Hotel reservation methods--a discriminant analysis of practices in English Hotels

~ Pergamon Int. J. Hospitality Management Vol. 14 No. 2, pp. 195-208, 1995 Copyright © 1995 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0278-4319•95 $9.50 + 0.00 0278-4319(95)00031-3 Hotel reservation methods--a discriminant analysis of practices in English Hotels Arthur Meidan and Hui-Lin Chiu Sheffield University Management School, Sheffield $1 4DT, U.K. This study investigates the various reservation methods and approaches employed by hotel managers. The importance of each of the 22 reservation methods is identified. The results of the discriminant analysis indicate that the reservation method(s) preferred vary according to the type of hotel, and the hotel's policy on factors such as occupancy rates, overbooking policy, percentage of non-guarantee no-shows, hotel size, room rates and types of guest preferred. Key words: hotel reservation methods overbooking policy reservations management Introduction The reservation function is of paramount importance in any hotel, since an efficient reservation approach leads to high occupancy rates and successful sales efforts. During the last few years, the hotel sector in the U.K. has been in deep recession; however, with the forecast improvement in business, an identification of the importance attached by various categories of establishment to any of the available reservation methods is of great practical relevance to this industry. The objective of this study is to investigate the importance of the various reservation methods employed by a representative sample of hotels and to identify the booking or reservation approaches that are particularly relevant to some of the main categories of establishments. In principle, there are five major ways for hoteliers to receive customers' requests for rooms: customers may telephone, telex, fax, write letters, use computers or visit the hotel reservation centre. After the hotel's reservation clerk receives customer requests for rooms, they need to check their room availability. If there is space available, the clerk may enter details of the booking on their reservation form. Then, the reservation clerk may distribute the reservation form to other departments in the hotel, e.g. the restaurant, in order to prepare the necessary food or other facilities. This pattern of reservation procedures has received quite a lot of attention in the literature (Dix and Baird, 1988). A review of the available literature, plus an in-depth interview with reservation managers at 12 different hotels (as measured by their size, ownership, occupancy rates, 195 Ta bl e I. T he m a in m e th o d s f o r m a n a g in g h o te l r e se rv a ti o n s- co n te n t, /i m it a ti o n s, a d va n ta g e s a n d m a in re fe re n ce s M e th o d C o n te n t Li m it a ti o n s A d v a n ta g e s R ef er en ce (s ) O v e rb o o ki n g p o li cy Fo re ca st in g ro o m d e m a n d th ro u g h a si m u la ti o n m o d e l A cc e p ti n g m o re re se rv a ti o n s th a t t h e re a re ro o m s a v a ila b le , to b a la n ce th e e x tr a ro o m s b o o k e d w it h n o n -a rr iv a ls a n d ca n ce lla ti o n s. M a n a g e rs o ft e n g u e ss ti m a te th e o v e rb o o k in g ra te s A s ta ti st ic a l m e th o d to p re d ic t w h a t w il l h a p p e n to o n e s p e ci fi c h o te l' s b o o ki n g , ca n ce lla ti o n s, n o - sh o w s a n d ro o m o cc u p a n cy , b y ca lc u la ti n g th e ir p ro b a b il it y d is tr ib u ti o n s • It r u n s a r is k o f t u rn in g • I t h e lp s h o te li e rs to g u e st s a w a y m in im is e th e lo ss o n g u e st s' n o -s h o w s • T h e p re d e te rm in e d o v e rb o o k in g ra te s • E as y to w o rk o u t in v o lv e su b je ct iv it y • A d e ta il e d , st a n d a rd is e d , g lo b a l m o d e l c a n n o t b e m a d e C h e a p e r t h a n th e so p h is ti ca te d co m p u te r fo re ca st in g so ft w a re It a ll o w s m a n a g e rs to te st th e im p a ct o f p o li cy ch a n g e s b y a lt e ri n g th e in p u t d a ta a n d a sk in g "w h a t i f" q u e st io n s Le fe v e r, 1 9 8 8 La m b e rt , L a m b e rt a n d C u ll e n , 1 9 8 8 > 5 T h e y ie ld m a n a g e m e n t te ch n iq u e C o m p u te ri se d re se rv a ti o n sy st e m T ra in in g th o se re sp o n si b le fo r b o o ki n g re se rv a ti o n s M in im is in g h o te l l o ss o f n o -s h o w s v ia c h a si n g co n fi rm e d re se rv a ti o n s, in su ra n ce a n d /o r ta ki n g cr e d it ca rd d e ta ils It c o n ce rn s h o w d if fe re n t ty p e s o f r o o m a re to b e a ll o