It is a famous variable pricing strategy that is primarily based on influencing as well as anticipating consumer behaviours. The income can be maximized using time-limited and fixed resources. These include hotel room reservations, airline seats, and even, advertising inventories.
To get the possible revenue yield, you need to sell your products and services to the right customers at the right time for the right price.
Well, this is what we are going to talk about right here. We will be covering all the aspects of yield management, why it is essential, and finally, we will understand it with examples. So, without any further ado, let us get started-
What exactly do you think the hotels, airlines, and tour operators have got in common?
Well, one of the things that we can think about at the moment is that they all are focused on the selling of resources and that too for a limited amount of time for sure with maximum revenues.
Apart from that, when they have to maximize the revenue, having a price that is permanently fixed will not be a help.
But do you know why that is the case?
There are so many different types of industries these days that are facing a situation where the customer landscape keeps on changing constantly. Some seasonal opportunities always come to the door such as contingencies, events and also trends that are not that constant.
These keep in changing as more things come and then leave. It is essential for the hotels and other industries these days to ensure that they can maximize their revenue with the help of these changing trends and opportunities.
Leveraging the benefits that come from these opportunities are the main options that people tend to have these days.
Hence this is considered to be one of the most amazing and essential strategies for hotels and other establishments like that.
In this article, we are going to have a look into the concept of yield management and how it can help out the hospitality businesses as well as the other industries which are seeing the light of the day.
The hotel businesses and the hospitality industries these days have one real goal and that is to increase or maximise the revenue with the changing trends, seasons, and opportunities that they have. Having an understanding of consumer behavior and providing them precisely what they want is one of the best ways to achieve that goal.
Hence, the businesses these days are more concerned about putting into effect the vital strategies which can help them out in making sure that the revenues of the hotels and other industries that they have to keep on increasing in the best way without any trouble or hassle.
Now, we hope you would have understood the concepts associated with Yield Management. Let us now have a look upon its definition-
If we try to put it in strictly simple terms, yield management can be defined as a proper and particular strategy which can be used to sell the right thing to the perfect customer and that too at the right time. Not to mention that the price of the item is correct as well.
When we are talking about the industry of hospitality, this is the strategy which would mean that the hotel is selling the perfect room to the guests who need it at the right moment and that too for the best-suited price which would ultimately lead to the increase in the revenue that is earned by the hotel.
It is considered to be one of the most critical and essential strategies which help the hospitality industry in making more and more revenue for the businesses that they have.
YM% = Achieved Revenue ? Potential Revenue * 100
To calculate your Yield Management, you need to compare the actual revenue that you get with the maximum potential income.
Yield Management & Revenue Management
While it can be said that yield management is a proper strategy that has many different characteristics, one cannot help but notice that many similarities are present in the approach of yield management and the revenue management strategy as well.
However, we might also want to state the fact that yield management has been an essential part of the hospitality business for a very long period, much before the revenue management strategy for sure.
We will also tell you that there are some essential things that you need to know about yield management in the best way. There is a narrower focus that yield management has and it is mostly concerned with the price of selling as well as the sales volume that happens at a particular period.
Hence, the main focus is on the revenue yield that is generated and how it can be achieved in the best way for sure.
There is a concept that people need to know about yield management, and it is that in a certain period of time, there are some limited resources that are provided to the people.
Some of the best examples of these resources would have to be individual hotel rooms.
These rooms can be easily sold for different amounts and prices. This depends on the time of the year in which the resources are sold to the people in the best way.
There are some other factors which are also responsible for it, and these are the time of the year, the demand level that people have and even the number of rooms which are sold along with some other external factors as well.
So, hotels and other hospitality businesses need to ensure that they have all the knowledge and information about these factors and how they can affect the revenue of their endeavors.
A hotel can take a particular room that they and then sell it to two customers who are entirely different and that too for a specific difference in the price for sure. This is possible because of the different variables which are always present during the process being completed in the best way.
The first approach of the strategy is to ensure that they take a particular stand with the help of data to ensure that the pricing of specific resources is adjusted in the best possible way to provide some better results in the business.
So, all in all, it can be said that companies use yield management to price their services or products based on consumer behavior adequately.
For instance, have you ever noticed that the prices of transportation, be it airfare or train fare, among others, are hiked depending upon the season you are planning to book it for?
It is not just for transport, but also for hotel rooms.
Companies make use of yield management to price their services based on demand. This pricing strategy is very commonly used in the hospitality sector.
1) Increase in Hotel Prices at Festival Times
Consider that there is a big festival that is to take place. The hotels which are located in the vicinity of the festival venue have their rooms priced at a much higher rate as compared to those which are located away from the site.
2) Exclusive Discount Coupons of a Restaurant
A restaurant that does not witness a lot of traffic on, say, a Wednesday night, may offer special promotions or discounts to get more diners.
3) Increase in Airline Tickets in Peak Summer
An airline may offer their fights at a hiked up rate during the months of peak summer and provide the same services at a reduced cost during the winter season.
How Yield Management helps Hotels
Proper utilization of strategy can reap a lot of benefits for hotels. Some of these are:
1) A decrease in errors
The hospitality industry primarily runs on forecasting the surge. Accurate forecasting will lead to a reduction of errors in terms of pricing. It helps in maintaining the credibility of the hotel as well.
