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CONTENTS:

1. Introduction 3

2. Revenue Management 5

3. Need for Yield Management 6

4. Inventory Allocation 7

5. Volume Relationships 9

6. Conclusion 11

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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bed, a cupboard, a small table and a washstand has largely been replaced by rooms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 x actual avg. room rate)

(roomnights available x room rate potential)

Take a look at hotel functions:

Director of market/revenue strategy

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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:

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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:
• Focus on volume.
Level 2 strategy:
• 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.

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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. Availability of information concerning price option

2. A suitable discount offered for cancellation restrictions
3. Reasonable restrictions for a discounted rate
4. 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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