Yield management in hotels ensures you make the most of your occupancy. Let’s discover the pros & cons of yield management in the hotel industry and its concept.
Yield management in hotels is one of the most vital pricing strategies for hotel operations. It involves strategic control of inventory, especially hotel room dynamic prices. The yield management in the hotel industry allows hotels and hospitality companies to optimize revenue. The revenue manager wants to gain profits through predicting, influencing, and anticipating customer behaviors.
It is all about timing when people sell the right product to the right customer at the right time.
Besides satisfied guests, full occupancy is one of the factors that hoteliers think. Understanding yield management in hotels: a key factor increases revenue for the hospitality industry. Moreover, many hotels use offshore development teams to build custom apps that help boost their profitability through software applications. Thanks to software applications, hotels unlock the power of automation and change the way people do to get profits. Integrations help hotel operators to ensure an excellent guest experience while controlling revenue at the same time.
What is yield management in the hotel?
Yield management in hotels involves selling the hotel room to the right guest at the right time. Since prices, customer preferences, and requirements keep unstable, an appropriate pricing strategy, also called dynamic pricing, helps tweak room rates with other factors. Nowadays, many hospitality providers are developing yield management software to boost their revenue with the help of outsourcing software services.
Think of a special occasion or festive season in your city. As festivals lead to an increase in accommodation demands, thus, it needs a specific strategy to tap the target customers. People can adopt a time-penalty method, which allows business owners to increase in price when the date of the festival is near. Therefore, it makes yield management in hotels beneficial if they want to boost their efficiency and gain more profits.
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Yield management in the hotel industry: Pros & Cons
Yield management in the hotel industry will lead to many pros and cons for hotel operators. Let’s take a look at the advantages and disadvantages in more detail.
Benefits of yield management in hotels
Boost hotel revenue
Yield management in hotels has evolved thanks to machine learning and data analytics. It will change the way people think of hotels. One of the main benefits of yield management in hotels is to increase revenue if the hotel is not at 100% occupancy. Revenue managers and hotel owners can take advantage of the demand forecast. It means they maximize the average revenue per room, per night.
As the demand will change and the cost keeps stable, hotels set room prices during the peak season. Besides, they sell the number of rooms at a higher price, which will maximize the revenue. With higher demand, guests are willing to pay higher. Studies show that hotels using yield management software can improve in average daily rate, occupancy, and shoulder night revenue. Hotels build custom apps for yield management by hiring offshore development teams or outsourcing software services.
Understand booking processes
The booking journeys are not the same amongst different guests. Some books in a short time while others book a few months in advance. Hotel operators understand how guests book their accommodation, so reservation management helps adjust the prices to booking behaviors. For instance, you can charge last-minute bookers; meanwhile, they set lower prices for those booking well in advance.
Enhance the value perception
Consumers perceive product values as worth them, so they are willing to pay more for goods. The concept of yield management in hotels applies to the hospitality industry. Consumers are willing to pay more in the peak season as the perceived value is higher. Variable pricing strategies help owners build the perceived value in customers’ minds. It incentivizes them to book in advance, making marketing strategies to boost the perceived value.
Eliminate errors related to price
Using a hotel revenue management strategy, managers and hotel owners assure that there is no chance for human errors. People set prices based on demand instead of expected customer booking behaviors. Many hotels use offshore development teams to create mobile apps to forecast based on data. It helps eliminate human errors in prices. Booking management software allows you to bring hotel management into the future through hospitality technology.
Market segmentation is key to business strategies. Guests regarding solo travelers and corporate guests will benefit hospitality entities. Yield management in hotels strategies helps segment distinguished customers and adapt their marketing strategies.
As different guests have different requirements, the yield management in hotels sets a variable price rate for different segments. For instance, hotels offer lower prices to family groups who will book in advance, spend more and look for better facilities and services. Meanwhile, hotels set higher prices to others who book last minute and stay for a short time. Technology in hospitality helps segment various customers into different demographics.
Drawbacks of yield management in hotels
The number and forecasts that drive booking decisions do not have any preferential treatment for customers. Another disadvantage of yield management in hotels is if the system does not forecast well, it won’t maximize revenue. Booking management can not predict unexpected situations such as pandemics and natural disasters.
Usual guests can not receive preferential treatment
Yield management in hotels does not consider different prices for various guests. For instance, if customers book hotel rooms, they have to pay the same or even higher as those who book at the right time for the right price.
