Determinants of revenue management practices and their Effects on the financial performance of star-rated Hotels in Kenya

Abstract

Revenue management (RM) has garnered huge attention in management science research. Past RM researches have hypothetical and methodological inadequacies, such as few variables of the study, errors in measurements, and the model being studied leading to conflicting results. The predicted association between the determinants of RM practices studied and financial performance was not explained exhaustively. Hence, this study's specific objectives were to: establish the determinants of revenue management and their effects on revenue management practices in star-rated hotels in Kenya; examine the revenue management practices and their effects on the financial performance of star-rated hotels in Kenya; determine the determinants of revenue management and their effects on the financial performance of starrated hotels in Kenya; investigate the mediation role of revenue management practices on the relationship between determinants of revenue management and their effects on the hotel financial performance in Kenya. The study employed a quantitative research approach using a cross-sectional survey design. The study used a sample of 138 revenue managers from 215 targeted star-rated hotels. Self-administered questionnaires were used to collect data, validated using a pretest of 32 questionnaires and reliability using the Cronbach's Alpha test. The pretest result was 0.7, which was acceptable, and some improvements were made to the questionnaire before the final data collection. The study adopted a Covariance Based-Structural Equation Modeling and regression models approaches were used to analyze the quantitative data and test the hypothesized relationships between the key variables. Data screening, the unidimensionality of the model, and testing the validity of the factors were done. The proposed framework was evaluated using Confirmatory Factor Analysis; a modified model was validated and deemed a good fit for the data and thus accepted. For objective one, the findings revealed that determinants of revenue management explain variation in RM practices as follows, RM policy and implementation (20.9%), the status of RM practice (40.1%), RM tools (20.6%), Pricing techniques (17.6%), RM team (33.2%), RM social media integration (38.5%), non-pricing techniques (25.1%) and RM data and information (29.7%). The model 1 fit indices of chi-square=68.328(23df) p=.064 CFI=.952 RMSEA=.045 NFI=.983 indicated that the model was acceptable. For objective two, the RM practices explain variation in hotel financial performance as follows profitability (30.5%), solvency (45.5%), liquidity (17.2%), valuation (20.2%), and efficiency (25.8%), and general financial performance (26.6%). The model 3 fit indices chi-square=105.1 (93df) P=0.06 CFI=.97 RMSEA=.018 NFI=.97 indicated that the model was acceptable. For objective three, the determinants of revenue management explain variation in financial performance of star-rated as follows, profitability (42.1%), solvency (24.2%), liquidity (20.0%), valuation (13.2%) and efficiency (15.0%), general financial performance (46.7%). The model 3 fit indices of chi-square=43.813 (36) p=.076 CFI=.98 RMSEA=.042, NFI=.98, indicated that the model was acceptable. Finally, for objective four, RM practices mediate the relationship between determinants of revenue management and explain 57.7% variation in the financial performance of star-rated hotels (R=0.577,p=.05), the model 4 results indicated that introducing a vector mediator, the beta value for the determinants variable dropped to 0.127 from 0.457 (in the direct correlation). The study concluded that there is an association between determinants of revenue management, RM practices, and financial performance. The study revealed that to effectively execute and gain from RM practices and diagnose and design appropriate responses for declining hotel occupancy rates, it is vital to address the match between key variables and hotel financial performance in Kenya. The research could serve as a foundation in academic fraternity and future scholarly works on related subjects and may expand opportunities for research in areas not adequately covered by the survey. The findings may be used in developing policies that may guide into adopting a framework that emboldens the hotel sector in understanding the revenue management practices that significantly influence the sector's financial performance. A more extensive longitudinal study employing various approaches would be good to evaluate whether the RM practices examined here and their influence on financial performance are constant.