Has the price as the date of reservation
it ever occurred to your mind, to consider that in the same plane you are in,
that every passenger has probably payed a different price? Excluding the facts
that there are different classes in the plane (Economic, business, and some
premium seats) and different demographical characteristics that matter (age,
handicap, etc…) we should notice that people have purchased their tickets with
different prices. This can be explained thanks to the varying rates each item
has. This often occurs on specific products that can be sold only once on a
specific day. Which is exactly the case for hotel rooms. Once the night has
passed, a hotel room that was empty, cannot be sold on a later day.
in order to maximize revenue, managers need to minimize wasted resources and
try to reach 100% occupancy every night. Yield management is one of the
techniques used to achieve perfect occupancy, and is the author of such variation
of product prices. In addition, it seems logical to simply fill all the rooms
at rack rate. However, it is nearly impossible to fill rooms without the use of
special package prices for each special condition.
simple terms, a hotel desiring to fill all of its rooms should start looking
for its customers early on. That way it has enough time to accomplish the feat.
Thus, it is recommended for hotels to promote their rooms to be booked in
advance, by pricing them at lower rates. Gradually increasing the price as the
date of reservation approaches D-Day. In some cases, in order to completely avoid
empty seats, the airlines have development a unique method, allowing for
extremely low prices, for last minute purchases on the remaining seats. Also,
promoting sales to large groups of customers, thanks to the use of more
favorable pricing to group members should fill up the hotel’s rooms faster too.
The portion of every different selling prices, is also be called the sales mix. Managers must master the art
of yield management, if they are to achieve a favorable sales mix.
if a manager is to determine the most favorable sales mix, they need to acknowledge,
in the form of forecasting future sales. There are some important notions to
take into consideration. To begin with, all guests do not offer the same yield.
In this case, it is evident that in general, the business bookings are more
profitable than the leisure client’s bookings. So what hotels usually do, is
they leave some free spots for business clients and then fill them up with
to successfully forecast and manage and select when to stop selling to a
specific segment, one must first project the total number of bookings a
reservation would receive with out taking the room limitation to account.
Afterwards, the managers should determine the target segment sizes and estimate
an average. Once that step is done, the managers can book their free rooms,
according to those numbers. Either by filling their rooms with business
customers, or filling up with other customers and turning down others. Thus
selecting a slightly varying sales mix, according to the benefits of the
establishment. Note that it is also crucial to train personnel to accept the
notion of turning away potential clients away, in hopes of achieving a better
yield management, by accepting a more favorable customer with a better rate.
Not to mention that there are always risks involving in turning away customers
for a certain day. The higher yield booking may never show up, or even a client
may cancel their stay, which can even throw a hotel in distress.
just like any measurements and calculations, there are some limitations to not
omit. The eventual possibility of committing an error, or the inability to
confide to the environment at a given moment, means that the results found
thanks to the calculations is to be taken with a pinch of salt. To interpret
the research and calculation results, common sense is crucial when it comes to
taking action shortly after finding out the results. That is because management
actions may affect statistics. Error sources include: changes in the economic
environment, exchange rate fluctuations, security standards, one-time events,
decision can take the form of simple such as deciding whether to open or close
certain rates, or decide whether discounts are to be offered by the sales
department at specific moments which can be from an hourly or daily level to a
monthly level. Eventually, there will always be specific cases, that might not
have been predicted by the managers who wrote the hotel policies, some
exceptions that will require brainpower and common sense to solve. In my
opinion, the solution is employee empowerment. Such empowerment could allow for
the hotel to benefit from a situation which would normally result in loss, in
the form of displacements, had it followed the rules, could be avoided.
forecasting, managers have another tool to complete the “perfect fill”. A
practice, also known as, overbooking, is being used by most hotels. It has been
ethically criticized for understandable reasons. The practice consists of accepting
guest booking in spite of having all rooms already booked. It lies on the fact
and probability that there will be no-show customers, or cancelations, that way
the hotel doesn’t have any empty rooms when the day comes. Of course, there
will be risks when it comes to performing such a gloomy action. Which means
that hotels and airlines are to assume all responsibility when things go sour.
Pledges from hotels have surfaced promising no such act as overbooking. This
also means that hotels can be brought to court then penalized. They are also
obliged to find comparable accommodation to walked customers.
fact that Yield management is a crucial task for managers to undertake, and
should not be neglected is evident. Nevertheless, there are cases where there
can not be much to be done. Such as for smaller establishments, or for hotels
that do not reach a demand of over 100%. It is an effective tool to maximize
profit, and for the aforementioned reason, it can be seen as an advantage for
even the customers’ perspective, in the sense that more profit for a hotel,
allows it to be more competitive. Which in turn means that it should offer
better service and value for its price.