HOTEL INDUSTRY APPLICATIONS

WHEN IS USE OF YIELD MANAGEMENT APPROPRIATE?

When

1. Demand for the hotel can be divided into distinct market segments.

2. Each of these segments is prepared to pay different amounts of money

for their room.

3. Room supply is perishable.

4. Marginal cost of selling an additional room is low.

5. The request for a room is ordered in advance of its use- is reserved.

6. Demand for the room fluctuates and cannot be predicted with any
certainty.

7. The physically identical product can be sold to different market

segments for different booking conditions.

BENEFITS OF YIELD MANAGEMENT:

1. Improved forecasting.

2. Improved seasonal pricing and inventory decision.

3. Identification of new market segments.

4. Identification of market segment demands.

5. Enhanced coordination between the front office and sales division.

6. Determination of discounting activity.

7. Improved development of business plans.

8. Establishment of a value-based rate structure.

9. Initiation of a consistent customer contact scripting (standard phrases

when dealing with guests in different situations).

So, Success of YM depends :

* Ability to monitor demand

* Ability to develop reliable forecasts

* Having a guest mix of two or more guest

segments

HOW DOES YIELD MANAGEMENT MAXIMISE REVENUE?

Through
1. CAPACITY MANAGEMENT & SELECTIVE OVERBOOKING

 Controlling and limiting room supply

 Knowing how many walk-ins to accept on a day

 Varying strategy by room type- cheapest rooms overbooked more

 Keeping track of room availability locally

 Keeping track of group attrition – leisure, conventions, etc. segements

2. DURATION CONTROL

 Putting time constraints for reservation requests

 Multi-day requests preferred

3. DISCOUNT ALLOCATION

 Discounted rate is better than no room sale but

 Restrict time period (seasons) and product mix (rooms) available at

discounted rates

 Protect forecasted rooms at higher rate; then discount the balance rooms
in each rate category to fill vacant rooms

 This also is useful when upselling ( depends on elasticity and inelasticity of

demand)

and DIFFERENTIAL RATES/ MARKET SEGMENT PRICING

 Depending on how early or late the reservation is made /confirmed /gtd.

(booking horizons)

 What market segment is reserving- leisure, corporate, associations and

quantum of bookings/business
Rack rate

100% Single private and chance bookings

90% Travel agents, regular guest corporate sales and groups

eligible for discounts

80%

70% Special corporate rates for larger multiple travel agencies

and companies

60%

50% Very large national or international companies

40%

Some YM TERMS

* “Rate Fencing” element

* BOOKING HORIZONS

* DISPLACEMENT
 Potential High &Low Demand Tactics are based on:

 All elements of yield management should be viewed together in order to make

the appropriate decisions.

 Yield should be tracked daily.

 Discounts may be opened to raise occupancy or some discounts may be closed

to raise average rate.

 Each piece of business must be looked at individually and compared with

historical trends as well as to the budget

 Another factor is the actual group booking pattern already on the books or
reserved.

 If historical trends have been strong, but recent business has been weak,
management is smarter if planning for weak business and attempt to attract as
much as possible through low rates.

 Tracking business by revenue source will also help determine when to allow
discounted business and when not to allow it.