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  25 Jun 2021
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Yield Management Benefits in Hospitality Industry


One of the most important pricing tactics in the hotel sector is the yield management, which entails strategic inventory control through dynamic pricing. One of the most significant benefits of yield management is that it enables hotels to maximize income.

As any revenue manager knows, knowing, influencing, and anticipating consumer behavior is critical to optimizing revenue. It’s all about timing, offering the right product to the right buyer at the right moment. Because one of the vital concerns of hoteliers is occupancy, it is critical to grasp how to employ yield management to your advantage.

Hotels can harness the power of automation in this way, transforming the way hoteliers think about hospitality. Hotels connected and open to integrations can provide an excellent guest experience while still controlling revenue streams.

This article will explore what yield management means and its benefits under the subheadings of how it increases booking patterns, eliminates pricing errors, effective segmentation of customers, understands booking patterns, and increases value proposition.

What is Yield Management?

Yield management is a pricing approach used in the hospitality sector to get the most money out of perishable inventory like hotel rooms or airline seats.

This is a strategy based on the concept of selling the right product or service to the right client at the right time for the right price. When it comes to the hotel industry, yield management simply means selling the fitting room at the right price to the right customer to optimize income.

Yield management is a concept that is comparable to revenue management. However, there is a narrow line that separates the two. The revenue earned by room occupancy or room rates is the focus of hotel yield management. Revenue management, on the other hand, encompasses much more than just occupancy.

Read for a more in-depth understanding about what is yield management .

What Are The Elements Of Yield Management? (Secondary Keyword)

The following components are necessary for creating effective hotel yield management strategies:

1. GROUP ROOM SALES

Hospitality businesses can forecast group behavior and arrange accommodations in group bookings accordingly by looking at group booking data. According to past trends, the group's booking pace represents the pace at which it is being booked.

Expected group business helps in keeping an eye out for recurrent group trends, forecasting market demand accordingly, and then adjusting sales tactics.

The lead time for group reservations refers to how far ahead of a stay the reservations are made. This is crucial in deciding whether to take on another group and how much to charge to book them.

When a hospitality business receives group business requests at the expense of the individual guests, transitory business is displaced. Profitability issues and a negative reputation could result from this.

2. TRANSIENTS OR INDIVIDUAL ROOM SALES

To comprehend how recent bookings compare with past and predicted rates, the front office staff should keep an eye on the booking frequency and lead time of individual customers. This element helps keep a tab on so much revenue generation potential and shouldn't be underrated.

3. FOOD AND BEVERAGE ACTIVITIES

Even if our property is not close to a conference, it may still receive referrals from convention-displaced individuals and small groups, which might have a significant influence on the earnings.

This element is a result of people potentially feeling the need to purchase food, drinks, or other refreshments before, during, and after a convention, conference, or seminar.

4. SPECIAL EVENTS

During major events, hotels may elect to limit room rate discounts or establish a minimum duration of stay in order to capitalize on growing demand.

A family that intends to host all of or most of its wedding guests at your property may feel more compelled to do so when you offer huge discounts, especially for them. Be prepared for these kinds of events and be ready to satisfy your guests to the best of your ability.

Benefits of Yield Management

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There are numerous benefits to employing yield management in hotels, including improved booking patterns, a better understanding of booking trends, fewer pricing errors, and a better proposition of value. Let’s take a closer look at the benefits.

  • Increase Booking Patterns

Machine learning and advanced analytics have changed the way people think about hospitality throughout the years, allowing yield management to evolve. Because revenue is likely the essential worry for hoteliers, it’s vital to remember that the real benefit of yield management is that it helps hotels improve income by increasing booking patterns, even when the hotel isn’t fully booked. An excellent yield management program effectively increases booking patterns, which births more visitors and improved revenue.

  • Eliminate Pricing Errors

Revenue managers and hoteliers may eliminate human mistakes by setting rates based on demand forecasting rather than predicted booking patterns, thanks to an innovative yield management software system. This management program enables you to move hotel management into the future by using technology to automate procedures. For example, you can determine the optimum hotel rates for the period based on precise data if you have a clear set of data from software integrations.

  • Effective Segmentation of Customers

Any business plan must include market segmentation, and an excellent forecast can aid in capturing the nuances of this segmentation. In addition, booking trends and patterns, intentions to book, and guest preferences can reveal some of these intricacies.

