DYNAMIC PRICING AT GRAND PASUNDAN HOTEL
FINAL PROJECT
By RAUSHANFIKRI ENALDO MONOARFA 19004047
Undergraduate Program of Management Study School of Business and Management Institut Teknologi Bandung 2008
APPROVAL PAGE
DYNAMIC PRICING AT GRAND PASUNDAN HOTEL
RAUSHANFIKRI ENALDO MONOARFA ID No. 19004047
A Final Project in Partial Fulfillment of the Requirements for the Degree of Bachelor of Management
Undergraduate Program of Management Study School of Business and Management Institut Teknologi Bandung 27 June, 2008
Approved By
(Togar M. Simatupang, Ph.D) ii
DYNAMIC PRICING AT GRAND PASUNDAN HOTEL RAUSHANFIKRI ENALDO MONOARFA 19004047 Tanggal Ujian Akhir: 30 Juni 2008 Tanggal Wisuda: 19 Juli 2008 Program Sarjana, Institut Teknologi Bandung, 2008 Pembimbing: Togar Simatupang, Ph.D ABSTRAK Kondisi persaingan yang terus berubah mengharuskan setiap hotel berusaha meningkatkan responsnya terhadap lingkungan bisnisnya. Perhotelan di Bandung mengalami kenaikan permintaan dan pada saat bersamaan masing-masing saling bersaing dalam meningkatkan pendapatan. Penetapan harga adalah salah satu cara untuk menarik minat pelanggan dalam upaya peningkatan pendapatan. Tugas akhir ini membahas penggunaan metode penetapan harga yang dinamis pada Grand Pasundan Convention Hotel. Metode ini bertujuan untuk meningkatkan pendapatan dengan menetapkan diferensiasi harga atau perbedaan harga untuk ketentuan-ketentuan tertentu. Pada riset ini, penulis menemukan kelemahan dalam sistem penetapan harga, dimana pihak hotel tidak mempunyai formula yang tepat untuk memberikan discount rate dan seberapa banyak kamar yang harus disimpan untuk harga tinggi. Pihak hotel perlu mengevaluasi kembali strategi mereka dan mempertimbangkan untuk menggunakan strategi dynamic pricing. Penulis mengajukan solusi menggunakan strategi protection level dan booking limit untuk memaksimasi pendapatan. Strategi ini adalah dengan menjual harga rendah kepada leisure traveler yang cenderung untuk mereservasi kamar terlebih dahulu, dan menjual harga kamar kepada business traveler yang cenderung memesan kamar pada saat-saat akhir. Analisis yang dilakukan menunjukkan bahwa dengan menggunakan strategi Dynamic Pricing dengan protection level and booking limit akan membantu Grand Pasundan Hotel untuk memaksimasi pendapatannya hingga rata-rata 33.3%. Kata kunci:
hotel, dynamic pricing, pendapatan, permintaan, protection level, booking limit
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DYNAMIC PRICING AT GRAND PASUNDAN HOTEL RAUSHANFIKRI ENALDO MONOARFA 19004047 Date of Final Presentation: 30 Juni 2008 Date of Graduation: 19 Juli 2008 Undergraduate Program, Institut Teknologi Bandung, 2008 Final Project Advisor: Togar Simatupang, Ph.D
ABSTRACT The edge of competitiveness in the hotel industry is dynamic, which requires hotel business to devise a set of appropriate response measures to adapt with the changes in its environment. For Instance, the Hotel industry in Bandung is experiencing an escalation in demand and it has triggered a competition among hotels to maximize revenue. One of the methods to deal with increasing revenue lies in pricing, and attractive rates attract. Thus, increase in demand will lead to increase in revenue. This paper discusses the use of Dynamic Pricing by looking at how the Grand Pasundan Convention Hotel utilizes this method to maximize its revenue. In this research, the author found that the weakness point from the existing system is they did not have the exact formula to set the discount rate and how many rooms that they should protect for high fare. They should revaluate their strategy and consider the dynamic pricing. The author proposed solution by using daily dynamic pricing strategy with protection level and booking limit in order to maximize the revenue. This protection level strategy is a strategy to sell the number of rooms at high fare. Hotels usually offer rooms to both leisure and business travelers. Leisure travelers are more prices sensitive and tend to reserve rooms well in advance of their stay. Business travelers are generally willing to pay more for a room, in part because they tend to book much closer to the time of their trip. The analysis have shown that with using daily dynamic pricing strategy with protection level and booking limit can help Grand Pasundan Hotel to maximize revenue to 33.3%. Key word:
Revenue Management, hotel, demand, dynamic pricing, protection level, booking limit.
