Balancing Revenue Management and Quality – A Hospitality Industry Dilemma




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The hospitality industry faces a lot of competition from the other closely related industries in terms of market share and service delivery. Most of the service providing industries gives their customers quality service, but still faces serious challenges that affect their operations. As a component of the hospitality industry, the hotel sector must adopt the policies and standards that will give it an edge over other service providers in the market and a survival strategy that keeps it moving amidst competition. Balancing revenue management and quality in the hotel sector appears as one of the most essential tools that the sector needs. A collective analysis of the scholarly ideas about the management strategies in the revenue –quality balance yields the best strategies that management should implement to flourish in the sector. This paper analyses the scholarly sources and the ideas that different authors present in the management of the revenue–quality balance in the hotel industry.

 General Overview

The hotel industry faces one of the most challenging situations in the world of business. The sector must get a clear balance and demarcation between the quality of services they offer and the revenue they get from the services. The pull between the two, stretches the industry to extremities that may result to the downfall of the industry if not managed. In response to this concern, Rodgers (2005 p. 306) observes that the hotel industry must establish effective methods and mechanisms for managing these crises in order to address this dilemma. Victorino et al. (2005 p. 576) supports this position by noting that the industry must understand the operations of the constituent hotels and provide for the services that match the optimal returns in order to manage this dilemma. The sector must forecast demand accurately and establish the costs that will meet the optimal returns for the hotels. This paper undertakes a literature analysis of the revenue management and quality balance dilemma in the hotel industry in order to uncover the best methods that can balance the two aspects in the hospitality industry.

Balancing Revenue Management and Quality in the Hotel Industry

A good balance between the revenue management and the quality of services in the hotel industry benefits the industry in various ways. The management of these two factors helps the industry to get the optimal profits as well as command a good share of the market. Literature suggests that revenue management happens in the hotel industry through a number of ways. Initially, Hwang (2005) argues that the first most essential revenue management strategy that keeps the quality of services up to the required standards is demand forecasting. Through demand forecasting, the hotel management foresees the possible demand that a particular hotel will have in the future and gauges exactly what strategies the hotel can use to maximize on the demand as well as offer the best quality of services for the customers.

When the hotels are aware of the probable future demand, it becomes a easier for the management to manage the services and put measures in place so that the quality of services offered does not deteriorate (Haynes & Fryer, 2000 p. 240). Some of the strategies that the management may employ to ensure that the quality does not deteriorate include employing more people in case the demand may increase in future. Labourers who are more qualified are beneficial in managing surplus demand because they aid increased service quality and accuracy due to reduced loads of work per employee. Gomes (2003) introduces a new perspective to this strategy by indicating that besides demand focusing, the management must evaluate the demand against the extra labour necessary to reconcile the marginal costs and the marginal benefits. This ensures that the marginal benefits outdo the cost for the management to go into the employment strategy.

A limitation of demand forecasting presents when the expected demand does not materialize (Goodale et al., 2003 p. 67). In some cases, the management expects the demand to increase; but experience a drop instead. This proves a cost to the management as the management will have to bear the cost of the hired labour yet the labour does not play any major role in the hotel. The surplus labour increases the marginal costs hence the profits go down (Wan-I et al., 2006).

The second strategy for balancing the revenue and quality in the hotel industry include standardizing and managing the operations in the hotel (Crystal, 2007). Operation management presents the hardest part of management although the management must have the ample resources to deal with the same. Managing the operations in the hotel industry facilitates the management in dealing with the surplus and deficit problems associated with the demand forecasting method such as impromptu changes. Hong highlights that the management must encourage advance booking. Advance booking helps the management to foresee the operations that the hotel will have in future and effectively plan to handle the same (Hong, 2009). The quality of staff goes up since the management prepares the staff adequately for the situations to come. Hong further asserts that operations management must occur in the modest ways in order to avoid compromising the quality of services offered. This is to ensure that the industry is taking advantage of the modern developments in improving the quality of the services offered (Hong, 2009).

According to D’Annunzio-Green & Francis (2005 p. 350), Six sigma operations management tool functions as the best tool in the hotel industry that improves the quality of services as well as catering or the revenue that accrues from the hotel services. Through this method, the defects and errors in the services are removed to pave way for the best quality of the services that the management can offer to the people. For the six-sigma process to apply in the provision of the services in the hotel industry, a specific procedure of service provision must exist and apply maximally so that the employees know the steps they must adhere to all the time (Wan-I et al., 2006 p. 577). The main strength of the six-sigma operations management tool comes when all the workers understand their role in the process and they understand the organization’s expectations upon them. With this knowledge, workers give the hotel the best services, which results to increased yields and improved quality.

