Download MANAGING SUPPLY AND DEMAND

MANAGING SUPPLY AND
DEMAND
CHAPTER 4
DEMAND AND SUPPLY
• Nature of the Problem
• A hotel guest room is a perishable product
• If a room goes unsold on any one night, the
room revenue is lost forever.
• The challenge of selling out each night is made
difficult by the fact that the supply of hotel
rooms is fixed (in the short run) while demand
for these rooms is variable.
DEMAND AND SUPPLY
• When the supply of rooms is greater than the
demand for them, rooms are left empty and the
revenue is lost forever
• When the demand for rooms is greater than the
supply of available rooms, the hotel is 100 percent
occupied.
• But, if more rooms had been available, the hotel
would have achieved more revenue.
THE NATURE OF DEMAND
• Weekly Variations in Demand
• The demand for hotel rooms for any
given property is extremely variable.
• Devide demand for hotel rooms into
the ‘four-day market’ and the ‘threeday market’.
THE NATURE OF DEMAND
• Four-day market
– Refers to hotels that concentrate on
business travelers who tend to frequent
the hotel on Mondays through Thursday
and prefer to get home for the weekend.
• Three-day market
– Leisure travelers tend to stay in hotels on
Friday through Sunday nights over the
course of a three-day weekend.
– Business-oriented hotels will have strong
occupancy during the weeks but tend to
have problems in filling rooms on the
weekend.
THE NATURE OF DEMAND
• Seasonal Variations in Demand
– Demand can be classified as off-season, highseason@on-season and shoulder periods
– Off-season
• is when demand is weak and occupancy is
low
• In some cases, a hotel may choose to close
down rather than absorb the costs of
remaining open when demand is weak.
– On-season
• When demand is strong and occupancy is
high
– Shoulder season
• Time between the off- and the on-season.
BUSINESS DEMAND
• The business-related travel market
segments can be broadly categorized
as follows:
– Regular business travel
– Business travel related to meetings,
conventions and congresses
– Incentive travel
BUSINESS DEMAND
• Regular Business Travel
– Business travelers are more important
to travel suppliers than their hotel total
numbers would indicate.
– They use airlines, rental cars, hotels and
travel agents to a greater extent than do
pleasure travelers.
– The business traveler is more time
sensitive;service quality is more
important than price; and he or she is
more experienced and demanding.
BUSINESS DEMAND
– Business travel is a nondiscretionary
expenditure. The business traveler must
travel to specific places to do business.
– As a result, business travel is more
stable and less price resistant.
– There is movement away from upscale
accommodations toward more
moderate or economy-class
accommodations.
– PAGE 83
BUSINESS DEMAND
• Meetings, Conventions and Congresses
– The services considered importanat are, in
order of importance:
1.
2.
3.
4.
No-smoking rooms
Concierge
24-hour room service
Gift shop
– The second most important factor is the
presence of adequate meeting facilities
– Convention locations usually change from
year to yaer as attendees do not want to
return to the same spot each year
BUSINESS DEMAND
• Incentive Travel
– Define as ‘a global management tool that
uses an exceptional travel experience to
motivate and/or recognize participants for
increased levels of performance in support
of organizational goals’
– Travel is touted as doing a better job of
satisfying people’s needs for achievement,
recognition and rewards than cash or
merchandise
THE PLEASURE AND PERSONAL TRAVEL
MARKET
• The market can be subdivided into those traveling as
individuals (or as a family unit) and those traveling as part of a
group.
• Individuals
i. Getaway/family travelers. They tend to visit places that
are a good place for children, where friends and family
live, scenic etc
ii. Adventurous/Educational Travelers. They tend to
engage in cultural activities such as visiting museums,
galleries, opera and theater, visit places that someone
else they knew had been to, offer a number of things to
see and do etc
THE PLEASURE AND PERSONAL TRAVEL
MARKET
iii. Gamblers/fun travelers. They want a highly popular
place where they can gamble, participate in recreation
or sport and enjoy a good night lifeand fine dining. They
are also concerned about price, the availability of good
beaches, sun bathing and good weather. On the other
hand, they are less concerned about cultural activities,
being close to friends and relatives and the presence of
amusement parks.
