Yield management has become a solid term in hotelier's jargon. Yet if you ask 10 hoteliers to define what it is, 5 may have a clear idea of what it is, and you may end up with 10 different answers.
The reason for such a different panel of answers is that the underlying concepts of yield management have not been well communicated to them. Yield management in the airline industry, is different to car rental that it is different to hotels.
The root concepts are the same, but the application and the techniques used to implement the concepts differ widely.
Yield or Revenue Management is the practice of maximizing profits from the sale of perishable assets, such as hotel rooms, by controlling price and inventory and improving service. What Yield management bring is a systematic approach to reach that objective. Through that systemization, hotels discover that they can deliver their product differently, and more profitability.
Revenue Management business practices could be:
- Setting the most effective pricing structure,
- Setting last room available for top corporate or leisure clients based on a contract commitment,
- Limiting the number of reservations accepted for any given night or room type, based on the expected incremental profitability of a reservation (price, length of stay, cost of distribution...),
- Negotiating volume discount with wholesale or destination management company,
- Identifying peak periods and write them down in the PMS,
- Develop an upselling program instead of massive "free upgrade",
Revenue Management uses information about customer purchasing behavior and product sales to develop pricing and inventory controls that produce greater revenues and deliver products that are better match to their needs.
It is a mix activities between PMS technology information, statistics, probability, business experience and knowledge.
1) Yield / Revenue Management is NOT a sole computer system:
Discussions over yield management appears to be difficult at the first meeting as it is linked to computer systems, inventory, capabilities of forecasting demand, optimizing reservations and limiting discount availability.
Please get it right, Revenue Management is not a computer system neither a mathematical science. It is an approach to increase revenues and improving service by responding to current demand. It is a process, a way of conducting business.
Certainly computer based tools can be a key component of such a program to assist with forecast demand, cancellation and no show expectations to push your overbooking levels.
2) Yield / Revenue Management does NOT work in low demand season
Since demand forecasting is the basic of Yield Management, to evaluate also potential low days in advance, it can allow the hotel to take specific actions. There is no point sending your entire sales team on the same day of arrival, as you may want to reach from 70-100% Occupancy points, as this could have been identified much earlier.
Demand may be low for a study pattern of days (weekends, second week of the month, week after corporate season and New Year Eve, Sunday and Thursday...), rather than sporadic dates.
When such conditions happen, revenue management can help marketing and sales departments identify opportunities for hotels to increase. The information can be crucial when sales people are on calls with clients.
3) Yield / Revenue is NOT easy
If a yield management program is not implemented with the right tools, then it might appear complex.
Obviously staffs deserve many hours of training and develop hotel procedures and policies that support the system. Don't think of hiring someone from Starwood, Accor, Hilton or other chains, to manage your Independent Hotel, because those revenue managers will not be able to implement policies learn at big groups. Reason: big chains have top tools and invest enormously in Revenue Management trainings and best practices.
BOTTOM LINE:
To summarize Revenue Management is an evolving process that can increase a hotel's revenue. Not working the right way with it, may have a low impact on your profitability. How well revenue management works for a hotel depends on how well the program is designed and implemented.
For more information, please contact us for free consultation call: www.rsvp-hospitality.com
The reason for such a different panel of answers is that the underlying concepts of yield management have not been well communicated to them. Yield management in the airline industry, is different to car rental that it is different to hotels.
The root concepts are the same, but the application and the techniques used to implement the concepts differ widely.
Yield or Revenue Management is the practice of maximizing profits from the sale of perishable assets, such as hotel rooms, by controlling price and inventory and improving service. What Yield management bring is a systematic approach to reach that objective. Through that systemization, hotels discover that they can deliver their product differently, and more profitability.
Revenue Management business practices could be:
- Setting the most effective pricing structure,
- Setting last room available for top corporate or leisure clients based on a contract commitment,
- Limiting the number of reservations accepted for any given night or room type, based on the expected incremental profitability of a reservation (price, length of stay, cost of distribution...),
- Negotiating volume discount with wholesale or destination management company,
- Identifying peak periods and write them down in the PMS,
- Develop an upselling program instead of massive "free upgrade",
Revenue Management uses information about customer purchasing behavior and product sales to develop pricing and inventory controls that produce greater revenues and deliver products that are better match to their needs.
It is a mix activities between PMS technology information, statistics, probability, business experience and knowledge.
1) Yield / Revenue Management is NOT a sole computer system:
Discussions over yield management appears to be difficult at the first meeting as it is linked to computer systems, inventory, capabilities of forecasting demand, optimizing reservations and limiting discount availability.
Please get it right, Revenue Management is not a computer system neither a mathematical science. It is an approach to increase revenues and improving service by responding to current demand. It is a process, a way of conducting business.
Certainly computer based tools can be a key component of such a program to assist with forecast demand, cancellation and no show expectations to push your overbooking levels.
2) Yield / Revenue Management does NOT work in low demand season
Since demand forecasting is the basic of Yield Management, to evaluate also potential low days in advance, it can allow the hotel to take specific actions. There is no point sending your entire sales team on the same day of arrival, as you may want to reach from 70-100% Occupancy points, as this could have been identified much earlier.
Demand may be low for a study pattern of days (weekends, second week of the month, week after corporate season and New Year Eve, Sunday and Thursday...), rather than sporadic dates.
When such conditions happen, revenue management can help marketing and sales departments identify opportunities for hotels to increase. The information can be crucial when sales people are on calls with clients.
3) Yield / Revenue is NOT easy
If a yield management program is not implemented with the right tools, then it might appear complex.
Obviously staffs deserve many hours of training and develop hotel procedures and policies that support the system. Don't think of hiring someone from Starwood, Accor, Hilton or other chains, to manage your Independent Hotel, because those revenue managers will not be able to implement policies learn at big groups. Reason: big chains have top tools and invest enormously in Revenue Management trainings and best practices.
BOTTOM LINE:
To summarize Revenue Management is an evolving process that can increase a hotel's revenue. Not working the right way with it, may have a low impact on your profitability. How well revenue management works for a hotel depends on how well the program is designed and implemented.
For more information, please contact us for free consultation call: www.rsvp-hospitality.com
Superb Blog....thanks for sharing. It helps me a lot.
ReplyDeleteDear Annie, thanks for your notes, please do not hesitate to send me topics you wish to display, because I am organizing the one where I feel people are struggling in getting it right. Write us at info@rsvp-hospitality.com
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