Crystal (2007) suggests that management in the hotel may apply the lean operations management tool in managing operations in the hotels. Unlike the six-sigma tool, the lean management tool focuses on eliminating the wastages in the service delivery process thus increasing the revenue. Furthermore, this tool focuses on ensuring that the workers are provide ultimate service in their roles assigned which eliminate chances of compromised quality. The scheduling operations management technique works closely with the lean management tool in ensuring that the qualities of hotel services remain at the highest possible level. Scheduling is a technique where all the customers to the hotel have the time and mode of receiving the services from the hotel known in advance and preparations made their services to come in utmost quality (Cross, 2010). Scheduling works of the quality expectations of the clients in the hotels while the lean technique works on maximizing the revenue that the hospitality industry gets from the hotels.

According to Benson (2007), yield management queuing applies in the management of the prices and inventories so that the satisfaction offered in the hotel industry remains unquestionable. In yield management, queuing, scholarly sources suggest that the hotel industry must know the amount of inventory available to offer the best quality and manage the prices so that the revenue from the inventories gives the optimal profits. Furthermore, Conolly & Olsen (2001 p. 75) argues that yield management queuing works effectively in hotels that deal with large numbers of clients in any particular day. However, in hotels that deals with comparatively small numbers of people, simulation works as the best strategy to balance the quality of services offered and the revenue from the services. Simulation entails a mastery of the past trends and smart application of the trends in forecasting the future. However, the operations management techniques must carefully follow the inventory ability of the hotels so that the hotels make no loses (Cross, 2010).

Kim (2005) suggests that balancing the revenues and the quality in hotels can give the management a hard time until the management involves capacity management in the planning activities. Hotel Service providers can add value to capacity planning and capacity management tools in the hotels by using them to help customers plan their infrastructure resource needs and the settlement plans. The tools aid the settlement of the potential customers on time, a mechanism that all the hotels wish to embrace. With capacity planning and management, all the other avenues of increasing the revenue of the hotel industry and maintaining the quality of services in the industry cut well across the industry (Benson, 2007).



The hotel industry is one of the highest revenues earning sectors in the hospitality industry. However, balancing revenue management and quality in the hotel industry gives the management hard times in most of the cases. Scholarly sources propose strategic mechanism that the management can use to deal with this challenge. Components of the systems theory should apply in the industry through application of the six-sigma operations management tool that will help the hotels develop working systems that enhance the activities of the management. From the services to the accommodations, the hotels must give the clients the best while ensuring that the revenue of the hotel remains high through adequate application of the operations management strategies like the lean strategy. Furthermore, the management must develop evaluation criteria that will help them identify areas in which they are performing poorly to adopt appropriate actions; thus, balancing revenue management and quality in the hotels.

Reference List

Benson, L.S. 2007, An analysis of critical factors related to environmental education: Practices for hospitality management students, consumers, and managers, University of Idaho.

Connolly, D.J. & Olsen, M.D. 2001, “An environmental assessment of how technology is reshaping the hospitality industry”, Tourism and Hospitality Research, vol. 3, no. 1, pp. 73-93.

Cross, J.A. 2010, Engaging the paradox of competence: Business and education research develop a Master of Business Competence model, Capella University.

Crystal, C.R. 2007, Revenue management performance drivers: An empirical analysis in the hotel industry, Georgia Institute of Technology.

D’Annunzio-Green, N. & Francis, H. 2005, “Tuning into tensions at times of change: The experiences of line and HR managers in a contract catering firm”, International Journal of Contemporary Hospitality Management, vol. 17, no. 4, pp. 345-358.

Gomes, A.C.Q. 2003, A cultural assessment of employee motivation in the Brazilian hotel industry: A comparison between the northeast and the southeast, University of Nevada, Las Vegas.

Goodale, J.C., Verma, R. & Pullman, M.E. 2003, “A market-utility approach to scheduling employees”, Cornell Hotel and Restaurant Administration Quarterly, vol. 44, no. 1, pp. 61-69.

Haynes, P. & Fryer, G. 2000, “Human resources, service quality and performance: a case study”, International Journal of Contemporary Hospitality Management, vol. 12, no. 4, pp. 240-248.

Hong, Y. 2009, One size does not fit all: The relations between service capabilities and human resource management, Rutgers The State University of New Jersey – New Brunswick.

Hwang, J. 2005, An analysis of wait time satisfaction for capacity management in a simulated restaurant, The Pennsylvania State University.

Kim, S. 2005, A causal model of linkages between environment and organizational structure, and its performance implications in international service distribution: An empirical study of restaurant and hotel industry, Virginia Polytechnic Institute and State University.

Rodgers, S. 2005, “Applied research and educational needs in food service management”, International Journal of Contemporary Hospitality Management, vol. 17, no. 4, pp. 302-314.

Victorino, L., Verma, R., Plaschka, G. & Dev, C. 2005, “Service innovation and customer choices in the hospitality industry”, Managing Service Quality, vol. 15, no. 6, pp. 555-576.

Wan-I, L., Ying-Hui, W., Cheng, J. & Chiang, M. 2006, “Balancing Managerial Control Systems and Service Quality: A Case Study of the National Health Insurance Programme in Taiwan”, International Journal of Management, vol. 23, no. 3, pp. 576-587.

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