We suppose that you have been reading our blogs for a long time. In course of time, you must have become familiar with various concepts like hotel revenue management, RevPAR, hotel occupancy, channel management, reputation management etc. However, there is another crucial concept we need to discuss - hotel yield management.
“What Is Hotel Yield Management?” you might ask. It is among the most important concepts of Hotel revenue management. In fact, without yield management, there cannot be any revenue management.
In this blog, we will explain everything about hotel yield management and we assure you that after reading this, you will be familiar with the concept.
What Is Hotel Yield Management?
Yield Management in the hotel industry simply means selling the right product or service, at the right price, to the right customer and at the right time. To explain it in technical terms, it is the process of setting the right room prices for the hotel. It is a dynamic pricing strategy to maximize revenue, hence the name yield management.
Hotels have fixed inventory, and hence, they need to generate the maximum revenue out of these inventories. Yield management is all about formulating variable pricing strategies to increase occupancy rates and increase hotel revenue.
It uses historical data to make predictions about future demand to define rates. Along with it, hotel yield management also involves changing rates as per the demand for hotel room inventory. The aim here is to get the maximum revenue.
How Does Hotel Yield Management Work?
Let us illustrate an example through which you will be able to understand how yield management works in the hotel industry.
Suppose it's off-season and you are an all-suites hotel. Each unit has two rooms. So how will you allot this room to generate the maximum revenue?
First, sell it at the right price. You need to understand that setting a price is a form of negotiation between the business and the customer. Hotel Yield Management follows the same principle. During the off-season, there is less demand for room inventory. This time, the customer has the negotiating power.
The hotel will need to set a lower price or offer them something more for the same price, such as a meal plan - CP, MAP or AP. At the same time, you need to offer the room to family or small groups, because if it's a single person or a couple, it will go waste.
As we have seen, the hotel has allocated the room at the right price for the off-season and also to the right guest. With this, you will be able to perform yield management for hotels efficiently.
Yield Management Vs Revenue Management
Hotel yield management and hotel revenue management are often used interchangeably. Understandably so, people get confused. To make it simple, yield management is not the same as revenue management, but it's an integral part of it.
One of the main differences between hotel yield management and hotel revenue management is that the former has a narrower focus, while the latter is a broader concept. Yield management is a process of maximizing inventory through pricing and inventory control.
Revenue Management, on the other hand, involves various factors other than yield management, such as market segmentation, demand forecasting, and more in-depth analysis. Revenue management is more strategic, while yield management is tactical.
The aim of yield management is to simply get more revenue from the hotel rooms over a period of time. While revenue management involves analyzing consumer behaviour, along with taking the revenue gained from other amenities such as restaurants, spas, etc into consideration.
That being said, hotel yield management is an integral part of hotel revenue management. A good revenue manager has to perform the former for the effective implementation of the latter.
How To Perform Hotel Yield Management
Now that we have discussed the concepts of hotel yield management, now is the right time to discuss how to perform this section. It is technical expertise which requires planning, strategizing, and monitoring to get the best results. Every hotel needs to implement these steps to effectively implement hotel yield management strategies.
As we know, hotel yield management is all about demand and supply. With these steps, you will be able to implement hotel revenue management strategies to gain maximum revenue for your hotel.
Step 1: Define Occupany Slab
Demand and occupancy are not uniform everywhere. After all, if demand was uniform, we wouldn’t have needed hotel revenue management, would we? That’s why hotels have to identify and make occupancy slabs based on demand and supply. There are two types of occupancy slabs - season based and location-based.
Season Based
Season-based is self-explanatory. There are two seasons, peak season and off-season. Festivals and seasonal holidays are considered to be peak season and the rest of the days are considered to be off-season. It can also depend on yearly weather as well. For example, Manali will have low occupancy during the winter season because of the harsh winter.
You need to identify the demand during both these seasons and compare it to the year-round average occupancy. This way, you can determine when you have higher negotiating power.
Location Based
Another way is location-based occupancy. For example, if you have any annual or other periodic festivals during the time period, you will always have higher occupancy during these periods. You can also check which events will happen this year or next year, and plan accordingly.
Step 2: Decide On Room Rates For Occupany Slabs
After you have prepared the occupancy slabs, it is now the time to deliberate on room rates. Hotels need to decide on room rates for yield management based on these parameters.
Guest Types
One of the most important factors is the guest type. Hoteliers should understand that each guest persona is unique and have its own needs. Guest personas include corporate guests, solo travellers, family travellers, adventurers and more. Each of them has different requirements.
For example, a corporate traveller will stay longer and has lesser budget constraints, because it is the company that is footing the bill for them. They just want a comfortable place to sleep, relax and also get some work them.
On the other hand, family travellers are looking for activities, value for money and many things to do at the hotel. Keeping these things in mind, you need to decide the room rates.
Based on ADR and RevPAR
Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR) are the most important key performance indicators for hotels. You need to get hold of the past data regarding these factors. Determine which ADR gives the best RevPAR, and then determine the room rates.
Apply Yield Management For Hotels
The next step is to apply yield management for hotels to generate maximum revenue. The best part is that you can automate the yield management strategies for hotels in the channel manager. You can configure occupancy slabs and based on the occupancy slab, the rates will change to optimize for hotel revenue.
First, you need to divide occupancy rates on a slab basis. Then as the occupancy reaches a higher slab level, you can increase the rates accordingly. For example -
0 - 25% occupancy - $50 (base price)
25% - 50% occupancy - 10% increase from the base price
50% - 80% occupancy - 15% increase from the base price
80% - 95% occupancy - 20% increase from the base price
95% - 100% occupancy - 25% increase from the base price
To complete the slab, you will need to add other factors as well, such as:
Source
Rate Plan
Configure Rates
Select the date range
You can easily perform this with yield management and revenue management software, by configuring it with your channel manager.
Keep Track And Update
The work is not over after configuring the slabs on the channel manager. For a viable yield management strategy, you need to constantly keep a track of the market trends and demand. If the yield management strategy is not working, you need to change the rates that generate the maximum revenue.
Hoteliers also need to keep a track of all their competitors, and how they are selling their properties. One cannot charge too high nor too low compared to their competitors. There is a golden rule for any business - your competitors are your market.
To Conclude
Hotels need to apply effective revenue management strategies to gain revenue and increase profitability. To help you with yield management, Bigfoot Hospitality has a team of efficient revenue managers that manage OTAs, Channels as well as the booking engine. Read our blogs to know more about the hospitality industry.