Chapter 10 - Customer profitability accounting in the context of hotels

Abstract

To improve financial performance, hotel companies often target multiple customer segments by expanding their product features and services. The logic underlying this strategy is that revenue maximization requires attracting more guests, which is accomplished by targeting new customer segments and offering a wider variety of products and services. This workshop presentation will emphasise that whilst revenue-enhancing techniques are important analytical methods that help managers determine the segments that generate the greatest profit contribution to the bottom line are more informative. As such, the information requirement on the relative profitability of segment/customer has to take into account the costs that would be incurred as a result of decisions made by management. Under the existing Uniform System of Accounts for Lodging Industry (USALI) accounting records are analysed by operating and service departments and designed to facilitate the control and benchmarking of the product mix. However, the marketing planning in hotels focuses on market segmentation, with specific marketing activities and packages targeted at individual market segments. Thus, as a result, there is mismatch of information, with accountants producing information for departments, whilst managers are making decisions based on market segments. The workshop presentation will, also, discuss new developments in customer profitability accounting where either customer segments or individual customers comprise the unit of analysis and will report the results of constructive experimental case study on applications of customer profitability accounting system at a sample hotel property. The main benefit of customer profitability analysis for hotel companies is that it provides management with customer-related information, which will enables the management of yield from a profit perspective; allowing management to consider revenues, costs and profits from a customer perspective. This information relating to profitability of customers can be applied in the decision-making process to support a range of long and short-term customer-related decisions. Following the shift in business towards customer orientation, the concept of understanding customer and market segmentation is becoming a key to the improvement of hotel operating performance.