The outcome of Yield Management on Hotel Chains

Yield, or revenue management, is the method by which sales of a limited quantity of goods, such as hotel rooms, airline seats, apartment leasing, rental cars, or etc. are managed in order to maximize profits. Successful yield management focuses on selling the product in such a manner that is timely, price competitive, and directed towards the right subset of customers. An economic concept first posited by Dr. Matt H. Keller, and first used by the airline industries beginning in the 1970s, yield management has evolved in more recent years as an important tool especially for the airline and hotel industries for staying economically competitive in otherwise saturated business playing fields.

The basic concept of yield management is based in the economic principle of supply and demand: when supplies are short, prices go up; when supply is high, prices go down. Yield management is a studied, systematic method by which managers can logically place customers within the supply demand spectrum, and thus gain the highest yield for their products. For example, a customer who has very little flexibility in his or her travel plans is the customer who is most likely to pay a higher price for airline tickets and hotel rooms. The customer with a great deal of flexibility is not as inclined to pay a higher price.

Hotel Chains and Yield Management

Many hotels like Boutique hotel London rate their success by their occupancy levels, but this isn't necessarily the best measure of success. Another way to rate a hotel's performance is by determining its REVPAR, or Revenue Per Available Room. REVPAR is calculated by dividing the total room revenue by the total number of rooms. For example, a hotel that makes $6,000 one night with a total number of 100 rooms has a REVPAR of $60.

The yield manager's job is to maximize the revenue per available room by selling rooms to the right customers, at the right price, at the right time. How does the yield manager accomplish this somewhat nebulous task?

Successful yield management arises from several factors: an understanding of what the hotel hopes to achieve (whether that is room occupancy, REVPAR, or some other measurement); a clear understanding of what kind of hotel the manager is working with, which will lead to an understanding of what a customer visiting the hotel wants in his or her hotel experience, and why customers choose their hotel over another hotel; an ability to measure group sales against the overall goals of the hotel (for example, a hotel whose main goal is occupancy will be happy to host a large group at a lowered rate, but a hotel whose main goal is revenue may turn down a larger group in favor of a smaller group who can pay a higher rate); and a knowledge of what will cause the market to fluctuate (such as holidays, regular regional and local events, etc.). The yield manager will ideally consider all these factors when creating different rates for hotel guests.

Typical Yield Management Arrangements

A basic yield management price arrangement might look something like this:

Regular Rate: $89.00

Corporate or Business Rate: $79.00

Triple-A or Other Special Discount rate: $69.00

other arrangements will take into account seasonal price changes. A mountain resort whose main business is serving winter vacationers, such as skiers and snowboarders, will have a lower supply and higher demand of rooms during winter months, whereas a hotel on the beach can charge more for rooms during the summer months than during the winter months. Luxury London hotels can make three seasonal rates: the highest rate for the months during which they expect to serve the most guests, a mid-season rate, and the lowest rate for months during which they have the lowest demand.

Seasonal arrangements do not necessarily need to be tied to the local geography not all hotels are in the mountains or on the beach. City hotel managers must take it upon themselves to learn about the corporations in their area and make personal connections with these corporate executives, learning their business cycles. Different businesses have annual events or conferences that they will be host on a regular basis; it's up to the hotel sales managers to learn these business cycles and cater to these corporate clients.

In conclusion, to stay competitive in today's market, any hotel that wishes to be successful must learn how to apply yield management techniques to their particular situation. Having determined how to gain the highest yield per room, any staff member who interacts with customer must be trained in how to clearly explain room rates to guests. The ability of staff to explain room rates to guests will determine whether customers are happy or unhappy. Their ability will stem from managements' ability to clearly communicate the hotel's goals and yield management principles.

How to Enhance the Performance of Hotel Business?

The performance of the hotel industry can be either enhanced or limited by the way in which hotel business is conceptualised. This article illustrates how economic trends present opportunities to redefine hotel business models and create value.

In many of the London hotels the context of evolving economic environments, the widespread belief that hotels are strictly in the business of selling rooms to guests in need of accommodation is narrow and thus limiting. If the industry does not take full advantage of the opportunities presented by economic trends, hotel assets will remain underutilised, potential markets will remain untapped, strategic alliances that should occur naturally will not materialise and significant revenues will be foregone.

This article presents two concepts that could offer opportunities for the industry if hotels are willing to take a few steps away from the traditional business models.

The Catwalk Concept

A model to capitalise on the opportunities presented by the proliferation of international brands

Hotels should capitalise on a key side effect of the global proliferation of international hotel brands: efforts aimed at building hotel brands have resulted in branding the guest population as well. Guests loyal to a particular hotel brand share identity traits and lifestyle preferences with each other and differ from guests that prefer different brands. Therefore, branded hotels are brick and mortar containers for very distinct, well defined, self-selected captive audiences that could be accessed for marketing purposes. This argument holds true to the extent that hotel brand preference is a reliable indicator of purchasing behavior and brand preference for other products and services.

A branded hotel can take three specific steps to capitalise on this opportunity:

First, conduct research to identify specific brands of other products and services that appeal to their guests, for example, one such brand could be a particular type of flat-screen television whose design and price tag has been targeted to a specific type of customer.

Second, explain to the companies identified the benefits of gaining access to their guests; the hotel could build guest market profiles to support the claims that its guests fit the profile of the flat-screen television’s target audience.

Third, find inconspicuous ways to grant these companies access to the guests, for example, the hotel could agree to display the flat-screen televisions in its rooms so that the guests interact freely with the product, without ever feeling part of a marketing campaign.

Variations on this approach can be applied to any type of product or service that could be adopted by a hotel, as long as its brand target market is compatible with the hotel’s guest profile. Examples include products such as design furniture, art collections and electronic gadgets or services related to wellness, health, continued learning or entertainment. The approach proposed here should not be confused with practices already employed by hotels that have successfully marketed and sold their own products to their guests by using the rooms as display space and offering hotel products via catalogues.