches in the world

and leads in multiple fields of hospitality. This excellent hotel is available on each continent, but

in this research, we will discuss the revenue management in their branch located in Sydney.

When the study was conducted, the following findings were obtained:

 The hotel did not have good structure ARMs in most of its organs

 The hotel still relied on the manual process in computing its revenue

 Some of the hotel organs lacked the ARMs entirely.

 The hotel had no other alternative system in case there was an emergency or fire outbreak

 The hotel still relied on the clerks and financial officers to calculate the total revenue

collected by the hotel.

 The hotel lacked adequate infrastructure for the system to operate on.

 Most of the employees of the hotel lacked adequate knowledge on how to operate ARMs

with majority not even knowing what it was

 Only a few people had sufficient knowledge on how to also computed and programmed

the ARMs.

 Almost 90 percent of the employees at the hotel were hesitant to adopt the new system.

 It took a long time to manage revenue

Intercontinental Sydney is considered one of the most developed hotels in Sydney in term of

the technology wise and on would, therefore, be guaranteed that they already adapted to the new

system of revenue management. From the findings above it is clear that some discussion needs to

AUTOMATED REVENUE MANAGEMENT 9

take places to educate everyone on the importance of adopting the ARM system. The hotel did

not have the system is all its organs at it considered it the work of the finance department and

therefore only this agency has access to the technology. The management claims this is to save

costs, which would be incurred, should they have decided to spread the system to each organ.

Every business starts with a risk, and therefore the management of the hotel should consequently

work on taking on the system, as it is successful and first in managing revenue (Boyd & Bilegan,

2003).

Most of the employees were hesitant however to accept the new system as they see it as a

threat to the jobs they love. They claim that the ARM system would affect those jobs of various

people in the hotel no matter their job rank. If the hotel's room is booked online and paid online,

then it means that the current persons handling those specified situations would be relieved of

their work (Weatherford & Kimes, 2003). The employees were also not well educated about the

system and feared that their lack of knowledge regarding the ARM system would be an

automatic disqualification when it comes to the rehiring of the new workforce. Another thing

observed and of relevant to the discussion is the storage of the hotel data which was done

manually thus vulnerable to degradation and other environmental or physical catastrophes.

Should these items be lost or burnt, it only meant that the hotel would lack something to refer to

in the future unlike if they used the ARM system, which stores those data using the cloud

technology (Noone & Mattila, 2009).

The manual collection of data is also alarming as human beings are prone to error although

some errors are made intentionally to embezzle funds (Choi & Mattila, 2004). Collection of data

and computation of revenue does not depict the actual profit or loss in the long run thus it is an

unreliable method, and the hotel management should consider adopting a more automated

AUTOMATED REVENUE MANAGEMENT 10

revenue management system. The findings indicate that a lot of work needs to be done to

improve the revenue management of the hotel to realize an increase in profit and overall growth

of the company.

Conclusion

Revenue management is core to any company especially those in the hospitality industry.

All companies that are advancing regarding technology are adopting the new system of brought

forth by IDEA solutions which are the masterminds of the ARM system. The system itself can

increase the revenue outcome of a company by 3 to 6 percent each financial year. This may seem

like a small margin, but it is worth a lot of revenue. From the findings, it was clear that some of

the world’s largest brands in hospitality had not acquired the ARMs and some even citing the

budgeting as the main hurdle as it is the case with Intercontinental Sydney (Hayes, Miller&

Allisha, 2011). The various employees were not also willing to welcome the idea of having an

automated system “stealing” their jobs away. Job security may not guaranteed for the hotel’s

employees but just like any other businesses, the hotel’s aim is to make profits and raise its

standards in all the possible ways. It is better to have an effective system than to please people

who are not make any big difference when the revenue management of the hotel is concerned.

Despite the employees fear the hotel needs to move forward and adapt this new system despite

the challenges and opposition it faces. Therefore, it would be a recommendation for any

company to take up the AMRs, integrate it within the available organs, and wait for the outcome.

AUTOMATED REVENUE MANAGEMENT 11

References

Bell, T. W. (1997). Fair use vs. fared use: The impact of automated rights management on

Boyd, E. A., & Bilegan, I. C. (2003). Revenue management and e-commerce. Management

Science, 49(10), 1363-1386.

Chiang, W. C., Chen, J. C., & Xu, X. (2006). An overview of research on revenue management:

current issues and future research. International journal of revenue management, 1(1), 97-

128.

Choi, S., & Mattila, A. S. (2004). Hotel revenue management and its impact on customers'

perceptions of fairness. Journal of Revenue and Pricing Management, 2(4), 303-314.

Di Foggia, G., & Lazzarotti, V. (2014). Assessing the link between revenue management and

performance: insights from the Italian tourism industry. Measuring business excellence,

18(1), 55-65.

McGill, J. I., & Van Ryzin, G. J. (1999). Revenue management: Research overview and

prospects. Transportation science, 33(2), 233-256.

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Noone, B. M., & Mattila, A. S. (2009). Hotel revenue management and the Internet: The effect

of price presentation strategies on customers’ willingness to book. International Journal of

Hospitality Management, 28(2), 272-279.

Poston, R., & Grabski, S. (2001). Financial impacts of enterprise resource planning

implementations. International Journal of Accounting Information Systems, 2(4), 271-294.

Talluri, K. T., & Van Ryzin, G. J. (2006). The theory and practice of revenue management (Vol.

68). Springer Science & Business Media.

Hayes, D. K. Miller, allisha A.(2011). Revenue managemen for the Hospitality industry.

Hoboken.

Weatherford, L. R., & Kimes, S. E. (2003). A comparison of forecasting methods for hotel

revenue management. International journal of forecasting, 19(3), 401-415.

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