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One answer that is commonly searched for by accommodation providers is a pricing strategy that would make most profits from the given inventory which includes not only hotel rooms but also packages, services and other amenities. This pricing strategy is called Yield Management. Often misinterpreted as revenue management, yield management isn’t the same as revenue management.
Come, let’s find out what actually Yield Management is and how is it important to maximize profits.
Yield Management vs Revenue Management
In simple terms, Revenue Management is selling the right product to the right customer for the right price at the right time. Perfecting revenue management is both art and science involving an effective pricing strategy. Yield management is a part of revenue management which solely focuses on hotel rooms. While the primary focus on the revenue management is to optimize RevPAR, yield management is about figuring out selling right room to the right customer for the right price at the right time. The key difference is revenue management also encompasses services while yield management is all about inventory. Hotel rooms is a perishable inventory in the sense that the room available, if not sold on a particular date, the opportunity to sell it for that particular date is gone and will not come back. Yield Management in hotel is figuring out how to wisely use these opportunities.
Why is Hotel Yield Management Important?
Having an effective yield management strategy is crucial for hotels to optimize their occupancy. Hotels change price of their rooms based on booking windows. The inventory is perishable and in limited quantity. Typically rates closer to dates vary depending on the occupancy level. If the hotel needs to increase occupancy, it might have to lower the price, and simultaneously, if there is high demand, price would be increased. For yield management strategy to be successful hotels need to have an effective distribution mix to identify the right change to acquire the right customer.
Demand for hotel rooms differs with different times of the year. During the different seasons of the year the traffic is different which bring in different demands. Knowing what to do with pricing when the market dips or when the demand is at peak helps not only optimize revenue but to make maximum use of available inventory.
Top 4 reasons why hoteliers should apply yield management strategy:
- Minimize Pricing Errors
Accurate pricing forecast reduces pricing errors and help eliminate risks that might have been miscalculated. When you have a plan for something and have calculated results, you have a scope to identify the errors. Once identified, you can correct them in time before you lose out on the opportunity. Yield management acts as that plan that shields you from any unforeseen loses so you can rectify any errors made in time to maximize your revenue. Minimizing the pricing errors will help build reputation which is one of the important pillars of success for a hotel.
- Segmentation at Its Best
The idea might be to try and focus on driving traffic from a particular segment of the market. But very often, when we try to do that, we lose out on the other segments out there which might benefit us. Yield management in hotel exactly helps you out of it. Let’s take the example of corporate travelers who book their rooms on a short notice whereas leisure travelling family who booked rooms earlier. Offering the same price to both on their dates of booking will result in booking cancelation by the family. Hence, yield management help you understand the demands of potential guests from different segments and how to put the pricing accordingly.
- Meeting Guests’ Demands
The hotel industry has become very dynamic in the recent times. With automation and digitalization in play, guests demand differently which need to be met by hotels in order to achieve success. Some guests might be looking for personalized experience rather than the automated services. With changing guest demands, it is very important to have an effective yield management strategy that would help you understand the dynamics and plan the pricing according to guest preferences. Meeting guest demands successfully can drive in positive reviews in turn building a good reputation.
- Stay Ahead of Competitors
When we strategize our yield management, a part of the planning includes researching for the right pricing. It leads hotels to look at what their competitors are doing, what pricing their competitors are keeping. Keeping a close eye on the competitors leads a hotel to know where they are lagging behind and to catch up with competition in time. Focusing on beneficial bookings can result in loss of potential bookings. Tracking demand trends and understanding booking patterns can help strategizing effective pricing and stay ahead of competitors.
One example of hotel yield management strategy could be ‘time-penalty’ approach. Let’s say there is a festival around. “Time-penalty” strategy increases the price of the rooms gradually as the dates get closer to the festival. So how do you effectively strategize Yield Management for your hotel?
It’s time to get Your Team:
For a beneficial Yield Management Strategy, a hotel requires a dedicated team for research and analysis. A right team with the right tools and insights will help the hotel take the right action at the right time and deliver valuable results
In short, yield management in hotel means minimum investment bringing in maximum revenue in the form of maximum bookings.
Learn More: Hotel Industry Glossary
RateTiger is a leading B2B hotel technology company – providing hotel channel manager, hotel booking engine, hotel CRS, hotel website design and digital marketing solutions to hospitality companies.