ca te d to m e e t v a ri o u s t y p e o f d e m a n d a n d th e b e st p ri ce s t o c h a rg e in d if fe re n t s it u a ti o n s • C o m p u te ri si n g th e h o te l r e se rv a ti o n sy st e m • Li n ki n g to h o te l d is tr ib u ti o n ch a n n e ls vi a U lt ra sw it ch • C o m p u te ri si n g h o te ls ' g u e st h is to ri e s It c o n si st s o f: 1. A p re h ir e jo b d e sc ri p ti o n 2 . A g e n e ra l o ri e n ta ti o n to h o te l c u lt u re 3. In te n si v e sa le s t ra in in g 4 . C o n ti n u o u s r e v ie w 1. H a v in g p a rt ia l in su ra n ce a g a in st lo ss o f r e v e n u e fr o m n o - sh o w s 2. K e e p in g b la ck lis t o f g u e st s w h o h a v e fa il e d to s h o w fo r t h e ir re se rv a ti o n s • It o ft e n re q u ir e s so p h is ti ca te d co m p u te r s o ft w a re • D e h u m a n is in g h o te l se rv ic e s • R e q u ir in g e x p e n si v e n e tw o rk • R e q u ir e s t im e to b u il d u p g u e st p ro fi le s • T ra in in g p ro g ra m m e s o ft e n re q u ir e a lo n g ti m e to im p le m e n t • R e q u ir e s s u ff ic ie n t b u si n e ss v o lu m e to co v e r t h e c o st o f in su ra n ce • It a im s a t m a x im is in g h o te l y ie ld ra th e r t h a n o cc u p a n cy ra te s • T h e c o m p u te r p ro v id e s h o te li e rs w it h th e a d v a n ta g e s o f so rt in g , c a te g o ri si n g , tr a n sm it ti n g a n d p re se n ti n g b o o ki n g d a ta w it h sp e e d a n d p re ci si o n • It fo cu se s o n th e p e o p le e le m e n t in th e h o te l r e se rv a ti o n sy st e m • H e lp s h o te li e rs to m in im is e th e lo ss o f n o -s h o w s K im e s, 1 9 8 9 D u ro ch e ra n d N e il 19 91 R os s, 1 9 9 0 Pr og , 1 9 8 9 O B O 198 Arthur Meidan and Hui-Lin Chiu types of guests, etc.); suggested that there are 22 approaches and methods used to manage hotels' reservations. (These approaches cannot necessarily substitute each other; indeed, they may be complementary as indicated later in this study.) Of these, six main methods for managing hotels reservations have received particular attention in the literature as follows (Table 1): (1) Overbooking policy This is a practice of accepting more reservations than there is space available. It is one of the popular methods available for hoteliers to maximize their room occupancy for two major reasons (Bergsman, 1991). Firstly, hoteliers often face the problem of customers who fail for any reason to honour their room reservation. Secondly, hotel inventories are perishable in the sense that, if they are not sold on a given day, that business is lost forever. It is possible to overbook a hotel without having to turn away guests. The secret is in determining the typical percentages of no-shows and setting an overbooking percentage rate (OPR). Lefever (1988) suggests that hoteliers can consider the following factors in determining the OPRs for their hotels: • Present reservations • The type of businesses that are booked in their establishment • The previous year's history • Special events in the area • Competitive hotels • The number and frequency of walk-ins • The no-shows factors • Any special hotel functions. Many hotel chains are using sophisticated computer programs whilst small, independent establishments employ simple spreadsheets to project their OPRs. The more factors hoteliers consider, the more accurate the forecasting of OPRs, provided hoteliers can manage all the information. The OPR is obviously a complex equation with a long and tangled list of variables. As a result, most experienced hotel managers view overbooking as an intuitive art and tend to guesstimate their OPRs. The degree of overbooking will vary not only from one hotel to another but also from week to week and day to day in the same hotel. A hotel with a high transient trade will need to overbook more than a hotel in a resort where guests book 3 months in advance and stay for 2-week periods. There are two major limitations with overbooking policy. Firstly, an aggressive overbooking policy may run the risk of turning guests away (sometimes for ever) and receiving adverse publicity from those whose reservation was turned down. Secondly, a conservative overbooking policy may affect hotel profits through unfilled rooms. (2) Forecasting room availability Overbooking policy can result in an excessive turning away of guests, and therefore the optimal solution would be the development of an accurate forecasting model, e.g. by simulation. This could predict the hotel's room availability more accurately and thus indicate the number of reservations to accept for any