Demystifying Hotel Yield Management | SiteMinder

What is yield management? ... The concept is based on understanding, anticipating and influencing your guests' behaviour in order to maximise ... Skiptomaincontent Resources AllArticles HotelDistribution Marketing Technology HotelTrends&Advice Multi-Property Sharethis0SharesFacebook0Twitter0LinkedIn0Email0Beforewegetstarted,ifyou’reconfusedaboutyieldmanagementthat’sokay–plentyofothersaretoo,andthere’saverygoodreasonwhy. AquickGooglesearchwillrevealcountlessarticlesaboutyieldmanagementinthehotelindustrybutit’sveryhardtofindasourcethatwillgivehoteliersthecorrectinformation,ortheinformationthattheyneed. Thetruthisthatyieldmanagementprobablyisn’twhatyouthinkitis,orasrelevantasyouthinkitis.Thisarticlewillfinallyclarifyallthequestionsyouhaveaboutyieldmanagementinoneplace.Youmightfindthatrevenuemanagementistheonlytermyouneedtoworryaboutmovingforward. Tableofcontents Whatisyieldmanagement? Theconceptisbasedonunderstanding,anticipatingandinfluencingyourguests’behaviourinordertomaximiserevenueorprofitsforyourhotel.Thinkofitastheartbehindthescienceofroomsupplyanddemand. Yieldmanagementwasthecatalystfortheevolutionofrevenuemanagementwhenitwasusedbytheairlineindustrytomanagesupplyanddemandforflights.Forexample,differentpricesmayhavebeenchargedforthesameflightdependingonwhentheticketwasboughtorwhatseatwasrequired.Hotelsbeganutilisingtheprincipleinthelate1980sandintothe1990s,withdedicatedyieldmanagerswhohaveevolvedintothemodernrevenueorreservationsmanagers.Insmallerhotels,thegeneralmanagerwillcommonlyhandlethesetasks. Yieldmanagementishowyoumakemoreprofitfromyouraccommodationandultimatelyfromyourentireproperty.RevenuemanagersandgeneralmanagersofsmallhotelpropertiesaretodaylookingbeyondADR(AverageDailyRate)andRevPAR(RevenuePerAvailableRoom)tomoresophisticatedrevenuemanagementdatapointssuchasGOPPAR(GrossOperatingProfitPerAvailableRoom).It’snolongerjustaboutroomsalesbutaboutpackages,amenitiesandservicesincludingupgrades,diningandfood&beverageaswellasentertainmentspendperguest. Goodexamplesofyieldmanagementcanalsobefoundingrocerystores,wherethemostprofitableitemsareplacedateyelevel.Asimilarprinciplecanapplytodistribution.Alotof‘products’arebasedonthewillingnessofthecustomertopay.Thiswillvarydependingonwhensomeoneisbuying–hotelswilloftenprovidediscountsforearlybookers,offerlowerratesonSundays,enforceminimumstaysetc. Yieldmanagementvsrevenuemanagement Thegoalofyieldmanagementisnotmerelytoincreaseroomratesoroccupancy;rather,it’stomaximiseyourhotel’srevenuebyforecastingyourroomsupplyanddemandacrossavarietyofkeyfactors. Yieldmanagementsharesmanysimilaritieswiththeconceptofrevenuemanagement,buthasactuallyexistedforlonger.Nevertheless,itisimportanttonotethatyieldmanagementhasamorenarrowfocusandisconcernedonlywiththesellingpriceandthevolumeofsales,sothatthebestpossiblerevenueyieldcanbeachieved.Insomerespects,earlyyieldmanagementcouldbeseenastactical,ratherthanstrategicandhadanarrowerfocus–forexamplesellingaplaneseat,eventticket,orahotelroom,butnotconsidering‘secondary’spendinotherareas(food,drink,merchandising,additionalbaggageallowance),orthecostsassociatedwiththesale. Revenuemanagementismoresophisticatedandmeasuresalotmorevariables,frommetricstosegments,todifferentdepartmentsofthehotel.Revenuemanagementisthefocalpointforhotelsintoday’sclimate. Tohelpexplainthisfurther,pleasewatchthisvideoexplainingyieldmanagement’sevolutiontorevenuemanagement: