How hotels use yield management to maximize the profit

Yield management is a technique used in an attempt to sell the maximum number of rooms possible on a given day at the highest possible rate. With the proper use of below yield management technique, hotel can take this opportunity to understand the relationship between forecast demands, optimize demand, control demand and monitor demand of different types of hotel room so as to maximize the profit and revenue.

  1. Past occupancy level

1

(Source: Douglas Jeffrey Robin R.D. Barden, (2000),”An analysis of daily occupancy performance: a basis for effective hotel marketing?”)

  1. Seasonal influences

During low seasons, hotels will maximize their profits by stimulating demand. Examples can be keeping existing customers from making repeat stays, or adding incentives and value to the products during off-peak periods, etc. Incentives like a free extra night’s accommodation, or discounts on second visit can be given, in order to generate additional stays, hence higher the occupancy rates of the hotels.

 

  1. Upcoming special event

Special promotion strategies will be used when there is/are special event(s), like World Expos, happening near hotels. In order to maximize the occupancy rate, hotel managements have to think of their strategy in terms of promotion, pricing, etc.

 

  1. Amount of booking so far for that day

According to the expected marginal revenue curve, with each additional for-sale room, the probability of it being sold drops little by little, and there is a pressure of discount increase. So, to maximize profits, hotels need to look at the numbers of bookings so fat for that date, and to offer discounts when applicable.

 

  1. No-show estimates

This is the number of reservations that will not check-in and not cancel.

  1. Cancellation estimates

This is the number of reservations that will be cancelled.

Based on (5) and (6), reservations department can based on the historical record to estimate the numbers of no-show and cancellation next period. In return, this can help hotel management group plan sales and promotional activities and set the overbooking capacity. Finally, it can maximize the yield for reservation department.

  1. Economic Climate

Economic climate is the general economic climate for the region/ country such factors as the leisure dollars, interest rates, inflation and so on. If that particular target market does not perform well in economics, the reservation department cannot set the price too high to this type of guests.

  1. Exchange rate influence

Currency rate refers to the exchange rate between two countries. If country A’s currency appreciates against country B’s currency, the reservation department cannot set the high price to that customers as it cannot attract the tourists. Because hotel rooms are perishable and cannot be inventoried, so that reservation department should pay attention to this factor.

Reference:

Douglas Jeffrey, Robin R.D. Barden, (2000) “An analysis of daily occupancy performance: a basis for effective hotel marketing?”, International Journal of Contemporary Hospitality Management, Vol. 12 Iss: 3, pp.179 – 189

Baum, T. (2001). Seasonality in tourism. Amsterdam: Pergamon.

Revenue Management. (n.d.). 54-54. Retrieved from http://www.ahla.com/uploadedFiles/AHLA/Members_Only/_Common/technology_primers_pdf/88119NEI02ENGE.pdf

Baum, T. (2001). Seasonality in tourism. Amsterdam: Pergamon.

Revenue Management. (n.d.). 54-54. Retrieved from http://www.ahla.com/uploadedFiles/AHLA/Members_Only/_Common/technology_primers_pdf/88119NEI02ENGE.pdf

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