Presently, there are various methods being used to evaluate the performance of a Hotel's marketing department as listed below.
1. Occupancy Rate = Number of rooms occupied X 100 Number of rooms available This method indicates the percentage occupancy of a hotel
2. Average Room Rate = Room revenue ______ Number of available rooms
This method indicates the average revenue earned per available room
3. Average Occupied Room Rate= Room revenue x 100 Number of rooms occupied This method indicates the average revenue earned per occupied room or the average rate at which each occupied room was sold.
4. Market Share (room's) = __ Number of occupied rooms in the hotel No. of occupied rooms in hotel industry
Number of rooms available in the hotel X 100
5. Fair Share = (or Total number of rooms sold in industry) Number of rooms available in the industry
This is basically an extension of the Room Revenue Market share concept and could be used as a yardstick to measure the hotel's overall performance in the industry. This adds another dimension to the evaluation; whereas the Room Revenue Market Share is probably the most effective measure, it's limitation is that basically it can only show the growth within each hotel. Agreed that hotel A has shown maximum improvement, it is not, however, the best performing hotel. Ideally, its fair share is 20 and it is the furthest behind this target. Presently the most comfortable hotel in terms of "Fair Share" is Hotel C and Hotel A has to reach 20 per cent before it can be adjusted content-wise with its performance.
Therefore, a combination of Room, Revenue Market Share and Fair Share is the growth rate, then hotel D's performance would be considered to be the best since the growth in it's occupancy rate has been the highest, i.e., 33 per cent. But, it will be noticed that the Total Room Revenue has declined in spite of the fact that the Total Room Revenue of the hotel industry went up by 9.4 per cent and the number of rooms sold by the hotel industry went up by 8.5 per cent. Also it's Average Occupied Room Revenue declined. This means that more number of rooms were sold by reducing the room rate, adversely affecting the hotel's total revenue. Needless to say the profitability of the hotel will also decline in spite of allround improvement in the hotel industry.
Occupancy rate only tells us how many rooms were occupied out of the total rooms available but it does not specify the , conditions under which these, rooms were sold. As such it would be erroneous to even compare the occupancy rate of a hotel for two periods because of the following reasons.
1. The conditions under which the occupancy rate was achieved each year could be different, as these are usually different. It will be noticed that the room rate in the case of hotel D was different each year and as such it would be erroneous to compare the occupancy rate for two years.2. It does not take into consideration the market conditions. Occupancy rate can go up not only for the hotel in question but for the hotel industry in general because of favourable market conditions or vice versa.
Growth Is Relative
Also, occupancy rate does not compare the performance of the hotel with that of the hotel industry. For instance, hotel B's management should be very pleased since the growth in the occupancy rate has been 5 per cent. However, they would change their mind, if they were told that the growth in the occupancy rate of the hotel industry has been 8.5 per cent.
Further, the occupancy rate is based on the number of rooms whereas what is important is the revenue earned. It is the revenue earned from the occupied rooms which determines the profitability and not the number of rooms occupied. This is clearly evident in the case of hotel D.
The above clearly indicates that occupancy rate is a poor measure or indicator of the performance of the hotel's marketing department. Also, objectives should not be set in terms of occupancy rate nor decisions based solely on it as adequate information is not conveyed by it.
Both, Average Room Rate and Average Occupied Room Rate. indicate that the performance of hotel A has been the best and hotel B and C have done fairly well. Also, while according to the former hotel D just about maintained its position, according to the latter its performance was very poor. It will be shown later that the performance of Hotels B and C is not as good as indicated and that of Hotel D was the worst, both of the above methods will be discussed later and it will be shown that they are not effective in measuring the performance of a hotel's marketing department.
Like the Occupancy Rate. Market Share (rooms) also indicates that hotel A's performance is the best which, as discussed earlier, is not true. The drawbacks of the method are listed below:
1. It does not specify the conditions under which the rooms were sold by the hotels.
2. It is based on the number of rooms whereas what is important is the revenue earned.
Analytical Tool
What is required is an analytical tool which will indicate the performance of a hotel relative to other similar hotels in the area and also lay emphasis on the room revenue.
The major objective of the marketing department of a hotel should be to increase it's total room revenue whether by selling more rooms at a lower rate or by selling less number of rooms at a higher rate and at the same time maintain a certain market share of the total room revenue of the hotel industry. Also it is absolutely essential that the performance is assessed in such a way that the common factors affecting the hotel industry are accounted for and only the results achieved due to the efforts and ability of the marketing department can be measured.
The concept of ROOM REVENUE MARKET SHARE given below fills the bill.
Room Revenue Market Share = Room revenue of the hotel X 100 Total room revenue of hotel industry.
