Yield Management

Introduction.

-Yield management is the umbrella term for a set of strategies that enable capacity-constrained service industries to realize optimum revenue from operations. The core concept of yield management is to provide the right service to the right customer at the right time for the right price.

-Revenue Management is the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth.

Application in the hospitality features.

Yield management is an approach to pricing that is often used by industries in which the marginal production cost is relatively high, while the marginal sales cost is relatively low. The hotel industry meets these criteria. Hoteliers have looked at the airlines and their claims of improving revenues by 2 to 5 percent, and have been enthusiastic about attempting to do the same.

Industry publications demonstrate a keen interest in the revenue-enhancing potential of yield management, but there has been little research on the extent to which this pricing technique is actually utilized by hotel general managers. One writer on the subject has concluded that "if you ask ten hoteliers what it is, you are apt to get at least five, and possibly ten, different answers."

Much of the existing research on yield management in hotels has concluded that there are distinct procedural elements that make up the practice. This paper tests the proposition that there are eight basic elements of yield management in hotels. The degree to which yield management is practiced is indicated by the extent to which the following eight elements are in place.

1. Customers must be segmented by their willingness/ability to pay.

2. Booking patterns for each segment must be determined.

3. Demand patterns for each segment must be determined.

4. Sales must be tracked and analyzed by segment.

5. Denials and regrets must be tracked and analyzed by segment.

6. Occupancy must be forecasted by segment.

7. The absolute price floor must be close to the marginal sales cost.

8. The hotel must utilize some optimal room allocation method.

Indicators for measuring the YM/RM

While the revenue management community spends a significant amount of effort devising strategies and deploying tactics to optimize revenues, many revenue managers still lag when it comes to establishing and measuring agreed upon success criteria, often leaving revenue management professionals to defend their actions with insufficient means to a skeptical audience. To be truly effective in the job, devising, implementing and agreeing on “what success looks like” is, in many cases, as important as the activities themselves and will go a long way to support a revenue manager’s success story.

1. Information Overload: Gone are

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