Revenue management prlcing in Douro Hotels [Study Group Report]

Abstract

The Douro Palace Hotel management wants to develop a software that helps them with the dynamic pricing of the hotel rooms. Revenue Management software is widely used for data analysis of demand and prices. However the hotel barely follows the software recommendations for pricing decisions, mainly due to the lack of understanding of the rationale and the inherent difficulty in validating pricing decisions. The hotel would like to have a reliable model in order to give to the manager an overview of the business and how to act to improve the sales. The questions raised at the study group are related to this. In this report, we present two distinct methodologies to address the hotel request. The first approach is excel based and more practically oriented towards to be an immediate help of the current pricing decisions. A second approach is more formal, mathematically speaking, but requires a more time consuming implementation. It is based on a recent operations management/operations research paper. On short term plan, we propose the implementation of an automatic generation of excel files that will enable Douro Palace Hotel react more often/finely to the competition pricing. A thorough statistical analysis of the Demand function and the corresponding segmentation is also required - for simulation purposes or decision support. We think that Douro Palace Hotel should differentiate prices more often and promptly (both upwardly and downwardly) depending on the perception of the demand and the competitors prices. On a long term plan, we propose the implementation of more sophisticated approaches, mathematically speaking, such as the one described in this report.