Hard to meet customer expectations
Hotel yield management strategies identify the supply and demand, and guests are willing to pay higher prices during peak season. So they will expect more with services and facilities. If they might experience something during their stay, it puts the hotel at risk for bad reviews. So it is hard for hotels to meet customer expectations in the peak season.
Might not forecast the demand well
Hotels must collect, process data, and coordinate with other factors to predict the demand from customers. Many hospitality companies create mobile apps through offshore development teams to collect and organize data for the forecasting process. However, there is no 100% accurate forecast. There are many factors influencing market demand. One of the disadvantages is that the revenue forecasts might not work well. Therefore, it jeopardizes hotel revenue.
Concept of yield management in the hotel industry
The concept of yield management in the hotel industry originates from the airline. Different passengers on the same flight pay differently. Super-saver discounts and three-day advance-purchase plans have become the trend for pricing strategies in the airline industry. The concept of yield management in hotels has proven potentially successful in car rental, cruise, railway, and tour operations. The fundamental of yield management in hotels is that people make reservations for a perishable commodity.
The ability helps monitor reservations and develop feasible forecasts. Fundamental concepts of yield management in hotels define market supply and demand. Prices tend to rise when demand is oversupply; meanwhile, prices tend to fall when supply exceeds demand. Price strategy is the key to profitability.
Many hotels are using yield management software to boost their profit. Besides, the hospitality industry is developing new forecasting techniques. It will adjust the supply and demand with optimal hotel room rates. Applying technology in hospitality nowadays is a trend for many hospitality enterprises. They will focus on shifting from high-volume bookings to high-profit bookings. They also hire outsourcing software development services to build mobile applications for optimizing their profit through yield management software. Furthermore, they increase bookings on low-demand days and sell rooms at higher prices during the peak. It helps improve their profitability.
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Hotel yield management strategies
Hospitality enterprises will set different hotel yield management strategies to maximize their revenue. Here are some ideas related to yield management strategies for hotels in high-demand and low-demand periods.
Hotel yield management strategies in high-demand periods
Hotel operators should follow these tactics to boost revenue for their enterprises:
- Restrict discounts to generate more profit.
- Define a minimum length of customer stay restrictions.
- Reduce hotel rooms for groups as they get low room rates.
- Eliminate the 6 p.m period to avoid no-shows or cancellations.
- Set higher room rates with competitors to gain optimum revenue.
- Set a rate increase for packages rather than giving discounts.
- Apply rates for room categories of suites and deluxe.
- Require customers to deposit and guarantee the last night of stay.
Yield management strategies in low-demand periods.
The hotel managers had better use those tactics to maximize hotel profitability:
- Set up more benefits such as spa treatments, bars, etc.
- Offer packages.
- Discount sessions like advance purchase rates, corporate rates.
- Upgrade if necessary.
- Offer stay-sensitive prices.
- Remove stay restrictions.
- Set low room rates.
Examples of yield management
Let’s look at various examples of yield management in the hotel industry. If you develop effective yield management strategies, create occupancy based on hotel locations, high and low seasons, and previous rates.
This example of yield management helps determine hotel room rates in the past: Average Daily Rates, RevPAR, and different guests. They can be corporate guests, family groups, backpackers, solo travelers, etc. Many hospitality managers create software applications from software outsourcing services to implement yield management strategies. They use reliable hotel Property Management Software to monitor data and KPIs in real-time operations.
It is essential to follow consumer behavior trends to predict demand and anticipate future needs. Those software applications help managers forecast the needs and harness OTAs to check competitors’ rates. Hospitality enterprises adjust the room rates bringing the most profitable bookings and making the most of the present demand to boost revenue.
How to calculate yield management in the hotel industry
The formula to calculate yield management is:
Here is an example of yield management calculation: If a hotel has 70 rooms they sell for $400 per room, their maximum potential revenue can be $28,000. Supposing that they sell 50 rooms at $330 each on a specific night. They will gain $16,500 for that night. That means the yield management would be 58.9%.
Yield management in hotels is essential for any hospitality enterprise to maximize profitability. Set yield management strategies for a price to give accurate and useful forecasts. If you are interested in balancing supply and demand, yield management software is the right tool. Looking for outsourcing software services to create mobile applications of yield management software will be your solution. You can check out our site for further details.