Yield Management Strategies: The Right Hotel Room Pricing, Part 4

Now that we’ve discussed how to forecast demand and how to optimize demand, we’ll talk about how to control demand.

“Control demand?” you may ask. “My small or independent hotel is full almost every night. What’s there to control?”

Plenty, if you’ve been doing your due diligence and keeping track of your historical data.

Even if you’re selling every room, every night, there are always yield management strategies you can use to make sure you’re maximizing EMR (expected marginal revenue, discussed here) on each and every room.

Transient Reservations

Bookings from transient customers – that is, customers who are not part of a group or corporate contract – can be controlled in a couple different ways into order to maximize EMR.

  • Strategic
    Types of strategic controls used to target a special rate to a specific type of customer include:

    • Reservation must include a Saturday
    • Rate only applies if two guests are in the room
    • Advance reservation required (typically 14 or 21 days)
    • Requiring nonrefundable payment in advance

These strategic controls can be implemented manually at the front desk or within your chosen automated central reservation system (CSR). Certain types of strategies may “fence out” certain types of customers from making a reservation; for example, a customer that wishes to book only one night of a high-demand weekend. On the other hand, a business traveler who might have been willing to pay more could be fenced out, as well. However, the long-term trade-off could be worth it if your temporary special rate attracts a customer who might not have otherwise booked with you.

  • Tactical
    This type of control is applied to a special discounted rate that is tied to a specific date of arrival. For example:

    • Customer must arrive on a specific date
    • Customer must book a minimum number of nights
    • Customer is limited to a maximum number of nights
    • Customer must stay through a typically less-popular shoulder night

A tactical control can be used independent of, or in addition to, a strategic type of control. Which types of tactical controls you can use in a CSR depends upon which system you’ve chosen to use. Just be wary of a few common mistakes:

  • Be aware of your facility’s typical booking cycle. If a significant percentage of your transient customers book 10 to 14 days in advance, setting a tactical control outside that window could miss your target audience.
  • You will also to be aware of how far in advance to set these controls in the CSR – it won’t do you much good to input control settings seven days in advance, when the automated CSR you’re using won’t be updated for another two weeks.
  • Be selective with the controls you choose. Employing too many restrictions at once could unintentionally block some customers from making a reservation that should have been accepted.
  • Don’t set it and forget it. Once you’ve implemented the controls, keep an eye on the system to make sure everything is working as you intended. You could have implemented a conflicting set of controls, or the administrators of the CSR could have made system upgrades that render your controls inoperable. The worst time to discover this is when it’s too late to fix it.

Special Circumstances

There may be times you want to offer special rates and/or employ strategic and tactical controls as far in advance as possible.

Let’s say that your small or independent hotel is located in a popular winter sports locale that has just been selected as a venue for the Olympics – four years from now. It’s not too early to plan your strategy for marketing, pricing, and the combination of controls to employ to maximize each room’s EMR.

As time passes and the event draws closer, keep an eye on the results of your yield management strategies, and be prepared to make adjustments based on the success of your strategy and what your competition is doing.

Next time, we’ll discuss the last spoke in the revenue management cycle: monitor demand.

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