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ACKNOWLEDGEMENT Thanks to Allah SWT for your blessing and permission that this final project could come to the end. Even this research only took place in short time, but the process of doing this project gave many meant lessons to the author. As a human being, the author realized that this project is still far away from perfect. The limitation of author’s capability makes this final project need more revisions and suggestions from the readers. The succeeded completion of this final project doesn’t escape of the helps from all people. The author would like to give my gratitude to: 1. Mr. Togar M. Simatupang Ph.D, thanks for the counseling, support and advices to the author thus, the final project could finish on time. 2. Mr. Wimpy Setiawan Ibrahim as the CEO, and Mrs. Rima as General Manager for letting the author to have research in Grand Pasundan Hotel and helping in data gathering. 3. Mr. Adrian as Front Office Manager and Mr. Soesilo as Human Resource Manager, thank you very much for being a great informer. 4. All unmentioned staffs of Grand Pasundan Hotel, who have already helped the author along the research. 5. My parents, Mr. Suharso Monoarfa and Mrs. Carolina Kaluku. Your praying, supports, and loves can not be replaced by anything. My Brother, Andika Monoarfa and My little sister, Ainiy Syahputri Monoarfa. and all family the author can not mentioned. 6. Kampung Dago team, Gading, Harwin, Awan, Aliya, Azima, Feiral, Dhika, Dhinda, Iqbal, Ardra, Andro, Puti and many others the author can not mentioned 7. Counseling friends, Wahyudanto Sudiyono, Farhan, Widi, Baceng, Atir, Gebyar, Jembi, Radi and Karin. Thanks for help and support each other. 8. To all the girls I’ve loved before. I am very thankful having such great time with all of you. v
9. All SBM 2007 students, as the first batch of SBM, let us prove that we could get success in the future. Hope that this final project can be useful for Grand Pasundan Hotel and also for everybody that would make this project as references. Thank you.
Bandung, 27 June 2008
Raushanfikri Monoarfa
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LIST OF CONTENTS VALIDATION PAGE.............................................................................. ABSTRAK............................................................................................... ABSTRACT............................................................................................. PREFACE................................................................................................. LIST OF CONTENTS............................................................................. LIST OF IMAGES................................................................................... LIST OF TABLES................................................................................... LIST OF APPENDIXES..........................................................................
ii iii iv v vii ix x xi
CHAPTER 1 INTRODUCTION............................................................. 1 1.1 Background Research................................................... 1 1.2 Problem Formulation.................................................... 2 1.3 Objectives..................................................................... 3 1.4 Problem Limitation....................................................... 3 1.5 Problem Approaches.................................................. 3 1.6 Report Outline.............................................................. 4 CHAPTER 2 THEORETICAL FOUNDATION.................................... 2.1 Definition of Price........................................................ 2.1.1 Conventional Definition.................................. 2.1.2 Dynamic Pricing.............................................. 2.2 Revenue Management.................................................. 2.2.1 Room Rate Economics........................................ 2.2.2 Margin Arithmetic............................................... 2.3 Traditional Pricing Strategies....................................... 2.4 Managing ADR............................................................. 2.5 Yield Management....................................................... 2.5.1 Realization........................................................... 2.5.2 Techniques........................................................... 2.6 Measures of Effectiveness............................................ 2.6.1 Occupancy Index................................................. 2.7 Demand Curve.............................................................. 2.7.1 Fixed Pricing Demand Curve.................................... 2.7.2 Dynamic Pricing Demand Curve.............................. 2.7.3 Comparison of fixed pricing and dynamic pricing... 2.8 Poisson Distribution and the Poisson Process............. 2.9 Protection Level and Booking Limit............................
5 5 5 6 6 10 11 13 16 17 18 19 19 20 21 21 22 23 23 25
CHAPTER 3 METHODOLOGY.......................................................... 3.1 Problem Formulation.................................................... 3.2 Literature Study............................................................ 3.3 Data Gathering.............................................................. 3.4 Analyzing Data............................................................. 3.5 Proposed Solution......................................................... 3.6 Conclusion and Recommendation................................
