Yield management isn’t a business concept that applies to every type of operation—only those with a finite number of items to sell. After all, a hotel has only so many rooms. Once they’re all sold, you’ll make no more profit for that night. A truck isn’t going to come replenish or add to your inventory, and you don’t have any more rooms stored “in the back” like a department store. Knowing hotel yield management techniques—and applying them at the right time—has the potential to increase your revenue with no (or very little) increase in costs.
Placing Your Bets
Hotel yield management involves taking little leaps of faith almost every single day. It means studying the booking history of your hotel so you understand how and when your typical customers make reservations.
For example, you may notice that leisure travelers tend to book further ahead of time than typical business travelers. You also notice that leisure travelers seem more price conscious and more likely to shop around. On the other hand, business travelers book closer to the date of their stay, and they’re more interested in amenities and location with pricing as a lower priority.
Because of these trends, it doesn’t make sense to offer a discounted room rate to all your customer segments, all the time. Why? Leisure travelers will snap them up, but where does that leave business customers who would have been willing to pay more? Booking with your competitors, that’s where.
So go ahead and offer the discounted room rate for leisure travelers who book six weeks or more in advance. However, set aside a block of rooms at the full (or at least a high) room rate for business and last-minute travelers.
How Many Rooms?
Predicting which customers are going to book and when is unique to each hotel. From experience, you probably know that business travelers will book during weekdays, primarily Mondays through Thursdays. More leisure travelers book for weekend stays.
Of course, there are always those travelers who don’t fit the mold—just-passing-through vacationers who could book any night, and business travelers who arrive a day or two earlier or linger a day or two later to enjoy the amenities of the area.
Let’s say you have 100 rooms available for any given night. Based on your hotel’s booking history, you hold 30 rooms for full-price/business-class type customers for Monday, April 1. By March 1, you’ve sold all your discounted rooms, and there’s still a month to go before April 1 arrives.
When the next leisure traveler calls looking for a less expensive room, do you relent and give the discount or turn the bargain shopper away? A lot depends on what time of year it is. If business conference season is in full swing, there’s no question. Hold that room for the customer who is almost sure to come knocking in a week or two, willing to pay full price. But if it’s a time of year when more vacationers than accountants are passing through, it may be a better choice to sell that room so at least it won’t sit empty, earning zero revenue.
This is why yield management pricing is somewhat like a roll of the dice. Who knew hotel yield management could be as exciting as a trip to Vegas?
It’s Not Rocket Science . . .
However, it can get complicated, especially when you start teasing out multiple customer segments, each with their own demand curve. Throw in a rewards program for frequent bookers, group bookings, and credit card vs. cash customers, and who can blame you for shopping for a hotel yield management software package?
Want More Information?
For a more in-depth look into yield management strategies, check out our five-part series starting here. Make the most of your hotel room inventory. Smart eHotels™ can help!