In your opinion, what are the best strategies to maximize revenue management in the hotel industry? Whatever your answer is, you definitely cannot displace yield management and revenue management.
They are important strategies used in businesses and most especially within the hotel management industry. While they are quite related in their overall usage and output, as you would expect of any two different entities, they have their differences.
In this piece, we will discuss what these similarities and differences are. We will also look into what they mean specifically in the hotel industry, their spectrum range and a few other details.
So, let's get to it.
What is yield and revenue management?
Yield management is a strategy or concept based on effectively forecasting and anticipating customer behaviour. Simply, it is a pricing strategy that relies solely on the sale of fixed, time-limited inventory. It uses data and analytics to identify patterns and determine levels of demand.
For instance, in the hotel industry, yield management is used in hotel rooms booking, and the price of the rooms are determined based on demand behaviours. Since customers or hotel guests have different behaviours, a good pricing strategy is necessary to sell the same product at different prices.
The saying, "Use data to sell the right room to the right guest at the right time and possibly at the highest price", is true with yield management.
Revenue management is a similar concept to yield management. However, it operates on a higher and broader spectrum. It uses customers' behaviour to maximize revenue like yield management, but it goes further. Revenue management predicts and anticipates customers' demand behaviour and optimizes pricing, product availability, and distribution.
So, to use our initial example of hotel rooms, revenue management is not only concerned with the hotel rooms, but it also looks at sales from other areas of the hotel, such as Spas and restaurants. As such, many have seen yield management to be a sub-division of revenue management.
Differences between yield management and revenue management in the hotel industry
It is important to understand both yield management and revenue management, especially within the hotel industry. Still, it is even more essential to go the extra mile and look into the key differences between the terms and how their strategies apply within the hotel industry.
What are the major differences between yield management and revenue management?
Yield management is centred on hotel rooms.
In simple terms, yield management concerns itself with price differentiation and how you can maximize revenue for fixed, time-limited inventory. That means the variable or stock being sold has to be available only for a certain period. Only a limited number has to be available, and customers must be ready to pay different prices at different times for it. Without mincing words, in the hotel industry, this best describes hotel rooms.
With this understanding in mind, the essence of yield management within the hotel industry will be to sell the right room at the right time to the right customer, at the highest possible amount, to maximize revenue and profit from the sales of rooms. That means, when demand for rooms is high, you would want to increase the price and reduce when demand is low.
Revenue management has a wider focus.
Revenue management operates on a higher spectrum to yield management. Of course, it focuses on using price differentiation to maximize revenue from hotel rooms sales, but there is more. It takes into consideration revenues generated from other arms of the hotel business. This could be bar sales, spa bookings, restaurant sales, room service and much more.
More than all of those, revenue management is also likely to consider other factors. This can include but not limited to the cost associated with particular distribution channels. Due to this, revenue management seems to rely more on data gathering and analysis and input from the different arms of the hotel or property.
Yield management is highly tactical.
It isn't easy to see expected results from yield management if tactical solutions associated with pricing and other hotel room selling aspects are not deployed. An excellent tactic will be to place certain restrictions on the sales of rooms depending on customers' demand behaviour.
For instance, to maximize revenue in the sale of hotel rooms, hotel managers or owners could employ restrictions on the maximum length of stay. It might be wise to put a strict restriction or limit on the duration of stay in a hotel room in certain periods. At other times, especially when demand for rooms is low, greater flexibility might be employed to encourage longer stay in the room.
The point here is that there is no rigid rule, or better still, the only rule is to employ all legal means to maximize sales of hotel rooms. So, that could mean increasing price and restriction when demand is high and doing the opposite in times when demand is low.
Revenue management is more broadly strategic.
Unlike yield management, revenue management is broadly more strategic. The best results here are achieved when high consideration is given to different business arms while using several Key Performance Indicators (KPIs) to determine the price. Some of these KPIs include RevPAR (Revenue Per Available Room), RevPAR (Revenue Per Available Guest), and GOPPAR (Gross Operating Profit Per Available Room).
Furthermore, to effectively manage and generate revenue, you will have to consider the various available distribution channels and if these channels should offer hotel rooms at different price rates. However, because the focus of revenue management goes beyond hotel room sales, other hotel arms may be prioritized in any pricing strategies.
Yield management eliminates pricing errors.
Nowadays, hotel managers can use a hotel revenue management program to utilize a yield management strategy, eliminating pricing errors. Since prices are chosen based on demand forecasting and not expected booking behaviours, human error can be effectively eliminated.
With a clear set of data, you can ring hotel management into the future through technology relying on yield management principles.
Revenue management enables competitive pricing.
Revenue management makes it easy for hotels to have a competitive edge by creating a standard pricing strategy. This not only draws customers but also gives the hotel an edge over its competitors. Revenue management is quite pervasive that hotels that do not implement it can find it hard to compete in the marketplace.
For instance, a hotel might conduct research that shows that customers or hotel guests who would otherwise lodge and take advantage of other services within the hotel are struggling with high prices and extra fees. As a result, the hotel can boost its competitive advantage by lowering prices on those specific services depending on the data.
Without a doubt, a large percentage of hotel management involves profitability and optimizing great financial results. And we can agree that both yield management and revenue management play important roles here.
Yield management is focused solely on optimizing the prices of a hotel room to maximize revenue, while revenue management has a wider range. It considers the revenue generated from other hotel departments such as restaurant and spa sales and the cost of bookings.
Yield management is often seen as a branch of revenue management. It can be extremely useful for effectively managing the business's core product – in this case, hotel rooms. However, the wider range of revenue management is also useful, helping to see the entire picture of the business performance and not just a product or arm.