Customer profitability analysis in a local five star hotel : a case study

Abstract

In today's competitive environment, it is imperative that a hotel is able to identify those customers which tend to contribute a large amount of profit towards the business. Hotels invest in their customers to try and gain their loyalty, which results in engaging in repeated business with them. The objective of the study is to identify the current approach towards customer profitability analysis adopted by the hotel, how customer relationships are handled and identify any areas where improvement is necessary. Costs are firstly analysed by departments, the undistributed operating expenses are then deducted to arrive at the gross operating profit, and overhead costs, which are not controllable by the hotel, are subtracted to arrive at the Net Profit. The price set for each segment is determined after taking into account a number of factors, amongst which there is the targeted budget, the economy's situation, competitor's position, demand and supply. Each person in the sales department is responsible for communicating with clients of a specific market segment. Indirect costs are allocated to their respective cost centre and are not apportioned to profit centres. The market determines the selling price therefore continuous research must be conducted to see what competitors are offering. Analysing customers' feedback is vital to try and build long-term relationships with customers.