Yield
Managemen
t
By:
Md Laraib Ahsan
Aastha Shailee
Yield Management: Introduction
• The concept of yield management as first introduced by the
airlines industry
• Yield is the revenue generated per statistical unit. Ex: in
an airline industry yield would be the revenue generated per
mile by per paying passenger.
• Thus yield management is the process of understanding,
anticipating and influencing customer behavior to maximize
revenue or profit from a fixed, perishable source (Hotel Room)
• The challenge is to sell the right resource to the right customer
at the right time for the right price. This process can result in
price discrimination, where firm charges different price for
customers consuming identical goods or services.
Yield Management in Hotel
Industry
• A guest room is one of the highly perishable products of the
hospitality sector- if a room is not sold on a particular day, the
entire potential revenue that could be generated from it is lost
forever.
• After realizing that more volume sales not always generate the
desired revenue the hotels nowadays have shifted their focus
from high volume reservation to high profit reservation.
• To maximize revenue the hotels thus sell the rooms at varying
prices.
• Yield management here is composed of a set of demand
forecasting techniques which are used to determine whether the
room rates should be raised or lowered and whether a reservation
should be accepted or rejected to maximise the revenue.
Contd….
• Thus we define yield management in the hotel industry as ‘a
technique based on principles of demand and supply, used to
maximize the revenue generation of any hotel by lowering
prices to increase sales during off season (low-demand period),
and raising prices in peak seasons (high-demand period).
• Conditions for yield management to be applicable:
There is a fixed amount of resources available for sale: Limited
rooms
The resources sold are perishable: rooms if not sold on a day,
revenue is lost forever.
Different customers are willing to pay different price for using the
same amount of resources: Business guest may not mind paying
high price but the family guests are price sensitive and may not pay
the same price.
Contd….
• Pricing and demand are interrelated and need to be
coordinated.
• In the hospitality industry, demand of a room is cyclic in nature
and follows a trend. Yield management models help pinpoint
demand by minimizing uncertainty and produce the best
possible forecast and help in allocation of the inventory of hotel
rooms among the different segments of guests.
Measuring Yield in Hotel industry
•
Tools of Yield Management
Selective overbooking
or capacity
management
Tool of Revenue Different pricing or
Management discount allocation
Duration restriction or
duration control
Selective Overbooking/ Capacity
Management
• This involves various methods of controlling and limiting room
supplies. The availability of rooms play a vital role in taking
advance booking of hotel rooms.
• Hotel managers, based on experience and historical data often
take chance to book more rooms than the total inventory of
rooms in the hotel.
• Overbooking is an intentional practice of selling more rooms
than available to off set the effects of cancellation, no shows,
and early departure.
Differential Pricing/Discount
Allocation
• Price of goods or services may be defined as ‘the value of the
goods or services expressed in terms of money’.
• Price is a major criterion for a guest while choosing a hotel for
stay.
• The pricing of a hotel room is based on its demand in the
market. Yield management thus attempt to get the right sales
mix.
• It is impossible for the hotel to sell its room at rack rate at all
times. Therefore it must have a strategy that will allow it to sell
the maximum number of rooms at the best rates, while at the
same time filing those rooms that would have otherwise
remain unsold at a discount rate.
Duration Restriction/Duration
Control
• Duration control places time constraints on accepting
reservation, to protect sufficient space for multi-day requests.
For example- a hotel may refuse a reservation request for one-
night stay, even rooms are available for that night, as accepting
such reservations may block occupancy on adjacent days.
• Hotels in a city generally witness lean occupancy in weekdays.
The situation is reverse for resort hotels at vacation destinations.
• The hotel may exercise the length of stay restriction to control
the imbalance of occupancy during the week. To avoid loss of
revenue the hotel may reject reservations for one night on the
days of higher occupancy. Special rates may be offered if the
guests are willing to stay in the lean days.
Elements of Yield management
Group Room
Sales
Transient room
sales
Food and
Elements of Yield management
Beverage
Local and area
wide activities
Special events
Elements of Yield Management
• Group Room Sales
By studying group booking data hotels can anticipate group behavior
and accordingly make provisions (for cancellations, modifications
etc.) in group reservations.
• Transient or individual room sale
The FO manager should monitor the booking pace and lead time of
individual guests to understand how current reservations compare
with historical and anticipated rates
• Food and beverage activities
All local F & B functions should be view in light of the potential for
booking groups that need a meeting place, food and beverage
service and guest room.
Continued.
• Local and Area-wide activities
Even when a hotel is not in the immediate vicinity of a convention,
individual guests and small groups who have been displaced by the
convention may be referred to your hotel (as an overflow facility)
and this may have a tremendous impact on the hotels revenue.
• Special events
During special events (such as concerts, festivals and sporting
events) hotels might decide to benefit from high demand by
restricting room rate discounts or requiring a minimum length of
stay
Benefits of Yield Management
• Improved Forecasting
• Improved seasonal pricing and inventory decisions
Helps in deciding the season and off season pricing for
accommodation products. And also in making important inventory
decisions such as renovation.
• Identification of New Market segment
• Identification of market segment demands
• Enhanced coordination of Front Office and Sales Division
Since the two divisions work together it helps enhance coordination
between them.
Continued
• Determination of discounting Activity
Helps determine the amount of discount to be offered, depending on
the dates and periods.
• Improved development of short-term and long-term business
plan
Helps develop business plans as the management can forecast
revenue that can be generated and take measures to generate those
figures
• Establishment of value based rate structure
Helps determine rate structure on perceived values.
Yield Management Strategies
• High Demand
Close or restrict discounts to generate more revenue
Apply minimum length of stay restrictions carefully
Reduce group room allocation as group get very low room rates.
Raise rates as consistent with competitors to generate optimum
revenue.
Consider a rate increase of packages instead of giving more discount
Apply rack rates to higher category of rooms such as suites and
executive rooms.
Apply deposits and guarantees to the last night of stay.
Yield Management Startegies
• Low Demand
Sell value and benefits like spa treatments
Offer packages and special offers
Keep discount categories such as advance purchase rates and
corporate rates open
Encourage upgrades
Offer stay sensitive price incentives.
Remove stay restrictions
Establish relationships with customers
Lower rates to attract more guests and to generate more revenue
for the hotel.
Challenges in Yield Management
• Guest satisfaction
Some guest do not like the practice of differential pricing. In
evaluating the efficiency of yield management system, the trade off
between generating short-term profits and creating long-term guest
loyalty needs to be studied carefully
• Employee malpractice
Revenue management may influence the employees to follow wrong
practices. For example, hotels might offer incentives to the staff for
selling higher category rooms and this might motivate the
reservation agents to upsell while making reservations. Thus the
agents might not sell the basic category of rooms and offend certain
guests
