Skip to main content
SpringerLink
Log in

Developing an integrated revenue management and customer relationship management approach in the hotel industry

  • Research Article
  • Published:
Journal of Revenue and Pricing Management Aims and scope

Abstract

Revenue management (RM) and customer relationship management (CRM) are the standard strategies of many hotels to increase their profitability. Although the objectives and time horizons of RM and CRM are different, they can be considered as complimentary business strategies. However, the integration has received little attention both practically and theoretically. In this study, we develop an approach to jointly make the capacity allocation and overbooking decisions considering CRM strategies over a hotel network. Hotel customers are divided based on their lifetime value into two major groups of occasional and loyal customers. Price discounts and room availability guarantee (RAG) are offered to loyal customers, who are the hotel’s essential source of profit. The main problem is tackled by a stochastic dynamic programming model whose expected value of objective function is approximated by two deterministic linear programming-based algorithms. The computational results indicate that the loyalty programs may lead to decrease in short-term net revenue. However, another analysis is required to decide upon cost-effectiveness of loyalty programs in an extended planning horizon. On the basis of an estimated discount-RAG response function, the cost-effectiveness of different loyalty programs is compared, which shows potential increase in hotel expected net revenue up to 3.5 per cent. The analytical long-term evaluation of loyalty programs introduced is capable of determining the most appropriate loyalty program factors. Moreover, it suggests discount-RAG response function and the level of tightness as sensitive parameters.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2

Similar content being viewed by others

References

  • Aaker, D.A., Kumar, V. and Day, G.S. (2003) Marketing Research. 8th edn. New York: Wiley.

    Google Scholar 

  • Belobaba, P.B. (2002) Back to the future? Directions for revenue management. Journal of Revenue and Pricing Management 1 (1): 87–89.

    Article  Google Scholar 

  • Berger, P.D. and Nasr, N.I. (1998) Customer lifetime value: Marketing models and applications. Journal of Interactive Marketing 12 (1): 17–30.

    Article  Google Scholar 

  • Bertsimas, D. and Popescu, I. (2003) Revenue management in a dynamic network environment. Transportation Science 37 (3): 257–277.

    Article  Google Scholar 

  • Chatwin, R.E. (1998) Multi-period airline overbooking with a single fare. Operations Research 46 (6): 805–819.

    Article  Google Scholar 

  • Chatwin, R.E. (1999) Continuous-time airline overbooking with time-dependent fares and refunds. Transportation Science 33 (2): 182–191.

    Article  Google Scholar 

  • Cross, R.G. (1997) Revenue Management – Hard-core Tactics for Profit-Making and Market Domination. New York: Broadway Books.

    Google Scholar 

  • Erdelyi, A. and Topaloglu, H. (2009) Separable approximations for joint capacity control and overbooking decisions in network revenue management. Journal of Revenue and Pricing Management 8 (1): 3–20.

    Article  Google Scholar 

  • Erdelyi, A. and Topaloglu, H. (2010) A dynamic programming decomposition method for making overbooking decisions over an airline network. Informs Journal on Computing 22 (3): 443–456.

    Article  Google Scholar 

  • Gupta, S. and Lehmann, D.R. (2003) Customers as assets. Journal of Interactive Marketing, (Formerly Journal of Direct Marketing) 17 (1): 9–24.

    Article  Google Scholar 

  • Ivanov, I. and Zhechev, V. (2012) Hotel revenue management: A critical literature review. Tourism 60 (2): 175–197.

    Google Scholar 

  • Jones, P. (2000) Defining yield management and measuring its impact on hotel performance. In: A. Ingold, U. McMahon-Beattie and I. Yeoman (eds.) Yield Management: Strategies for the Service Industries. London: Continuum, pp. 89–97.

    Google Scholar 

  • Karaesmen, I. and van Ryzin, G.J. (2004) Coordinating Overbooking and Capacity Control Decisions on a Network. Columbia Business School. Technical report.

  • Kimes, S.E. and Wirtz, J. (2003) Has revenue management become acceptable? Findings from an international study on the perceived fairness of rate fences. Journal of Service Research 6 (2): 125–135.

    Article  Google Scholar 

  • Kumar, V., Ramani, G. and Bohling, T. (2004) Customer lifetime value approaches and best practice applications. Journal of Interactive Marketing 18 (3): 60–72.

    Article  Google Scholar 

  • Kumar, V. and Reinartz, W.J. (2005) Customer Relationship Management: A Data based Approach. New York: Wiley.

    Google Scholar 

  • Kutner, S. and Cripps, J. (1997) Managing the customer portfolio of healthcare enterprises. The Healthcare Forum Journal 40 (5): 52–54.

    Google Scholar 

  • Lieberman, W.H. (2002) Revenue management: What lies ahead? Journal of Revenue and Pricing Management 1 (2): 189–195.

    Article  Google Scholar 

  • Lieberman, W.H. (2003) Getting the most from revenue management. Journal of Revenue and Pricing Management 2 (2): 103–115.

    Article  Google Scholar 

  • Liu, Y. (2007) The long-term impact of loyalty programs on consumer purchase behavior and loyalty. Journal of Marketing 71 (4): 19–35.

    Article  Google Scholar 

  • McGill, J.I. and van Ryzin, G.J. (1999) Revenue management: Research overview and prospects. Transportation Science 33 (2): 233–256.