given arrival date and/or length of stay. Hotel reservation methods 199 According to Lambert et al. (1989), a simulation model can predict what will happen to individual components in the reservation system, such as booking, cancelling, no-show, etc., by calculating the probability distribution for each component and the inter- relationships between individual components. The simulation of the reservation system is undertaken by collecting the historical reservation data and simulating the actual operation of the reservation system by running that data on a computer program. The simulation model enables reservation managers to test the impact of policy changes by altering a single component in the reservation system and asking "what if?" questions. As a result, they can study the consequences in advance and develop alternative strategies. The simulation model becomes a relatively inexpensive means of improving management decision-making in the vital area of reservation policies. Yet there are two limitations with the simulation model. Firstly, a detailed standardised global model cannot be made, since the model must be based on each establishment's specific data. Secondly, any model which uses only historical reservation data to predict room availability may exclude the significant influence of unique external factors on room availability. (3) The yield management technique This is concerned with both the number of rooms occupied and the rates at which they are sold. Together, the rate and the quantity of rooms sold determine room revenue or yield. Orkin (1988) points out that hotel managers need to be concerned with maximising yield rather than focusing only on a high occupancy rate, since a full house with low-paying guests at peak demand could lose the revenue that could have been obtained from high- paying customers. According to Jones and Hamilton (1992), yield management is the process of allocating the right type of capacity to the right type of customer at the right price, so as to maximise hotel revenue or yield. Kimes (1989) says yield management consists of two separate but related parts: room inventory management and pricing. The room inventory management process deals with how different types of rooms are to be allocated to meet various types of demand. 'The pricing procedure is more concerned with the best prices to charge in different situations. When the demand is low, yield management recommends two main actions that could be considered: (a) seeking group business from market segments that are relatively price- sensitive, and (b) offering special promotional rates (as compared to normal room rates that may encounter customer resistance). Once hoteliers have completed the demand analysis, they may be able to set their selling price for rooms based on the expected demand for their rooms on a given night. The major limitation of yield management techniques is that it often requires sophisticated computer software to calculate the proper room prices and the levels of room demand. (4) Automating the hotel's reservation system Information technology and computer software provide hotel reservation clerks with the advantages of sorting, categorising and handling booking data with speed and precision, particularly for large business volumes (Durocher and Neil, 1991). The objectives of linking a hotel's computerised reservation system to other systems in the room distribution channels are to make the reservation process more prompt and less expensive. There are 200 Arthur Meidan and Hui-Lin Chiu four reasons for using computer network communication to route the reservation inquiries instead of using toll-free numbers. First of all, data transmission is less expensive than verbal messages. Secondly, real-time confirmations reduce the need for follow-up calls. Thirdly, human error is less likely to occur. Fourthly, extremely accurate and detailed product information can be provided at the outset of the reservation. According to Bieber (1989), the computerised guest-history system allows hotel reservation clerks to identify whether a customer is a regular guest or not at the time the reservation is made. If the customer is a regular guest, the hotel reservation clerks can check the guest's needs from his/her previous stay and rapidly verify the guest's preference via the guest-history system. There are two major limitations to the automated reservation system. Firstly, computers can have the effect of dehumanising hotel services. Since hospitality is a personal service, few guests will be impressed if their first contact with a receptionist is with one whose