What is yield management? Definition, strategies and examples

Yield management is a variable pricing strategy, commonly used in the air travel and hospitality industry to maximise revenue from a perishable ... RevenuemanagementWhatisyieldmanagement?Definition,strategiesandexamplesJaneShaw ThuJun6,2019 3minreadNothingismorefrustratingthanseeingyourhotelrevenuestagnatedespiteyourcontinuedefforttofillyourrooms.IknowthisbecauseI’vebeentheremanytimesatmyhotel.Ifthatsoundsfamiliartoo,thenyou’reintherightplacetolearnmoreaboutyieldmanagement.Inthisarticle,I’llrunthroughthedefinitionofyieldmanagementandexplainhowitcanhelpyourbusinessmaximizeitsrevenuestreamsandfinancialbottomlines.Here’sthebasicdefinitionof“whatisyieldmanagement":“Yieldmanagementisselling“therightproducttotherightcustomerattherighttimetotherightprice(RobertCross,1997)”Let’sdivestraightin.Whatisyieldmanagement-adefinitionYieldmanagementisavariablepricingstrategy,commonlyusedintheairtravelandhospitalityindustrytomaximiserevenuefromaperishableandfixedinventory(e.g.hotelrooms,airlineseats,etc).Generallyspeaking,engagingintoayieldmanagementstrategyimpliesofferingdifferentpricestodifferentclientsforthesameproduct(atdifferenttimes).That’sbecausedifferentcustomersarenormallywillingtopayadifferentpriceforthesameproductinthesespecificindustriesbasedonmultiplecriteria,suchastimeofyear,levelofdemand,weatherconditions,etc.Asyoubuildyourownhotelrevenuemanagementstrategy,it’simportanttothinkaboutsellingtherightroomtotherightclientatthebestmomentintimeandforthehighestpricepossiblesoastoenhanceyourhotel’srevenueandprofitability.Onabasiclevel,beingagoodrevenuemanagerisaboutyourcapabilitytofindanoptimalpricezonecalledequilibriumwhereyoucanmaximizeyourrevenue.So,asurefirewaytodevelopyouryieldmanagementskillsistoworkonfindingthehighestpriceyoucansellyourroomsforwhilekeepingahighnumberofclientsbookedatyourhotel.Onceyoufindthisoptimalpricezone,youarealreadyworkingatmaximumefficiency.Ifyouwanttolearnmoreaboutyieldmanagement,westronglyrecommendyoumatchthefollowingvideofromResNexus:Havealookatthesupplyanddemandcurvebelow.Whatdoesittellyouabouthowtorunahotelsuccessfully?Asexplainedinthevideo,yieldmanagementisstronglycorrelatedtothedemandandsupplycurves:thehigheryourpricesare,thelesslikelypotentialcustomerswillbebuyingfromyou:Ofcoursewhenpricesgoup,sellersincreasetheirsupplysoastomaximizerevenue.Thepointwherethesupplyandthedemandcurvesmeetiscalledtheequilibrium.Thatpointgetsreachedwhenyoutradeatmaximumprofitability.Evenwithastablepriceorquantitybeingoffered,yourequilibriumpointwilleventuallymovetoanotherlevelaftersometime.That’sbecausethedemandandsupplycurvesareconstantlyimpactedbyaplethoraofparameterssuchascurrentweatherconditions,competition,seasonality,economiccontextetc.Ifyouarelookingfortheoptimalpricezoneforyourhotel,simplykeeptrackofparameterssuchastheweatherforecast,comingupbankholidays,competitionprices,topullupalistofrelevantfactorsthatwillhaveanimpactonit.Ifyoucan’ttrackthoseparametersmanually,usecloudsoftwaresolutionssuchasHotelPriceReporterorBedvineinstead.Thesecloudplatformsletyoucentrallymonitorallofyourhotel’srelevantmarketconditionsatanytime.WiththeHotelPriceReportersolutionforinstance,youcankeeptrackofawiderangeofparameters,suchasyourcompetitivesetprices,theweatherforecast,comingupbankholidaysaswellasthelocaldemandforecastforyourcity:Ifyouwanttolearnmorehowtobuildayieldmanagementstrategythatworks,werecommendyoureadourpreviouspostaboutrevenuemanagement.Thatwillgiveyoulotsoftipsonthetopic.Share:MorearticlesfromtheblogHowtodeterminehotelroomratesTheTop6FeaturesToLookForInAHotelRateShopper