There’salsoadistinctdifferencebetweenreservationsmanagementandrevenuemanagement.Reservationsmanagementcanbedefinedasaservicerolewhichincludestaskssuchasassigningroomcategories,dealingwithVIPguests,customerinteraction,convertingcallstobookings,updatingavailability,andmanagingupgrades. Ontheotherhandrevenuemanagementisananalytical,strategicrole.Thereisnocustomerinteraction,ratheradaywillbespentinspreadsheetslookingatrevenueandprofits,channelsanddistribution,segmentsetc.Inlargerhotels(500+rooms),therecouldbeaDirectorofRevenueandaDirectorofeCommerce,plusateamofpeopleinthereservationsdepartment. Whatisyieldmanagementpricingforhotels? Intheoryyieldmanagementwillallowhotelstomaximisetheamountofmoneytheycanmakefromafinitenumberofroomsthatneedtobesoldonadeadline,i.einoneday,week,ormonth. Whenconsideringthateveryhotelhasafixednumberofrooms(i.e.theirinventory)anddifferentcustomersegments–suchasleisureandbusinesstravellers,whoarewillingtopaydifferentprices–hoteliersneedtofocusonthestrategiccontroloftheirinventoryinordertoselltheirroomstotherightcustomer,attherighttimeandfortherightprice.Theuseofyieldmanagementshouldfactorinthecostsofchannels–fromGDSs,OTAs,wholesalers,metasearchsitesandpropertywebsitestodirectcalls–andthereforehowtobetteryieldyourinventorybychannel,customerandmore. Yieldmanagementpricingexamples Asimpleexamplemightbeahotelthatislocatednexttoastadium.Onthedaysaroundtheconcertorsportingevent,thehotelwillchargemoreforitsroomsthanitdoesontheweekendsbeforeorafter. Thekeyistouseyourdatatounderstandyourdifferentcustomersegmentsandtheirsensitivitytopricing,andcombinethatinformationwithseasonaldemand.Forexample,businesstravellerstendtobelessprice-sensitivethanleisuretravellers. Usingyourdemandforecasts,youwillhaveinformationonhowtosetyourbookinglimits–thatis,thenumberofroomsyouwishtosellatadiscountedpricetoleisurecustomers,andthenumberofroomsyouwishtoreserveforfull-pricebusinesscustomers. Understandingyourpropertybusinessmixiscriticaltobetterforecastsandmorestrategicpricingstrategies.Youcanalsouseseasonalitytohelpdriveregionalbusiness.Australiantourists,forexample,travelatdifferenttimesoftheyeartobusinessesintheU.S.,astheirSummerisduringtheAustralianWinter. Seasonality,specialeventsandhighdemandcanallowhotelpropertiestoaltertheirratesinordertoincreaserevenue.Again,theideaisn’ttosimplyincreaseratesoroccupancybut,rather,toanalyseyourdifferentsegmentssoyoucanattracttherightcustomerattherighttime.Forexample,abusinesstravellerwhonormallybooksduringtheweekwilllikelybeindifferentaboutweekendorholidaydiscounts.However,conversely,price-sensitiveleisuretravellersmaybeluredbymulti-nightdiscountsandseasonalpromotions. Assuch,considerreviewpricingandmarketingtacticsforproductssuchas: Specialratesonmulti-nightstays Morevaluableroomsorupgradesforlong-stayguests Bundling,packageandexcursiondeals(e.g.Valentine’sDay) Specialroomratesformembersoftourgroups,conferences,andrecurringairlineorbusinesscustomers Basedonananalysisofyourcustomersegmentationandbookingtrends,youcancreatedifferentrevenueoptionsforroomsbyincentivisingyourpreferredtargetmarketwithpersonalisedpromotionsanddiscounts.Findingtherightmixofroomratesandincentivesaspartofanongoingyieldmanagementstrategywill,ofcourse,involvedoingyourmarketresearchandtestingyourhypothesisagainstyourdesiredmetrics. Importanceofyieldmanagementinyourhotel Allyieldmanagementstrategiesarebased,primarily,onforecastsofsupplyanddemand.Throughtheuseofarevenuemanagementsystemorrevenuemanagementdisciplines,combinedwithbest-of-breed(real-time)distributiontechnology,revenuemanagerscantodaybuildreasonablyaccurateforecastingmodelsforroomdemandaswellasimplementthesecontrolsinthebookingprocess–manytimes,atagranularlevelandbychannel. Dependingonhowdetailedyouwishyourreportstobe,youcanbreakdownyouranalysisbytravellersegment,channel,roomtype,bookingbehaviour,averagelengthofstay,thewillingnesstobookinadvanceandthetotalrevenuegeneratedbycustomertypetonameafewoptions.Therearemanysystemprovidersandconsultantscapableofdevelopingcustomreportstobettertargetandanalysedata,butit’soneachhoteliertodeterminewherebesttoinvesttheirtimeandmoney. Armedwiththeabovedata,youcancreateweekly,monthlyandyearlyforecasts,whichallowyoutomanageyourinventory,forecastdemand,setbookinglimitsandroomprotectionlevels,andcreateappropriatepricingandpromotionalstrategiesaimedatyourdifferentcustomersegments.Thisiswherethresholdingbecomesacriticalcomponentofyourdistributionstrategyandconversionprofitability.ThresholdingorbasicinventorycontrolssuchasClosedtoArrival(CTA),ClosedtoDeparture(CTD),StopSellandothersimplecontrolsmakeyieldingmuchsimplerthanusingmanualhumaninterventionandenactingchangesafterthefact,whichcancostyoubothpenaltiesandguestcustomers. Yieldmanagementformula