MS3304 --- Buddies' WIKI: Q3) Discuss How Hotels Using Yield Management to Maximize Their Profit

Nowadays, many hotels use yield management to help themselves gaining more revenue. By forecasting the supply and demand, they making efficient use of the inventory owned to serve right customer with right room at right time and price. Hotels have strategic control on their price and room selling to increase their revenue from each room. People always book their room at different timing and prices and whether they show up in the end directly affect the revenue of a hotel. Maximizing the room occupancy and revenue by having regular evaluation on hotel demand and accurately project future demand are very important for hotel to practice yield management.

So, how does a hotel exactly practice yield management? The first thing to start with are the historical data of the room booking of the hotel and customer segmentation. The more details provided by the historical data of room booking, the higher chance a hotel can reasonably predict the future demand. The room booking data includes the number of occupied room with various size(single room, double room, triple room, etc.), the length of room being occupied, the amount of no-show for each day, the number of cancellation for each day, the number of walk-in, etc. Analyzing all the above data help hotel to know the occupancy and availability of hotel rooms for their customers each day, week or month. Besides, the clearer the hotel’s customer segmentation with fruitful information, the better the hotel management know how to make use of discriminatory pricing to maximize the hotel revenue. After calculating of different statistics and analyzing the customer habits from different segments, a hotel is able to distribute rooms to customers who can bring highest revenue for the hotel at different time. Thus, the hotel can make good use of overbooking and discriminatory pricing to balance with the number of no-show and show-up and walk-in in order to maximize the revenue of the hotel.

Overbooking means a hotel accepts booking more than their actual capacity to prevent loss brought by no-show of customers. It has to be used wisely and carefully to maximize the yield of the hotel. If the hotel overbooks too much room, some customers will have no room when they arrive. Thus, hotel will loss the customer and have to indemnify their customer with cash or coupon, which leads to a loss of room revenue, and people usually call it penalty in yield management.

Discriminatory pricing means same product or service is provided to different customers with different price. For example, customers with different age range have to pay at different price for amusement park ticket. In hotel business, it means the same room can be sold to customer with various willingness to pay. For example, the same room can be sold to businessmen at a higher price than to budget-conscious travelers because businessmen has higher willingness to pay for a higher price for a hotel room usually.

By balancing the overbooking and no-how, together with the use of discriminatory pricing, hotels can make good practice of yield management to maximize their revenue. However, yield management for hotel should be done continuously so some statistic helps hotel to monitor the efficiency of its yield management, which are yield statistic and the revenue statistics. Yield Statistics, which is the actual room revenue divided by potential room revenue is an important indicator in yield management. If the yield statistic is near to 1, it means the actual room booking situation is similar to what has been estimated. This means that the revenue of hotel is almost maximize. If not, the hotel has to adjust its overbooking and pricing strategy to get the potential revenue they missed. For revenue statistic, there are many of them but average daily room rate (ADR) is a more simple and obvious statistic for checking how well the hotel is doing. ADR is the total room revenue divided by total number of rooms sold. The higher the ADR, the more the average revenue earned by each room. Based on the above statistics, the hotel can make more and more accurate yield management and help themselves to maximize their revenue.

Here is an video which explains more on yield management and gives concrete examples on what how hotel uses it to maximize their revenue.

Evaluation:

When I do more research online, I understand more on how yield management can be put into practice in real life situations. Yield management is very interesting and useful. I learn the skill of using revenue statistic for doing more accurate yield management to minimize the loss brought by no-show and maximize the revenue of a hotel.

Reference:

MS3304 --- Buddies' WIKI

Q3) Discuss How Hotels Using Yield Management to Maximize Their Profit

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