701FO Yield Management PDF

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YIELD MANAGEMENT ME METH TH THO ODS A ADO DO DOP PTE TED D FO FOR R EEVA VA VALLUA UATI TI TIN NG PPER ER ERFO FO FORM RM RMA ANCE OF OP OPER ER ERAT AT ATIO IO ION NS ▪ Occupancy % ▪ ARR DIS DISA ADVA DVAN NTA TAG GES O OFF O OCC CC CCU UPA PANC NC NCYY % AN AND D ARR AS PE PERF RF RFOR OR ORM MAN ANC CE M ME EAS ASU URE ▪ One Dimensional Approach Relationship between the two is neglected. For eg; Lower Room Rate = Higher Occupancy Higher Room Rate = Lower Occupancy But ARR does not increase ▪ Cost per Occupied Room is neglected RE REVEN VEN VENU UE M MAN AN ANA AGE GEME ME MEN NT/ YI YIEL EL ELD D MA MAN NAGEM GEME ENT [Combines the two factors Occupancy% and ADR into one statistic] Revenue management is an evaluative tool that allows the front office manager to use the potential revenue as a standard against which actual revenue can be compared.

IHM Lucknow Faculty Notes

WHA HATT IISS YYIE IE IELD LD Yield is ➢ The final product after processing ➢ Revenue generated per statistical unit ➢ Yield = Output = revenue ➢ Therefore, yield management = revenue management ➢ Yield is the total output and depends upon facts ORI ORIGI GI GIN N ➢ Concept introduced by the airline industry in 1970’s ➢ Sold perishable seats at rack rates ➢ Adopted a technique based on Demand & Supply ➢ Demand exceeded supply = increase the rate and supply exceeds demand = demand the rate ➢ Demand exceeded supply = increase the rate and supply exceeds demand = demand the rate ➢ Yield management was referred as revenue per available seat per mile.

AP APPL PL PLICA ICA ICATI TI TION ON O OFF YI YIEL EL ELD DM MA ANAG AGE EME MEN NT/ RE REVE VE VEN NUE MA MAN NAGEM GEME ENT Applied in segments with perishable product • • • •

Airlines Car rental per car Restaurant per hr Hotel per night

Revenue per available seat Revenue per available seat Revenue per available seat Revenue per available room IHM Lucknow Faculty Notes

CO CON NDITI DITION ON ONSS FFOR OR TTHE HE A APPL PPL PPLICA ICA ICATIO TIO TION N OF YIE YIELD LD MA MANAG NAG NAGE EME MENT NT 1. Fixed amount of resources for sale - Airline seats, hotel rooms 2. Resources sold are perishable - Tomorrow, hotels sells tomorrows room 3. Differential pricing - Customers willing to pay different price for using the same resources.

Thus, yield management is ➢ Understanding ➢ Anticipating ➢ Influencing Consumer behaviour in order to maximise revenue/ profits from a fixed perishable resource.

“Technique based on demand and supply used to maximize revenues by lowering prices to increase sales during periods of low demand and raising prices during periods of high demands.”

CH CHAL AL ALLEN LEN LENGE GE IIS: S: o o o o

INVEN VEN VENTO TO TORY RY to The right IN CUST ST STOM OM OMER ER at The right CU TIME E at The right TIM PRICE CE The right PRI IHM Lucknow Faculty Notes

CO COMPO MPO MPONEN NEN NENTS TS OF YIE YIELD LD MA MANA NA NAGE GE GEMEN MEN MENTT o o o o o

Fixed inventory Potential customer Differential pricing Time: Peak seasons and off seasons Channel: Travel portals, CRS

PO POIN IN INTS TS TO BE CON CONSIDE SIDE SIDERED RED o Predict consumer behaviour ➢ Length of stay ➢ Buying capacity o Optimize the prize and inventory available to each customer segment ➢ Discounts ➢ Packages ➢ Apply rack rates o Focus on revenue maximization than on cost minimization ➢ Do not cut on facilities and amenities ➢ Effect quality and brand name o Marginal cost which is involved in cleaning and supplies will be incurred only if the room is sold. ➢ Loss to hotels operating cost GO GOAL AL OF YYIEL IEL IELD D MAN MANAGE AGE AGEME ME MENT NT To select which business to accept and which business to turn away! IHM Lucknow Faculty Notes

BU BUSIN SIN SINESS ESS TA TACTI CTI CTICS CS FOR HIG HIGH H AN AND D LLOW OW DE DEMA MA MAN NDS Industries use some practices to maximize the revenue. In order to implement these tactics, management needs to establish the HURD URDLE LE RATE (the lowest rate for a given day) below which it is impossible to sell any room.

