Yield Management Analysis

2303 Words10 Pages
One of the most powerful tools for creating increased profit in a hotel is the correct utilization of yield/revenue management which are pricing strategies based on consumer behaviours. In order to analyse how effective yield/revenue management as a source of competitive advantage , we first have to understand how they both work. What is Yield Management? According to (Kimes, 2002) yield management is a method used by an organisation to sell a product to the right customer at the right price and at the right time. Yield management is a component of revenue management(In Class notes, 2014). Yield management ensures maximum profit is achieved if it is used correctly. Some service based firms use it such as car rental and cruise liners but hotels…show more content…
Today many hospitality based industries have copied this technique and are using it like airline companies to increase profitability. According to (In class notes, 2014) revenue management is “A set of techniques used to determine whether prices should be raised or lowered and a reservation should be accepted or rejected”. Revenue management sold the minimum amount of seats without selling every seat at a discount prices, just enough to cover fixed operating costs. Once fixed costs were covered airlines could sell the remaining seats at a higher rate to maximise revenue and profits. Revenue management has a broader focus when compared with yield management (Inclass notes, 2014). Hotels use this concept and instead of seats they use rooms. Because of the characteristic of service (perishability) hotel rooms need to be sold if not they are gone forever. (In class notes, 2014) shows that there are three key conditions for revenue management to be implemented: product need to be perishable, customers need to be willing to pay different price for same product, there is a fixed number of products available for sale. Market segmentation is an important element for success in revenue management as it is used to monitor consumer behaviour and help build customer trust. Customers can be broken down into segments, customers are grouped into segments based on characteristics.…show more content…
This has led to online booking agencies or global distribution systems(GDS) to sell a hotels available rooms with the agency receiving a percentage of the sale. Having a GDS allows a hotel to have bookings all over the globe and their information available for everyone to see. Having rooms booked on a third party website is good for a hotel during off peak periods however a hotel needs to be smart on when to stop booking websites taking profit that could potentially be theirs. Hotels now offer the cheapest rates on their own websites as to cut the percentage of profit that is being lost to 3rd party websites. During periods of high demand it is useful to halt 3rd party sites selling a room at reduced rate and instead offer premium price on a hotel's website and thus increasing

More about Yield Management Analysis

Open Document