Benefits and advantages of yield management | Mews Blog

Yield management is one of the key hotel pricing strategies for the hotel industry, involving strategic control of inventory through dynamic prices. Industry  |  12February2021  |  VictorSenor  |  4minuteread Whataretheadvantagesanddisadvantagesofyieldmanagementinhotels? Backtobloghome Sharethisarticle Yieldmanagementisoneofthekeyhotelpricingstrategiesforthehotelindustry,involvingstrategiccontrolofinventorythroughdynamicprices.Oneofthemainadvantagesofyieldmanagementisthatitallowshotelstooptimizerevenue. Thatbeingsaid,asanyrevenuemanagerknows,thekeytooptimizingrevenueisunderstanding,influencingandanticipatingconsumerbehaviour. Essentially,it’sallabouttiming–it’saboutsellingtherightproducttotherightcustomerattherighttime.Sincebeyondhappyguests,occupancyisoneofthemainconcernsofhoteliers,it’simportanttounderstandhowtouseyieldmanagementtoyourfavor. Inthisway,hotelscanunlockthepowerofautomatization,changingthewayhoteliersthinkabouthospitality.Beingconnectedandopentointegrationsallowshotelstoensureanoptimalguestexperiencewhileatthesametimecontrollingrevenuestreams. Inthisarticlewe’llexploretheadvantagesanddisadvantagesofthisrevenuemanagementstrategyinthehotelindustry.   Whataretheadvantagesofyieldmanagementinhotels? Fromincreasedrevenuetounderstandingbookingpatterns,decreasederrorsandanincreasedvalueperception,therearemanyadvantagestousingyieldmanagementinhotels.Let’slookattheadvantagesinmoredetail. Increaserevenue Yieldmanagementhasevolvedovertheyearsthankstomachinelearningandadvancedanalytics,changingthewaypeoplethinkabouthospitality.Sincearguablythemainconcernofhoteliersisrevenue,it’simportanttonotethemainadvantageofyieldmanagementisthatitallowshotelstoincreaserevenueevenifthehotelisnotat100%occupancy.Essentially,asrevenuemanagersandhotelowners,youcantakeadvantageofthedemandforecast,maximizingtheaveragerevenueperavailableroom,pernight(knownasRevPAR). Sincecostsdonotfluctuateinthesamewayasdemand,hotelscanraisethepriceoftheroomduringpeakseason,andsellthesamenumberofroomsatahigherprice,hencemaximizingrevenue. Allthesefactorscanbereducedtosupplyanddemand:withhigherdemand,peoplearewillingtopayhigherprices.Infact,studieshaveshownthathotelsusingthistypeofrevenuemanagementsystemhavenotedimprovementinaveragedailyrate,occupancyandspecificallyshouldernightrevenue(datesthatareveryclosetohighdemanddates). Understandbookingpatterns Notallcustomersarebuiltthesame.Somebookonshortnoticeandothersbookmonthsinadvance.Ifhoteliershaveaclearunderstandingofbookingpatterns,withthistypeofmanagementsystem,theycanadaptthepricestobookingbehavior.Forexample,youcanpenalizelastminutebookerswithhighpricesandinexchange,setlowerpricesforthosebookingwellinadvance,andbesuretocoverfixedcosts.Hotelsalreadyofferdiscountedpricesinlowseason,andhigherpricesduringhighseason,butusingthissystemofvariableprices,youcanadjustthosepricesaccordingtowhentheclientbooks. Increaseyourvalueperception Perceivedvalueiswhatconsumersthinktheproductisworthtothemandinessence,theyarewillingtopaymoreforscarcegoods.Thissameconceptappliestothehotelindustry:consumersarewillingtopaymoreduringpeakseasonbecausetheperceivedvalueisgreater.Employingavariablepricingscheme,youcanbuildthisperceivedvalueinthemindofthecustomers,incentivizingthemtobookfurtherinadvance,andtherebyusemarketingstrategiestohelpboostthisperceivedvalue. Eliminatepricingerrors Usinganinnovativehotelrevenuemanagementprogram,revenuemanagersandhotelierscanassurethatthere’snochanceforhumanerrorbecausepricesarechosenbasedondemandforecasting,insteadofexpectedbookingbehaviors.Thiskindofmanagementprogramallowsyoutobringhotelmanagementintothefuturebyautomatingprocessesthroughtechnology.Withaclearsetofdatafromsoftwareintegrationsyoucanchoosethebestroomratesforthetimeperiodbasedoncleardata. Effectivelysegmentyourcustomers