Abasicyieldmanagementformulahastraditionallybeentocomparetherevenueachievedwiththemaximumpotentialrevenue.Thisallowsyoutotrackyouryieldandreviewperformance. Forexampleifyourhotelhas100roomsavailable,withafullrateof$150perroom,themaximumpotentialrevenueis$15,000.Ifonaparticularnight70roomsweresoldataloweraveragerateof$120,theachievedrevenueis$8,400.Thereforetheyieldpercentageis8400/15000x100=56%. Bybreakingthesemetricsdownyoucanquicklyrealisesmallimprovementswillmakeabigimpactonyouroverallrevenue. Therearenumerousrevenuemanagementmetricshoweverthatwillgiveyouagoodindicationofhowyourhotelisperformingandoffermanyopportunitiestomakeadjustmentstoyourstrategyandincreaserevenue,evenfromsellingthesamenumberofrooms.Increasingoccupancyiscertainlynottheonlyway,oreventhemostrecommendedwayofincreasingrevenueandprofit. Yieldmanagementsystems Yieldmanagementsystemswereusedasearlyasthe1980stoboostrevenueatmanyproperties.Thesesystemswerecreatedtoaddressyieldmanagementstrategiesinawaythatsavedtimeandprovidedmoreaccuracyforhotelmanagersbyusingcomputeralgorithmsandhistoricaldatatopredictsupplyanddemandatcertainpricepointsinreal-time. Theytookalotofguessworkandpersonaljudgementoutoftheequation. Reasonsforusingayieldmanagementsystemwouldinclude: Assessfutureconsumerbehaviourunderdynamicmarketconditions Determinethemosteffectivewaytopriceandallocateinventorytoreacheveryfutureconsumer,andmakereal-timeadjustmentsasmarketconditionschange Communicatethisinformationinstantaneouslytodistributionchannels Serveasaresourceformarketingandoperationalfunctions Anexampleofayieldmanagementsystemhelpinghotelmanagementisifitdiscoveredatrendwheretravellerswerepredominantlybookingtheirroom0-6daysbeforetheirstay.Inthisinstanceitwoulddiscourageearlybookingsatlowerratesinfavourofkeepingmoreroomsavailableathigherratesinanticipationoflast-minutebookings. Essentiallyyieldmanagementsystemswereusedtoanswerquestionsabouthowhotelmanagerscouldmakestrategicdecisionstoincreaserevenue. Nowadaysifyou’retalkingaboutayieldmanagementsystemforhotelsyou’retalkingaboutarevenuemanagementsystem.Withsomuchabouthotelmanagementmovingonlineandintocloud-basedsolutions,revenuemanagementsystemsarethesophisticatedtechnologysystemsthathavedisplacedyieldmanagement.Hotelrevenuemanagementsystemsaresetuptointegratewithchannelmanagers,websites,andbookingengines. Thetoprevenuemanagementsystemsarepowerfulcloud-basedsolutionsthatprovidemarketintelligenceandsuggestionsinoneeasyview,alongwithprovidingreal-timeupdatesandalertsbasedonthedynamicvariablesofmarketdemand. Yieldmanagementsoftware Therearesystemsthatdostilldefinethemselvesasyieldmanagementsolutions.Manyofthesecombinetheirdescriptionstotalkaboutyieldmanagementsoftwareandrevenuemanagementsoftwareinthesamebreath,asinterchangeableterms.Theofferisalwaysverysimilar–optimisesales,managereal-timepricing,demandforecastingetc. Whensearchingforyieldmanagementsoftwareyou’llnoticemostresultsarefoundundertheumbrellaofrevenuemanagementasthisisthecommonlyusedtermandpracticeforhotelsandotherindustriestoday. Keytakeaways–Importanceofyieldmanagementinhotelstoday Yieldmanagementishowyoumakemoremoneyfromyourexistinginventory Yieldmanagementisanoldertermwithanarrowerfocusthanrevenuemanagement Thekeyistouseyourdatatounderstandyourdifferentcustomersegmentsandtheirsensitivitytopricing,andcombinethatinformationwithseasonaldemand Theideaisn’ttosimplyincreaseratesoroccupancybut,rather,toanalyseyourdifferentsegmentssoyoucanattracttherightcustomerattherighttime Abasicyieldmanagementformulahastraditionallybeentocomparetherevenueachievedwiththemaximumpotentialrevenue Yieldmanagementsystemswereusedasearlyasthe1980s Nowadaysifyou’retalkingaboutayieldmanagementsystemforhotelsyou’retalkingaboutarevenuemanagementsystem Wanttoincreasebookings? We’vehelpedhoteliersgetupto43%morecommission-free,directbookings. 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