HI HIGH GH DE DEMA MA MAND ND TAC TACTICS TICS o o o o o o

Close or restrict discounts Apply minimum length of stay Reduce group reservations Reduce or eliminate 6 pm holds Apply early deposits to maximize early departures. Raise room rates ➢ Executive and suite rooms

LOW D DEM EM EMAN AN AND D TAC TACTIC TIC TICSS Sell hotel facilities and benefits Offer packages Accept discounts to encourage room nights Encourage and provide incentives to staff for increasing occupancy o Encourage upgrades o Remove stay restrictions ➢ Encourage guest to overstay in case of low occupancy o o o o

IHM Lucknow Faculty Notes

o Establish relationships with competitors to share ➢ Referrals ➢ Marketing strategies o Offer stay-sensitive price incentives ➢ Provide discounts for guest who stays longer ➢ Guest with a five days stay may get a discount while a guest with two days stay may not. ➢ Provide freebies like movie tickets, site seeing, shopping coupons from the hotel’s concessionaire.

IM IMPO PO PORTA RTA RTANC NC NCE E OF YIE YIELD LD M MANA ANA ANAGE GE GEME ME MENT NT 1. Improved forecasting 2. Improved seasonal pricing and inventory management 3. Identification of new market segments 4. Identification of new market segment demands 5. Increased coordination between front office and sales 6. Determination of discounting activity 7. Improved short term and long-term planning 8. Increased business and profits

TO TOOL OL OLSS US USED ED TO MA MAXI XI XIMI MI MIZE ZE SSAL AL ALE E 1. Capacity management or Selective Overbooking 2. Discount Allocation or Differential Pricing 3. Duration Control or Duration Restriction

IHM Lucknow Faculty Notes

CA CAPACI PACI PACITY TY M MANA ANA ANAGEM GEM GEMEN EN ENTT OR SE SELE LE LECTI CTI CTIVE VE OVE OVERBO RBO RBOOKI OKI OKING NG o Involves controlling and limiting room supply o Based on historical data, the rooms are overbooked o Overbooking is: The availability of rooms increases in following situations➢ Early departures and under stay ➢ Cancellations ➢ No shows o Compensates loss of revenue in case of I. Ea Early rly dep depart art arture ure ures/ s/ Und Under er st stay ay • Guest leaves hotel before their date of departure. • Increase the room inventory • Discourage early departures or compensate II. Can Cancell cell cellatio atio ation n III. No No-sh -sh -show ow owss • Guest with guaranteed reservation does not arrive on the day of arrival • No show increases room inventory • Released to waitlisted or walk-ins

IHM Lucknow Faculty Notes

PRE PRECA CA CAUTI UTI UTION ON ONSS W WHIL HIL HILE E OVE OVERBOO RBOO RBOOKIN KIN KING G ▪ o o o o o o

Refer past records on Number of cancellations Number of under stays No of no-shows No of turn away Events in the city Relationship with the managers of the neighbouring hotels

DIS DISC COUN OUNTT A ALLO LLO LLOCATI CATI CATION ON O OR R DI DIFF FF FFERE ERE ERENTIA NTIA NTIALL PPRIC RIC RICIN IN ING G o Price is the value of the goods or services expressed in terms of money. o Price is the major criteria which affects the choice of the customer. o Price of the product is affected by the demand of the product in the market. o Impossible to sell rooms at rack rate. o Apply sales strategy for selling rooms o Peak seasons sell at rack rate o Lean seasons offer • Discounts • Package plans • Off season rates • Increase commission to travel portals

IHM Lucknow Faculty Notes

DU DURAT RAT RATION ION CO CONT NT NTRO RO ROLL O OR R DU DURA RA RATI TI TION ON RE RESTR STR STRIC IC ICTIO TIO TION N o Implement duration restriction on room bookings to protect room for multi day reservations

EL ELEM EM EMEN EN ENTS TS OF YYIE IE IELD LD M MAN AN ANAGE AGE AGEME ME MENT NT To develop a successful yield strategy the following elements are important i. ii. iii. iv. v.

Group room sale Transient room sale (FIT) Food and beverage activities Local and area wide convention Special events

GR GROUP OUP ROO ROOM M SSALE ALE To understand how group room sales will affect overall room revenue the hotel should collect information about: 1) Gro Group up b book ook ooking ing da data ta Management should carefully examine every group block for any following reasons: • Frequency of booking • Reputation of group in terms of business • Wash out factor Wash Factor: group tend to book 5% to 10% more rooms then they are likely to need. The hotel’s deletion of unnecessary group rooms from a group block is called Wash Factor. IHM Lucknow Faculty Notes

2) Gro Group up b book ook ooking ing pa pace ce • Rate at which group business is booked. • Track bookings for one-timers and series group 3) An Antic tic ticipat ipat ipated ed gro group up bu busin sin siness ess • Monitor group bookings in the neighbouring hotels • Forecast the booking pressure in the market • Adjust selling strategies accordingly 4) Gro Group up b book ook ooking ing le lead ad tim time e • Time gap between date of booking and date of arrival • Determines whether to accept more groups and transients and at what room rate 5) Dis Displace place placeme me ment nt of tr trans ans ansient ient bu busine sine siness ss • Displacement occurs when a hotel accepts group business at the expense of transient guest • Transient business books rooms closer to date of arrivals than groups • This might endanger profitability problem and bad reputation • Monitor the booking pace and lead time of individual guests

IHM Lucknow Faculty Notes

TR TRAN AN ANSIEN SIEN SIENTT R ROO OO OOM M SSALE ALE Front office should monitor the booking pace and lead time of Transient Guest in order to understand current reservations with historic reservation and anticipated rates.