Through the use of yield management, one can accurately forecast the inbound changes and thus, act upon them accordingly. It eliminates the chances of miscalculated risks.
2) Helps in better understanding the preferences of customers
The hotel business sector is very dynamic. Through the effective use of yield management can help you gain insights into the needs as well as the preferences of the customers. You can know what the factors are that can be made possible to ensure that people are highly demanding the resources that you have in store for them.
3) Helps with better Segmentation
If a company only caters to a particular market segment, it is missing out on several others which may be equally or even more so profitable for the company. Yield management helps the company with precisely this and helps them target segments which they may have been missing out on earlier.
It helps companies find untapped sections as well and enable them with efficient plan making steps.
4) Better and Profit Oriented Pricing
When you are employing a variable pricing strategy such as that of yield management, you also take into account the pricing rates put forward by your competitors. It then provides you with an ideal Average Daily Rate as well. By utilizing this approach, one can boost their revenues by focusing on bookings with bringing in additional profit. It will help you gain the upper hand over your competitors.
Moreover, unlike other hotels that try to focus on the booking volume and thus, end up losing out on profitable revenue, you will not be making the same mistake.
Tips for Optimizing Yield Management
Let us have a look at a few fundamental practices which you can follow to help you increase revenue.
1) Understand the booking patters of the customers
A deep understanding of the buying patterns will help you develop a booking system which alters according to the customer’s booking habits. You must have noticed this with airlines. Airlines track the booking behaviors of the customers and accordingly adjust their fares.
They usually follow a U-shaped strategy for their prices wherein the start with a high rate at the starting of the month, however, it declines till the mid of the month, and then it again climbs to higher rates around a week before the booking. They track the amount of sales volume and deploy better pricing strategies accordingly.
2) Understand the booking patters about the segments
The booking patterns of the customers are according to the parts. For instance, it has been observed that group bookings are made in advance while individual reservations are made in less time.
Noting as well as understanding such patterns are crucial if you want to augment your revenue intake. These buying and booking behaviors are a vital factor to be considered while determining pricing plans.
One tactic that you can apply is that you can raise the prices of the booking packages two weeks prior. It will help you leverage the increase in demand from that segment.
3) Understand the results of the changes in pricing
There should also be a sturdy price control mechanism in place. The yield management strategy should anticipate and calculate the impact of the changes in pricing.
The insights generated from these actions will also help you in terms of your competitors. It is because you will have a robust competitor monitoring system.
4) Pay heed to Online Partners, i.e. your Distribution Channel
Strategic pricing is just one component. You also have to keep your online channels in check. For this, you will need to monitor your online distribution channels and partners closely.
Through this way, you can recognize the low-performing channels and thus, stop using them altogether. Sturdy channel management is a crucial component of yield management.
Other Tips for Yield Management
Independent hotels actually have an opportunity to ensure that they can appropriately capitalize on the appetite and requirements that the customers have for them. Most customers these days want to have some unusual and unique experience that they can remember for the rest of their lives.
This is something that hotels can provide them in the best way. This is what we know as yield management. Here we are going to mention some of the essential tips that can help you achieve that goal in the best way for sure.
5) Put More Focus On the Value
The hospitality industry is a sector that is sensitive to the price front for sure. The value that hotels and other establishments can provide to the people will be the essential thing in the increase of their revenue in the best way. So, you need to make sure that you are providing the value that people need to have in the first place.
This is one of the essential tips that we think is going to help you out when you need to know more about yield management in the best way. Giving the people precisely what they want to have can help you increase the demand for your resources which can, in turn, increase the revenue.
6) Proper Distribution Channels Are Important
If you have an independent hotel, there is a chance that you will not have much in the name of the marketing budget. This is where the big chain hotels take the game away. However, you need to ensure that people get to know about the resources that you have anyway.
This is one of the most important reasons why it is essential to focus on the distribution channels that you have. You need to get the word out about your services to the customers who might need it.
When you make sure that your distribution channels are all proper, there is a chance that you will be able to do something for the increase in revenue that you want to have in the first place. Doesn’t that seem like such a fantastic idea at the moment, people?
In order to do that, you need to focus on channel management, proper promotion, and several other factors that are going to decide whether the resources of yours are properly promoted or not.
7) Provide Incentives
Another one of the best things that you can do to properly use the strategy of yield management is to provide some incentives to the people who need it. We are pretty sure that people are going to love what you have to offer them right here.
This is one of the best tips that we could provide you. When you have incentives for the people, they are more and more interested in what you have to offer.
Through the incorporation of the practices as mentioned above into your yield management, you will be able to reap significant benefits in terms of revenue generation.
The components of the hospitality sector who have used yield management have observed significant improvements in their revenue streams.
For yield management to show its positive effects, the user (company) needs to have a staff of people who carry out the research as well as analysis activities. Airlines have been open to this strategy; however, hotels, too, are now adopting it rapidly.
How important do you consider the Yield Management in finding the right pricing for your services to optimize the revenues? – Share your views with us in the comments below.