THE NATURE OF SUPPLY
 In the short run, the number of rooms that a
hotel has for sale on any given night is fixed.
More rooms, floors and additions can be
built, but it may take several years before
the necessary feasibility, financing and
construction is completed.
THE NATURE OF SUPPLY
 Problem
 When the demand for hotel rooms is greater
than the supply provided, guests have to be
turned away.
 This is particularly difficult as a hotel room is a
very perishable product.
 If it is not sold tonight, the sale is lost forever.
THE NATURE OF SUPPLY
 Problem
 When supply is greater than demand, there are
empty hotel rooms. Yet the costs (particularly
fixed) of running the hotel go on. The interest
must still be paid, lights must be kept on, and
the heat still runs. It may be possible to reduce
some of these costs (turn off the heat on
unoccupied floors) but the fact remains that the
hotel industry bears the burden of having high
fixed costs that do not vary as demand varies.
THE NATURE OF SUPPLY
 The extremes for management are to build
for peak demand and have excess capacity
(underutilization of resources) during offpeak, or to build at a level that will ensure
high occupancy at all times but will result in
demand being turned away.
 The task of balancing supply and demand
falls to the marketing department.
MARKETING
• Definition
Marketing can be thought of as a total system
designed to plan, price, promote and make available
to selected markets hospitality products and
services in the form of benefits and experiences that
create satisfied guests and achieve organizational
objectives.
• This definition encompasses several ideas.
MARKETING
• Objectives
 satisfy the guests while producing profit for the
company
 « if you satisfy the customers but fail to get the
profit, you’ll soon be out of business; if you get
the profit but fail to satisfy the customers, you’ll
soon be out of customers »
 the idea is to generate profits by producing
satisfied customers
MARKETING
• Objectives
 managers focus on producing satisfied and
motivated employees who will perform
 the employees focus on producing satisfied
guests
 guests will return and tell their friends.
 the result will be increased revenue, profits and
satisfied shareholders and/or owners.
MARKETING
• Total System
 indicates that marketing is much more than
advertising, much more than sales promotion.
 marketing encompasses everything from the
development of the concept, product, and/or
service to how it should be priced, promoted and
made available to people.
It works only if an exchange is made between
buyer and seller that benefits both.
 the buyer receives something of value and the
organization receives revenue.
MARKETING
• Selected Markets
encompasses the idea of market segmentation
market segmentation is the process of taking a
heterogeneous market and dividing it into smaller,
homogeneous segments.
Each segment is made up of individuals who have
similar profiles.
The profiles of one segment, however, are
different from profiles of another segment.
MARKETING
• Hospitality Products and Services
While hotels provide various products and
services, guests buy benefits and experiences.
For example: the mini refrigerator in the room is a
combination of products (the various items in the
refrigerator) and service (actually self-service).
MARKETING
• Marketing Mix
Marketing mix include the 4 P’s:
1)
2)
3)
4)
Product/Service
Price
Promotion/Communication
Place/Distribution
 A separate marketing mix needs to be developed
for each and every segment of the market.
DEVELOPING A MARKETING PLAN
• There are 6 steps involved in the development
of a marketing plan:
1)
2)
3)
4)
5)
6)
Conduct a marketing audit
Select target markets
Position the property
Determine marketing objectives
Develop and implement action plans
Monitor and evaluate the marketing plan
DEVELOPING A MARKETING PLAN
1. Conduct a Marketing Audit
an analysis of the guests, the property and the
competition
Guests- to develop a profile of the hotel guests and to
evaluate in an unbiased way how the operation
stacks up relative to the competition in providing
what they want.
Property- an unbiased evaluation of the strengths and
weaknesses of the operation.
Competition- a competing facility is any operation that
seeks to attract the business being sought by the
resort under consideration
DEVELOPING A MARKETING PLAN
The purpose of competitive analysis are:
I. Profitable market segments being served by
competitors that are not being served at the
operation under study
II. Some competitive benefit or advantage the
property has that cannot be matched by the
competition
III. Weaknesses in the marketing strategy of the
competition that can be capitalized on.