FO FOOD OD A AND ND BEVE BEVERAG RAG RAGE E AC ACTIV TIV TIVITI ITI ITIES ES o Food and beverage should consider for potential booking groups that need banquets, meeting space and guest rooms. o Book groups that needs rooms along with food and beverage services to increase revenue.

LOC LOCAL AL AND AR AREA EA WID WIDE E CO CONVE NVE NVENTI NTI NTION ON o Individual hotel may not accommodate in case of big events o Hotels should take advantage of such situations o Individual guests and groups who have been displaced by convention may be referred to the hotel as an overflow facility and this may have a tremendous impact on the hotel’s revenue.

SP SPECI ECI ECIAL AL EEVE VE VENT NT o During special events like festivals and city events hotels decide to benefit from high demand by restricting • Room discounts • Encourage minimum length of stay IHM Lucknow Faculty Notes

YIE YIELD LD M MAN AN ANAG AG AGE EME MEN NT TEA TEAM M • Roo Rooms ms Divis Division ion Ma Mana na nager ger ger: has the overall control on the department with the targets for maximizing occupancy and revenue • Res Reserva erva ervation tion Ma Manag nag nager er er: has complete knowledge of booking patterns, past histories, pace and high and low demand periods of business etc. • Sa Sales les M Manag anag anager er er: is responsible to bring and promote business for the hotel

FU FUNC NC NCTIO TIO TIONS NS OF YYIELD IELD M MANA ANA ANAGE GE GEM MEN ENTT • Predict demand of rooms for future • Decisions on whether to accept group reservations or transient reservations • Decide the levels of rates to open or close • Regular training and motivate the staff • Conduct feedback sessions to know efficiency and effectiveness of performance

STE STEPS PS FFOR OR YIE YIELD LD M MAN AN ANAG AG AGEME EME EMENT NT Yield management consists of four steps: 1) Forecasting 2) Systems and procedures 3) Strategies and tactics 4) Feedback

IHM Lucknow Faculty Notes

I. FO FORECA RECA RECASTIN STIN STING G • Prediction of future business as per reservation data ➢ Special arrangements for VIP, Groups ➢ Effective staff allocation ➢ Optimum inventory for departmental stationaries ➢ Sufficient time for maintenance and replacements • Tools for forecasting ➢ Thorough product knowledge ➢ Profile of the market segment ➢ Special events in the city ➢ Percentage of no-shows, cancellations ➢ New competitors in the vicinity of the hotel ➢ Wash out factor (last minute cancellation made by the travel agents)

II. SY SYSTE STE STEMS MS A AND ND PPROC ROC ROCE EDU DURES RES • Manual system ➢ Used in small hotel ➢ Accurate only if staffs stay focused at all times • Computerized system ➢ Used in large hotels ➢ More accurate as it is automatically updated • YIE YIELD LD M MAN AN ANAG AG AGE EME MENT NT SO SOFTW FTW FTWARE ARE SY SYSTE STE STEMS MS Although the individual task of yield management can be performed manually, the most efficient means of handling data and generating yield statistics is through yield management software. IHM Lucknow Faculty Notes

The following results have been observed: ➢ Continuous monitoring ➢ Consistency ➢ Information availability ➢ Performance tracking • RE REPO PO PORTS RTS GEN GENE ERA RATED TED BY YIE YIELD LD M MANA ANA ANAGE GE GEME ME MENT NT SOF SOFTW TW TWARE ARE ➢ Market segment report ➢ Calendar/ booking graph ➢ Future arrival dates status reports ➢ Single arrival date history report ➢ Weekly recap report ➢ Room statistics tracking sheet

III. ST STRATE RATE RATEGIE GIE GIESS AN AND D TTAC AC ACTICS TICS • Apply strategies as per high and low demand and supply. • Apply business tactics to increase revenue like offering ➢ Discounts ➢ Packages ➢ Commissions IV. • •

FE FEED ED EDBA BA BACK CK To access effectiveness of the decisions taken To access efficiency of the strategies and business tactics used • To access performance of the hotel staff

IHM Lucknow Faculty Notes

BE BENE NE NEFITS FITS OF YIE YIELD LD M MAN AN ANAG AG AGE EME MENT NT i. ii. iii. iv. v. vi.

Improved seasonal pricing Identification of new market segments Enhance coordination between Front Office and Sales Development of business plans Initiate constant touch with guest Improved forecasting to know number of rooms vacant for a day.

CH CHAL AL ALLEN LEN LENGES GES IN YI YIEL EL ELD DM MAN AN ANAGE AGE AGEMEN MEN MENTT i.

Difficult to measure performance of yield management system ii. Low guest satisfaction due to hotels policy on differential pricing iii. Possibility of losing loyal customers iv. Incentives are given to the staff for selling higher category rooms and this might not sell the basic category rooms.

IHM Lucknow Faculty Notes...