Yield Management Pricing: Business as Unusual

As anyone in the hotel business will tell you, there’s no typical day. Trends over time, yes. But knowing exactly what’s going to happen on any given day? No! Let’s face it: yield management pricing—the art of selling a finite number of hotel rooms to the right customer, at the right time, at the right price—is at best an educated guess, even with powerful software tools available.

 

Perhaps you’re thinking, “If yield management pricing is a shot in the dark, why do it?” However, consider the following:

  • Your resource (the hotel room) is perishable. If you lower your price in a misguided effort to fill rooms, you’ve shut out the customers willing to pay more, and you can’t recoup that profit later. It’s “expired” and doing nothing but negatively affecting your bottom line.
  • If you research your hotel’s booking history, you’ll have the basic knowledge to set optimum room prices for the future. You’ll know about how many rooms to offer to budget-minded leisure travelers, and how many to hold for business travelers who don’t mind paying full price.
  • While it might seem counterintuitive, it’s perfectly fine to let a customer go who is unwilling to pay full price, and hold that room for the customer who values your hotel’s combination of quality, service, and amenities.

 

The Bucket List

Unlike a retail store, which must charge the same price for the exact same product, you have the freedom to take what is essentially the same product (the hotel room) and offer it at different prices to different types of customers.

 

Going back to the previous example, you can divide your finite supply of hotel rooms into two “buckets”—leisure travelers (discounted rate) and business travelers (full rate). You can certainly categorize as many types of travelers you want and give each a bucket, but for the purposes of this exercise, we’ll just use two.

 

Let’s say you have 100 rooms to sell for any given night. The leisure travelers’ discount bucket holds 25 rooms, and the business travelers get a rack rate bucket holding 75 rooms. About two months ahead of a given date, say March 1, the leisure travelers have snapped up those 25 rooms allotted to them.

 

When the 26th leisure traveler calls, do you dip into the rack rate bucket and give them that room at a discount? In general, no. The discount rooms are full. Selling one more room at a discounted rate will cut into the healthy profit margin you need to stay a viable business.

 

As March 1 approaches, business travelers—who tend to reserve rooms closer to their arrival date—will reserve the rooms in the bucket reserved for them. Ideally, if you’ve done your homework by looking at past demand, all those rooms will sell to travelers who are eyeing the calendar more closely than their wallets.

 

Fast-forward and it’s February 28. Two rooms remain in the business travelers’ bucket. Do you break down and sell them to leisure travelers hoping for a last-minute discount? Again, no. You’re better off letting that room stay clean and ready to sell for full price the following night.

 

On the other hand, on the off chance your 75 business traveler rooms are sold for that night but your leisure bucket still has a room rattling around in the bottom, you should definitely expand the business bucket for that 76th business customer willing to pay full price.

 

To Learn More

Interested in this topic? Our series of articles takes a more in-depth look at yield management pricing. Click here.

 

If you desire personalized assistance, let Smart eHotels™ show you how yield management pricing can improve your hotel’s bottom line. Contact us today!

Yield Management Pricing 101: Good Data

Good yield management pricing requires good data—mountains of data, sometimes an overwhelming amount of data. How do you figure out which sets of data are the most relevant to your hotel’s success? Sure, you could track how sheet thread count affects repeat customer business, but is that the kind of micro-data you want to spend time tracking?

When deciding what data sets are worth your time, start at the top: the market. How does your hotel compare to its competitors? These days you can find out through a data collecting service like Smith Travel Research. There you can select a set (or multiple sets) of comparable hotels in your market region and track statistics like:

  • Occupancy rate
  • ADR – average amount of income per paid occupied room
  • RevPAR – revenue per available room (note how this is different from ADR)

These numbers alone won’t tell the whole yield management pricing story. Each facility in your competitive set is unique, and there are myriad “x” factors that figure into why one hotel’s occupancy rate is higher than that of another—staff friendliness, age and condition of the facility, amenities, food and beverage quality, surrounding attractions, etc. That’s why it’s not a good use of your time as a manager to stay glued to a screen full of statistics.

For example, knowing that another hotel’s per-night occupancy rate is higher than yours doesn’t necessarily tell you why. Here is where you may choose to dig a little deeper into the data to figure out what kind of value a competitor is offering that you aren’t.

Is their per-seat food and beverage revenue higher than yours? The intangible answer: their food is better quality, their operating hours are more convenient, or food is offered at a price that makes guests want to stay on hotel grounds rather than drive to a different restaurant. Do more of their customers use the spa or workout amenities than yours? The intangible answer: the hotel spends more to update and maintain the equipment.

As you can see, any change in lower-level data—right down to sheet thread count—can affect the higher-level “big data.” This is where customer feedback can help you focus on small improvements that ultimately add up to a healthier bottom line.

Need guidance on effective yield management pricing data mining? We have the tools! Contact us today.