DEVELOPING A MARKETING PLAN
2. Select Target Markets
market segments should be selected on the basis of
size, likelihood of growth, competitive position, the
cost of reaching the segment and how compatible
the segment is with the company’s objectives and
resources.
Revenue grid- identifies how much revenue is
brought in from the various segments of the market
presently being served.
DEVELOPING A MARKETING PLAN
3. Position the Property
Positioning statement
 the image that customers have of an operation is its
position in the marketplace.
 A good positioning statement will accomplish several
things:
a)
b)
c)
It will create an image in the minds of the customers as to what
it stands for.
It will describe the benefits the hotel offers to the guests.
It will differentiates the property from the competition.
DEVELOPING A MARKETING PLAN
4. Determine Marketing Objectives
 Criteria- the very act of setting objectives increases the
likelihood that they will be achieved.
 Objectives should be set for each segment of the market
to which the resort is appealing.
 Objectives should be results oriented.
DEVELOPING A MARKETING PLAN
5. Develop and Implement Action Plans
o
involves the development and execution of a specific
marketing mix for each segment of the market being
sought.
Product-Service Mix
o
consists of the various products and services offered by
the operation in an attempt to satisfy guest needs.
Price
o
o
The importance of price comes from the fact that it is
one-half of the price-value relationship that customers
seeks.
In the hotel business much of the pricing that goes on is
product-driven pricing.
DEVELOPING A MARKETING PLAN
Promotion-Communication Mix
consists of all of the communications between the hotel and
its guests, media advertising, word of mouth,
merchandising, promotion, public relations, publicity and
personal selling. Page 102
Place-Distribution Mix
the channels that connect the company and its various
customers
Direct channel of distribution
means that the resort communicates directly with its guests
Indirect channel of distribution
means when there are one or more intermediaries between
hotel and its customers.
DEVELOPING A MARKETING PLAN
Action Plans to Manage Supply and Demand
 The room revenue generated in a hotel is a product
of 2 things – average room rate and percentage
occupancy.
 Room revenue = average room rate x no. of rooms
sold
 Percentage occupancy = no of rooms sold
total rooms
 To increase revenue, management needs to sell
more rooms at a higher price.
 As the price increases, demand is reduced.
DEVELOPING A MARKETING PLAN
 Management is faced with dilemma of what to
emphasize – increase price or focus on selling more
rooms.
 So the management create this rules:
Supply greater than demand: Improve Occupancy
(SELLING MORE ROOMS)
Demand greater than Supply: Improve average
room rate (INCREASE PRICE OF ROOM)
DEVELOPING A MARKETING PLAN
SUPPLY EXCEEDS DEMAND
The 3 strategies that can be use when demand is
forecast to be weak are:
I.
Increase demand by seeking out additional market
segments by reducing price or through increased
promotion.
II. Reduce supply means reduce costs such as a few rooms
are taken out of inventory each day to go through a
process of deep cleaning. Another strategy is to close off
entire floors . The most drastic scenario is one where the
entire hotel is closed for off season.
III. Redistribute supply by change the type and mix of hotel
rooms to appeal to the tasteof the changing market.
DEVELOPING A MARKETING PLAN
DEMAND EXCEEDS SUPPLY
The 3 strategies that can be use when demand is
forecast to be strong are:
I.
Reduce demand by increase room rate or eliminate
discount.
II. Increase supply. In the long run, more rooms can be
built. In the short run, a hotel can increase its bed
capacity.
III. Redistribute demand by move bookings from periods of
high demand to periods of low demand.
DEVELOPING A MARKETING PLAN
BUDGET
 a common way of developing a budget is to base it
on a percentage of sales.
 Another option is to spend in line with what the
competition is spending
 To spend what the business can afford
 Actions plans are develope that will be successful
and an amount budgeted to ensure their
completion.
DEVELOPING A MARKETING PLAN
6. Monitor and Evaluate the Marketing Plan



When marketing plan is successful – there are more
guests coming in more often and paying higher prices.
When marketing plan is not worked – fewer guests
coming in less often and spending less.
The marketing plan must be monitored at each step of
the way to ensure that it is on track and corrective action
must be taken at each step of the way if it is off track.