Yield Management In Hotel Industry

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CONTENTS:

1. Introduction

3

2. Revenue Management

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3. Need for Yield Management

6

4. Inventory Allocation

7

5. Volume Relationships 6. Conclusion

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Hotel:

A hotel is an establishment that provides paid lodging on a short-term basis. The provision of basic accommodation, in times past, consisting only of a room with a bed, a cupboard, a small table and a washstand has largely been replaced by rooms with modern facilities, including en-suite bathrooms and air conditioning or climate control. Additional common features found in hotel rooms are a telephone, an alarm clock, a television, and Internet connectivity; snack foods and drinks may be supplied in a mini-bar, and facilities for making hot drinks. Larger hotels may provide a number of additional guest facilities such as a restaurant, a swimming pool or childcare, and have conference and social function services.

Hotel revenue break down:

Revenue breakdown for full service hotels:

Cost & expense breakdown for full service hotels:

Revenue management:

It is an art & science of predicting real time customer demand to determine the optimal price & availability of a product. Or in laymen terms we can say selling the right product to the right customer at the right time at a right price thereby maximizing the overall revenue. In hotel industry yield management is done by the rates the hotel will charge & the no. of rooms available for each rate based on projected occupancies for a fixed period. This pricing is based on the elasticity of demand for selected customer segments. Yield = (room night sold (roomnights available

x x

actual avg. room rate) room rate potential)

Take a look at hotel functions: Director of market/revenue strategy Yield Management

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Inventory management

group strategy/ business evaluation

Revenue analysis Property sales & event management- sales & implementation Therefore we maximize revenue in hotel by: • Pricing: how to price their product • Inventory allocation: what we put on shelves • Selling strategy: how to sell the product

Requirements of yield management: • • • • • • • • • •

Good data Ability to segment markets Perishable inventory Ability to sell in advance Low marginal sales cost Booking pattern data Excellent management information system(MIS) Customized software’s & system like oracle, Fidelio Ability to fence customer segments An overbooking policy

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Pricing:

It is a process of determine how each product will be defined in market place.

Now in order to develop rational pricing we have to look upon these factors. Customer: • Who are my customers? • What are they buying? • What are they willing to pay for the quality offered? • How do they book the room? Property: • What is the quality of my product? • What economic return is desired? • What are my past pricing actions and results of those actions? • What are my roomnights, rate, and mix trends by segments? Market: • What is the state of the economy? • What is the market outlook? • What is demand strength, It’s pattern & it’s consistency? • What my competitors are doing & what will be there reaction?

Inventory allocation: Yield Management

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It is a process to determine how much to make available at each price point of product. To make efficient allocation a hotelier tries to find out: • How much business is there? • When do customers book & how much/ • How much they are willing to pay Accordingly a strategy is prepared in order to manage demand at 3 levels: Level 1 :0%-75% occupancy Level 2 : 76%-80% occupancy Level 3 : 80%-100% occupancy Level 1 strategy: Level 2 strategy:

•

Focus on volume.

•

Focus on mix rate & volume Hotel requalifies special corporate discounts Limiting discounts in peak time

•

Level 3 strategy

•

•

• •

Focus on rate Remove non producing accounts from discounts NLRA for new customers

Sales strategies:

Establishing & communicating what can be sold & when?

In it hotelier takes into consideration: • Customer needs • Property financial needs • Market dynamics

Process to yield management; 1. Project occupancy based on current booking patterns 2. If there is low occupancy the lower room rate is opened to increase occupancy which favors the leisure traveler. For ex Sheraton hotel have 21 days advance supersaver scheme. 3. If high occupancy are projected then lower rates are closed and high rates are opened. Yield Management

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Other factors impacting hotel decisions: • • • • •

Hotel chains rarely own their hotels Each hotel has a responsibility to its owner, mortgagor, and/or franchisee as well as company shareholders and associates to optimize revenue on a daily basis Most chains focus on the Management contract and Franchise models Hotel General Managers must answer to their own company in addition to the owners of the real estate Each hotel has it’s own P and L; therefore the negotiation principals are very different from the airlines.

Yield management success is measured by : REVPAR

=

AVERAGE RATE

X

OCCUPANCY

REVPAR allows us to measure the success of balancing occupancy and ADR resulting in maximized revenue.

Volume Relationships Business goal: to maximize revenue can lead to poor customer experience.

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Therefore a balance needs to be maintained between SHORT TERM MAXIMIZE REVENUE TO LONG TERM CUSTOMER RELATIONSHIP. For example early yield management techniques cancels the booking made by travel agents during high occupancy periods in order to save travel agents commission but it will ultimately result in loss to future business.

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Volume relationship consideration: Maintain long term relationships with customers who: • Demonstrate control • Have the ability to move market share Special Corporate Rate offered to those who: • Demonstrate Control • Have day of week patterns that build shoulder night occupancy • Provide volume during periods of low demand Rate integrity can also be applied to these VIP’s & CIP’s(commercial important persons)

Rate integrity: Rate integrity means many things to many people. It could include: • Getting your negotiated rate when you want it • Having only your negotiated rate loaded for general inventory and not other rates loaded for upgraded room products • Never finding another lower ‘qualified’ discounted rates • Having the same rate made available through all reservation channels.

Conclusion: Although yield management may be ethical, it may not be viewed as fair by the guest. A study of perceived fairness of yield management demonstrated that many common yield management techniques were viewed as highly un acceptable by survey respondents Unacceptable practices 1. Offering insufficient benefits in exchange for restrictions 2. Imposing to severe a restriction on discounts 3. Not informing of customers of change in requirements to receive price discounts Acceptable prices 1. 2. 3. 4.

Availability of information concerning price option A suitable discount offered for cancellation restrictions Reasonable restrictions for a discounted rate Different prices for products perceived by a customer as different

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Yield management should be based on sound marketing plan so that it helps in developing long term sound relations with the customers. A balance should be maintained between short term gains & long term relationships. The staff must be well trained to explain the differences in ratesFor example sometimes a customer staying longer might be charged higher than the guest staying for few days, one might expect a concession for longer stays because longer stays may take a guest in a period of high occupancy where rate is high. Hotels should be able develop fences to prohibit customers from one segment receiving prices intended for other. For example a business traveler exhibit less elastic behavior towards price as compared to leisure traveler then a hotel can ask for 30 day advance reservation for Friday & Saturday night stay this will effectively fences out business travelers to pay higher prices to stay during business weeks with little or no advance reservation. Yield management system should be developed in consensus with transient demand so that it does not result in customer dissonance while turning away a customer. In the end I would like to say that yield management if used properly can provide extra revenue to hotels & benefits to customer also.

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