    Article  Google Scholar 

  • McMahon-Beattie, U., Yeoman, I., Palmer, A. and Mudie, P. (2002) Customer perceptions of pricing and the maintenance of trust. Journal of Revenue and Pricing Management 1 (1): 25–34.

    Article  Google Scholar 

  • Milla, S. and Shoemaker, S (2008) Three decades of revenue management: What’s next? Journal of Revenue & Pricing Management 7 (1): 110–114.

    Article  Google Scholar 

  • Noone, B.M. and Kimes, S.E. (2003) Integrating customer relationship management and revenue management: A hotel perspective. Journal of Revenue and Pricing Management 2 (1): 7–21.

    Article  Google Scholar 

  • Ovchinnikov, A., Boulu-Reshef, B. and Pfeifer, P.E. (2014) Balancing Acquisition and Retention Spending for Firms with Limited Capacity. Management science 60 (8): 2002–2019.

    Article  Google Scholar 

  • Ovchinnikov, A. and Milner, J.M. (2012) Revenue management with end‐of‐period discounts in the presence of customer learning. Production and Operations Management 21 (1): 69–84.

    Article  Google Scholar 

  • Pfeifer, P.E. and Ovchinnikov, A. (2011) A note on willingness to spend and customer lifetime value for firms with limited capacity. Journal of Interactive Marketing 25 (3): 178–189.

    Article  Google Scholar 

  • Ryals, L., Knox, S.D. and Maklan, S. (2000) Customer Relationship Management. London: Prentice Hall.

    Google Scholar 

  • Shen, Z.J.M. and Su, X. (2007) Customer behavior modeling in revenue management and auctions: A review and new research opportunities. Production and Operations Management 16 (6): 713–728.

    Article  Google Scholar 

  • Shoemaker, S. (2003) Future of revenue management, the future of pricing in services. Journal of Revenue and Pricing Management 2 (3): 271–278.

    Article  Google Scholar 

  • Shoemaker, S. and Lewis, R.C. (1999) Customer loyalty: The future of hospitality marketing. International Journal of Hospitality Management 18 (4): 345–370.

    Article  Google Scholar 

  • Smith, G.W. (1973) Engineering Economy: Analysis of Capital Expenditures. Iowa State University Press, Iowa US.

    Google Scholar 

  • Statista, Online Statistics Portal (2014) Monthly occupancy rate of hotels from 2011 to 2014, http://www.statista.com/statistics/206546/us-hotels-occupancy-rate-by-month/, accessed 20 June 2014.

  • Subramanian, J., Sridham, S. and Lautenbacher, C.J. (1999) Airline yield management with overbooking, cancellations and no-shows. Transportation Science 33 (2): 147–167.

    Article  Google Scholar 

  • Talluri, K.T. and van Ryzin, G.J. (1998) An analysis of bid-price controls for network revenue management. Management Science 44 (11): 1577–1593.

    Article  Google Scholar 

  • Talluri, K.T. and van Ryzin, G.J. (2004) The Theory and Practice of Revenue Management. Dordrecht, MA: Kluwer Academic Publishers.

    Book  Google Scholar 

  • Wang, X.L. (2012) Relationship or revenue: Potential management conflicts between customer relationship management and hotel revenue management. International Journal of Hospitality Management 31 (3): 864–874.

    Article  Google Scholar 

  • Wang, X.L. and Bowie, D. (2009) Revenue management: The impact on business-to-business relationships. Journal of Services Marketing 23 (1): 31–41.

    Article  Google Scholar 

  • Weatherford, L.R. (1995) Length of stay heuristics: Do they really make a difference? Cornell Hotel and Restaurant Administration Quarterly 36 (6): 70–79.

    Google Scholar 

  • Williamson, E.L. (1992) Airline network seat control. PhD thesis, Massachusetts Institute of Technology, Cambridge, MA.

  • Wirtz, J., Kimes, S.E., Theng, J.H. and Patterson, P. (2003) Yield management: Resolving potential customer conflicts. Journal of Revenue and Pricing Management 2 (3): 216–226.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Industrial Engineering, Sharif University of Technology, Tehran, Iran

    Amirhossein Vaeztehrani & Mohammad Modarres

  2. Department of Computer Science, University of Auckland, Private Bag 92019, Auckland, New Zealand

    Samin Aref

Authors
  1. Amirhossein Vaeztehrani
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mohammad Modarres
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Samin Aref
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Amirhossein Vaeztehrani.

Additional information

1graduated from K.N.Toosi University of Technology (Tehran, Iran) with a BS in Industrial Engineering. He has an MS in Industrial Engineering from Sharif University of Technology (Tehran, Iran). His research interests include revenue management, operations management and supply chain management.

3holds a BS in Industrial Engineering from Iran University of Science and Technology, as well as an MS in the same major from Sharif University of Technology. He has published in the International Journal of Occupational Safety and Ergonomics. His fields of interest include cargo revenue management, supply chain network design and social network analysis.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Vaeztehrani, A., Modarres, M. & Aref, S. Developing an integrated revenue management and customer relationship management approach in the hotel industry. J Revenue Pricing Manag 14, 97–119 (2015). https://doi.org/10.1057/rpm.2014.22

Download citation

  • Received:

  • Revised:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/rpm.2014.22

Keywords

Search

Navigation