The Effect of Yield Management on Hotel Chains
Yield, or revenue management, is the process where sales of a small quantity of goods, such as for instance rooms in hotels, airline seats, apartment leasing, rental cars, or etc. are managed in order to maximize profits. Successful yield management centers on selling the merchandise in this manner that’s timely, price competitive, and directed towards the right subset of customers entreprise radisson. An economic concept first posited by Dr. Matt H. Keller, and first used by the airline industries beginning in the 1970s, yield management has evolved in more recent years as an important tool especially for the airline and hotel industries for staying economically competitive in otherwise saturated business playing fields.
The fundamental concept of yield management is based in the economic principle of supply and demand: when supplies are short, prices go up; when supply is high, prices go down. Yield management is just a studied, systematic method where managers can logically place customers within the supply demand spectrum, and thus gain the greatest yield for their products. As an example, a customer who has almost no flexibility in their travel plans is the consumer who is almost certainly to cover a higher price for airline tickets and hotel rooms. The client with a great deal of flexibility is much less inclined to cover a higher price.
Hotel Chains and Yield Management
Many hotels rate their success by their occupancy levels, but this isn’t necessarily the most effective way of measuring success. Another solution to rate a hotel’s performance is by determining its REVPAR, or Revenue Per Available Room. REVPAR is calculated by dividing the total room revenue by the total number of rooms. As an example, a resort that makes $6,000 one night with an overall total number of 100 rooms has a REVPAR of $60.
The yield manager’s job is to maximize the revenue per available room by selling rooms to the right customers, at the right price, at the right time. How does the yield manager achieve this somewhat nebulous task?
Successful yield management arises from several factors: an understanding of what the hotel hopes to accomplish (whether that’s room occupancy, REVPAR, or some other measurement); an obvious understanding of what sort of hotel the manager is dealing with, that’ll cause an understanding of just what a customer visiting the hotel wants in their hotel experience, and why customers choose their hotel over another hotel; an ability to measure group sales against the entire goals of the hotel (for example, a resort whose definitive goal is occupancy is likely to be happy to host a big group at a lowered rate, but a resort whose definitive goal is revenue may turn down a larger group and only an inferior group who can pay a higher rate); and a knowledge of what’ll cause the marketplace to fluctuate (such as holidays, regular regional and local events, etc.). The yield manager will ideally consider every one of these factors when creating different rates for hotel guests.