Marketsegmentationiskeytoanybusinessstrategy,andaneffectiveforecastcanhelpcapturethesubtletiesofthismarketsegmentation.Someofthosenuancescanbeidentifiedbybookingtrendsandpatternsaswellasintentionstobookandguestpreferences. Throughouttheyear,hotelsbenefitfromavarietyofdifferentguestsfromsolo-travelerstofamilygroupstocorporateguests,amongothers.Usingthisstrategy,hotelscanidentifythesegmentsthattheymaybemissingoutonandadapttheirmarketingstrategyaccordingly. Furthermore,sincedifferenttypesofguestshavedifferentrequirements,anotheradvantageofthistypeofintegrationistheabilitytosetavariablepriceratefordifferentsegmentsbasedondifferentfactors. Forexample,hotelscanofferlowerpricestoleisurefamilygroupswhotendtobookinadvance,spendmore,andtendtolookforbetteramenitiesandservices.Ontheotherhand,youcanofferhigherpricestocorporateguestswhotendtobooklastminute,stayforashorterperiodoftime,andarelesslikelytocompareprices.   Whatarethedisadvantagesofyieldmanagementinthehotelindustry? We’velookedattheadvantages,nowlet’slookatthedisadvantagesofthisrevenuemanagementsystem.Oneofthedisadvantagesisthatsincethedecisionsaredrivenbynumbersandforecasts,thereisnopreferentialtreatmentforregularcustomers.Anotherdisadvantageisthatifthesystemdoesn’tforecastwell,itwon’thelptomaximizerevenuebecausethere’snowaytopredictunexpectedeventssuchaspandemicsandnaturaldisasters. Regularcustomersreceivenopreferentialtreatment Sincepricesarebasedonpredictionsofbookingtrends,oneofthedisadvantagesofyieldmanagementisthatitdoesn’ttakeintoconsiderationdifferentpricesfordifferentpeople.Forexample,ifahotelhasaregularcustomer,theymaybepayingthesame(orhigherprice)assomeonewhobookedattherighttimefortherightpriceandthereforeyouruntheriskofpenalizingthe“regulars”withindifferentialprices. Doesn’ttakeintoconsiderationcustomerexpectations Becauseyieldmanagementisbasedonsupplyanddemand,guestswillpayhigherpricesduringpeakseason.However,thoseguestspayingpricesthroughtheroofwillconsidereverythingintermsofhowmuchtheroomcostthem.Ifthereisanelementoftheguest’sexperiencethatfails,itputsthehotelatriskforbadreviewsifthelevelofservicedoesn’tmeetthehighexpectations. Possibilityfornotforecastingwell Inordertoproperlyforecast,hotelsmustgatherdata,organizeitandcoordinatewiththoseinchargeinordertoimplementitintoapricingsystem.However,noforecastis100%accurate.Sincethereareagreatnumberoffactorsthatinfluencedemand,oneofthedisadvantagesisthattherevenueforecastsmightnotholdupwellagainsttheactualmarkettrendsandtherebyjeopardizerevenue. Conclusion Theadvantagesofyieldmanagementfaroutweighthedisadvantages.Ofcourse,itisnotaperfectsystem,becausewhenyourelyonmachinesandforecasting,thereisroomforerror.Hotels,asfaraswecantell,can’tyetpredictthefuture,butwiththerighttools,it’sdefinitelygettingeasier.Byimplementingyieldmanagementtechniques,hotelscanseerevenueincreasewithlittleinvestment. Furthermore,thispricingstrategyhelpstobetterreachdifferentsegmentsofthemarket,achievingthehighestpriceguestsarewillingtopayaccordingtotheirbookingpreferences.Thisallowshotelierstofocusontheprofitablebookingsinsteadofthosethatjustcovercosts.Therefore,aneffectiveyieldmanagementstrategycanhelphotelsmaintainasteadyrevenuestreamthroughouttheyear.   KPIsforthemodernhotelier Themetricswe'vejustexploredareamongthemostcommoninhospitality,butthatdoesn'tmeanthey'rethebest.We'veputtogetherareport, MetricsthatMatter,thatwillhelpyoutomaximizerevenueandboosttheguestexperience,allbytrackingtherightdata.Clickthebuttonbelowtofindouthowyoucanbemoreefficientacrossoperations,revenueandmarketing: DiscovertheMetricsthatMatter Author: VictorSenor|12February2021 VictorSenorhasbeeninthehospitalityindustryforalmost15years,withextensiveexperienceinRevenueManagement.HecurrentlyworksforMewsasSeniorImplementationsManager. 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