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

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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.

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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
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  2. Mohammad Modarres
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  3. Samin Aref
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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.

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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

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

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