27 27 27 28 28 28 28
CHAPTER 4 DATA ANALYSIS......................................................... 29 4.1 Company Profile........................................................... 29 4.1.1 Company History................................................ 29 vii
4.1.2 Vision, Mission and Company Structure............ 4.1.3 The Product of Company.................................... 4.2 Company Pricing Process............................................. 4.2.1 The Pricing Strategies 2007................................ 4.2.2 Weakness Point from the Existing System......... 4.3 Data Analysis................................................................ 4.3.1 Proposed Solution...............................................
30 32 34 39 45 46 48
CHAPTER 5 CONCLUSION & IMPLEMENTATION PLAN............. 5.1 Conclusion.......................................................................... 5.2 Implementation Plan........................................................... 5.3 Future Research...................................................................
59 59 60 63
REFERENCES......................................................................................... 65 APPENDIXES.......................................................................................... 66
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LIST OF FIGURES 2.1
Shared Room Rate Management Responsibilities......................... 8
2.2
Demand Curve................................................................................ 21
2.3
Demand Curve with two prices level............................................. 22
3.1
Research Methodology................................................................... 27
4.1
Hotel Map........................................................................................ 30
4.2
Organization Structure.................................................................... 30
4.3
Pricing Process................................................................................ 34
4.4
Pricing Step..................................................................................... 37
4.5
Monday RNO in 2007..................................................................... 46
4.6
Tuesday RNO in 2007.................................................................... 46
4.7
Wednesday RNO in 2007............................................................... 47
4.8
Thursday RNO in 2007................................................................... 47
4.9
Friday RNO in 2007........................................................................ 47
4.10 Saturday RNO in 2007.................................................................... 47 4.11 Sunday RNO in 2007...................................................................... 48 4.12 Daily Demand in 2007.................................................................... 48 4.13 Revenue without Protection level in Deluxe.................................. 56 4.14 Sensitivity to Revenue with expected high rate Booking.............. 57 4.15 Sensitivity to Maximum Expected Revenue.................................. 57 4.16 Sensitivity to Expected Revenue Increase...................................... 57 5.1
New Pricing Process....................................................................... 62
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LIST OF TABLES 2.1
Percentage change in profit for different Gross Margins, Revenue Increases, and Net Profits as a percentage of Revenue................. 12
2.2
Forecast Types................................................................................ 16
2.3
Occupancy Index Evaluation.......................................................... 20
2.4
Comparison of Pricing Strategies................................................... 23
4.1
Types & Amount of Room............................................................. 32
4.2
Division Pricing Assignment.......................................................... 35
4.3
SWOT Analysis Matrix.................................................................. 36
4.4
Room Rate Factors.......................................................................... 38
4.5
Grand Pasundan Hotel Target 2007................................................ 42
4.6
Grand Pasundan Hotel Achievement 2007..................................... 43
4.7
Room Sold by Type of Room......................................................... 44
4.8
Company’s Pricing Problem........................................................... 46
4.9
Proposed Solution Remarks............................................................ 51
4.10 Studio type with 35% Discount rate............................................... 52 4.11 Superior type with 35% Discount rate............................................ 53 4.12 Deluxe type with 35% Discount rate.............................................. 54 4.13 Deluxe Revenue Sensitivity to Discount rate on Monday............. 54 4.14 Deluxe Revenue Sensitivity to Discount rate on Tuesday............. 54 4.15 Deluxe Revenue Sensitivity to Discount rate on Wednesday........ 55 4.16 Deluxe Revenue Sensitivity to Discount rate on Thursday........... 55 4.17 Deluxe Revenue Sensitivity to Discount rate on Friday................ 55 4.18 Deluxe Revenue Sensitivity to Discount rate on Saturday............ 56 4.19 Deluxe Revenue Sensitivity to Discount rate on Sunday............... 56 4.20 Deluxe Weekly Revenue Sensitivity to Discount rate................... 56 5.1
Implementation Plan for Proposed Strategy................................... 61
5.2
Implementation Step and Milestones............................................. 62
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LIST OF APPENDIX APPENDIX I - Hotel Flyer and Promotions........................................... 66 APPENDIX II – Hotel Rooms and Facilities Photos.............................. 70 APPENDIX III – Hotel Room Data......................................................... 75 APPENDIX IV – Poisson Distribution and Loss Function Table.......... 79
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