Hotels profit from various guests throughout the year, including lone travelers, family groups, and business guests. Hotels can use this method to determine which segments they miss out on and adjust their marketing strategy accordingly.

  • Understand Booking Patterns

Customers are not all created equal. Some people book on the spur of the moment, while others plan months in advance. With this type of management system, hoteliers can change pricing to booking behavior if they have a thorough grasp of booking patterns. For example, you could charge higher pricing to last-minute bookers in exchange for reduced pricing to those who book ahead of time and make sure to cover fixed costs. Hotels currently provide lower costs during the off-season and higher prices during the peak season. Still, you may modify those prices with this variable pricing system depending on when the customer books.

  • Increase Value Proposition

Consumers’ perceived value is the amount they believe a thing is worth to them, and they are prepared to pay more for scarce items. In the hotel industry, the same principle applies: customers are willing to pay more during peak season since the perceived value is higher. You can construct this perceived worth in clients’ minds by using a variable pricing structure, enticing them to book farther in advance, and therefore using marketing methods to help enhance this perceived worth.

  • Drawbacks of Yield Management

One negative is that because judgments are based on data and forecasts, habitual clients do not receive special treatment. Another downside is that if the system does not anticipate correctly, it will not assist in maximizing revenue because unforeseen events such as pandemics and natural disasters cannot be predicted.

Hotels must acquire data, organize it, and collaborate with people in authority to put it into a pricing system to forecast accurately. However, no prognosis can be guaranteed to be 100 percent correct. Because there are so many elements that drive demand, one of the downsides is that revenue estimates may not stand up against actual market trends, putting revenue at risk.

How to Calculate Yield Management?

The formula revenue accomplished and prospective revenue may be used to determine yield management in the simplest method possible.

For instance, your potential revenue is $30,000 if your vacation home is open every night for a 30-day period and your highest rate is $500 per night. However, you only had 20 nights reserved for this month, and since it's the off season, they paid the lowest rate of $350 per night, resulting in an income of $14,000 for the month. Your yield is 14000/3000, which is 46.6%.

You may alter rates in accordance with the larger picture by comparing your yield. You will be able to modify your rates and increase your overall annual earnings as you gain a clearer understanding of the demand for your property and the factors that influence it.

Examples of elements that might affect your rates include:

  • Local activities that attract visitors
  • How many other rental homes there are nearby.
  • How prospective visitors view your home.
  • Adjustments to the regional economy.
  • Historical perspectives on predictions of the future
  • Off seasons as opposed to peak seasons.

Understanding Price Elasticity and Perceived Value

The idea of price elasticity, or the notion that various populations may react unpredictably to pricing, is one of the characteristics of supply and demand.

It's the "willingness to pay" of the consumer, which doesn't necessarily align well with the conventional supply and demand theory, which holds that higher prices diminish consumption.

As it relates to the perceived value of the commodities being purchased, price elasticity can have an impact on hotel rates. Because of this, upscale hotels may maintain low supply and high pricing without necessarily lowering demand.

However, perceived value is difficult to quantify and won't appear in the report. In addition, there are more options for lodging available to visitors now than ever before.

Travelers now have access to a greater range of alternatives because to the growth of alternative housing, making it easier for them to pick the price and service that best meets their needs.

There is more price elasticity since customers may simply swap comparable accommodation types, facilities, and properties. Getting what customers want without spending more than they desire is easier.

Increased competition and pressure to price more fairly result from increased options. Nowadays more than ever, hosts must promote their properties with captions and images that turn lookers into bookers and present the right pricing to the right consumer on the appropriate channels at the right time.

Final Thoughts

The benefits of yield management significantly outnumber the drawbacks. Of course, it’s not an ideal method because there’s always space for error when relying on machines and forecasts. As far as we can tell, hotels cannot forecast the future, but it is becoming increasingly possible with the correct technologies. Hotels may improve revenue with minimum expenditure by employing yield management tactics.

Furthermore, by obtaining the most terrific price, visitors are prepared to pay based on their booking preferences, this pricing strategy helps to reach diverse parts of the market better. This enables hoteliers to concentrate on profitable bookings rather than those that simply cover expenditures. As a result, a good yield management approach can assist hotels in maintaining a consistent revenue stream throughout the year.

Booking Ninjas is perfect for Yield Management

Our platform is uniquely designed to improve the quality of your experience as a property manager and that includes your revenue. Excellent yield management is an important part of the Booking Ninjas experience and we want you to have it.

Schedule a call with us to get started.