eyes are glued to the terminal screen. Secondly, sophisticated automations of a hotel's reservation system may cause difficulty in getting people from the reservation centre to participate, since they may resent the fact that computers have replaced most of their jobs. (5) Training those responsible for booking reservations Although the technology of reservation systems is continually being improved, the one area where the greatest immediate impact can be achieved is in training. Training for hotel reservation clerks has become a major part in successfully automating hotel reservation systems, since only well-trained reservation clerks are able to operate the computer efficiently so as to provide customers with prompt booking information. Amongst the most well-known programs for training hotel reservation clerks is the one suggested by Ross (1990), which provides a comprehensive guide to training hotel staff. (6) An approach for minimising hotels' loss from no-shows In the hotel industry, no-shows refers to the fact that guests ignore their reservation without any notification to hoteliers. This obviously could cause losses which might be prevented by: (a) chasing confirmed reservations; (b) blacklisting guests who have failed to honour reservations in the past; (c) introducing a deposit system, e.g. by booking the reservation with a credit or charge card; (d) insuring against loss of revenue from no-shows (Prog 1989). Methodology A questionnaire asking the hotel managers to indicate the importance of each of the various reservation methods along a seven point scale (from 1 = not at all important to 7 = extremely important) was developed. The questionnaire had been pilot tested in 10 hotels, and subsequently the reviewed questionnaire was mailed to a random sample of 120 London hotels selected from the London Hotel Business Directory. The sampling frame of this study was defined as hotel reservation managers in London hotels in early 1993. The hotels interviewed were selected using a stratified random sample, taking account of various hotels' size (number of rooms), ownership (chain, private etc.), and room tariffs charged. Hotel reservation methods 201 Table 2. The relative importance of various reservation methods employed by hotels (N = 57) Mean score of Method/approach for hotel reservations importance 1 Training reservation clerks to speed up booking 6.72 2 Employing people with good knowledge of hotel's products in 6.65 the reservation centre 3 Taking credit card details at booking 6.35 4 Tracking guest history to build up preference information 6.18 5 Forecasting demand for hotel rooms 6.02 6 Contracting agency or hotel representatives 5.96 7 Computerising hotel reservation system 5.86 8 Adopting yield management technique 5.81 9 Acquiring access to local or worldwide centralised reservation 5.75 10 Reserving guests' desired amenity before their arrival 5.65 11 Generating reservation records for marketing purposes 5.65 12 Maintaining close relationships with competitors 5.40 13 Consolidating reservation network to achieve economies of scale 5.35 14 Overbooking hotel capacity 5.35 15 Linking or access to hotel's external room distribution channels 5.35 16 Sending confirmation letters 5.30 17 Increasing customer's awareness to make direct booking 5.25 18 Avoiding sending overbooked customers away 5.25 19 Chasing guarantee reservations and/or taking insurance 5.09 20 Negotiating room rates with sales departments 4.98 21 Diversifying hotel room distribution channels 4.96 22 Adjusting room commissions with sales agent 3.32 As mentioned previously, a literature review and interview-in-depth studies at 10 hotels suggested that there are 22 approaches that are used by hotels to manage their reservation systems. Table 2 presents the importance of these 22 methods of managing hotels' reservation systems, by calculating the mean scores for the 57 hotels (a 47.5% response rate) that replied to the questionnaire. Discriminant analysis was then used to identify the reservation methods preferred by the various types (or categories) of hotels. Hotels were categorised and analysed by: (a) Occupancy levels (low occupancy = under 65% annual occupancy level; average = 66- 75% occupancy; high = >75%). (b) Overbooking policy (high overbooking rates = over 10%; low overbookings = up to 10% ; and no overbooking policy). (c) Percentage of non-guarantee no-shows (low percentage = <5%; average = 5-10%; high = >10%). Obviously, losses in hotels are assumed to be proportional to the number of non-guarantee no-shows that the hotel experience, and therefore the importance of this par