One of the concepts in the hospitality industry that has sparked attention in recent times is Revenue management and Yield management. Are these terms same or what differentiates both? Lets have a look at it. Experts says that they are not quite same, but close. Their difference lies in technicalities and definitions.
Revenue management is the overall strategy, including in-depth analysis and forecasting. The idea of revenue management relates to yield management, which is a technique used to maximize revenue. Yield management is the actual price optimization part which means selling to the right person at the right time for the right price. Yield management generally is used for hotel rooms, airplane seats, rental cars, cruise ship cabins, and restaurant tables etc which are perishable products. Revenue Management strategies is different for each industries.
Hotel Industry Applications
A hotel room is a perishable product, and the number of hotel rooms is limited. As a result, customer satisfaction and pricing remain the most important dynamic variables, which are subject to Hotel Revenue Management. It is all about balancing demand and capacity by forecasting prices for the purpose of maximizing the effectiveness of hotels’ resources. If a hotel cannot take up sale for a particular night, that unsold hotel room will never be sold and the hotel is unable to pay back for those sales as it is not possible for a hotel to sell a room twice the following night to make up for a missed sale on the previous night. Yield management is a strategy used by many different types of companies in order to maximize the profit and it focuses on selling the right product to the right customer for the right price at the right time.
The revenue management is tied directly with the balance of demand and supply. While examining revenue management it is important to remember that revenue = rate × volume. This can be explained as during peak season,say when there is conferences or special events the demand can often times be greater than supply, a hotel can increase rates to maximize revenue. And during the off-season when demand is less than supply, in this situation a hotel should decrease their rates to maximize occupancy.
Inorder to determine staffing levels, purchasing, pricing, and to understand the future profitability of a hotel forecasting of room demand is important. For effective demand forecasting or revenue management strategies there are four components
1) Historical data – which include previous occupancy rate, average daily rate (ADR), revenue per available room (RevPAR), cancellation rate, the number of no shows, and the amount of walk-ins.
2) Current data – which includes occupancy, availability, group rooms, as well as forecasts for ADR and RevPAR.
3) Future data – which includes demand generators, the economy (local, state, and national), the addition or elimination of services, competitors.
4) Insight along with previous experience- which includes predictable and un-predictable factors (i.e. events, road construction, and weather).
In order to maximize revenue forecasting of information concerning the following are essential
1. Capacity Management – tries to solve the following Problems:
a) Controlling and limiting Room Supply
b) Balancing the Risk of Overselling Guest Rooms with the Potential Loss of Rooms arising from Room Spoilage
c) Determining how many Walk-ins to accept during the Day of Arrival
2. Discount Allocation – Involves restricting the Time Period and Product Mix Available at reduced or discounted Rates, and limiting Discounts by Room Type through encouraging Upselling
3. Duration Control – Places Time Constraints on accepting Reservations in order to protect Sufficient Space for Multi-Day Requests – “A Reservation for a One-Night Stay might be rejected, even though Space is Available that Night”
Few tactics the hotel can use to maximize revenue during high demand time:
>Close or restrict discounts
>Reduce group room allocations
>Raise rates to be consistent with competitors
> Apply the full price to suites and executive rooms
Few set of tactics a hotel could use to maximize revenue during low demand:
> Sell value and benefits
>Offer packages
>Remove stay restrictions
>Establish relationships with competitors
>Lower rates
How Vafion can help you in providing Revenue and Yield management Solutions?
Vafion is a leader in vacation rental technology and has experience in building tools such as Revenue Management System, Yield management Software for leading hotels and vacation rental companies across the globe. We also provide technology consulting and software development of Lead Management Systems, Pricing Strategy, Guest Profile Management Tools, Reservation Management System etc. We have been providing Business Intelligence solutions, Decision Making Solutions and Technology consulting exclusively to the Hospitality Industry particularly to the vacation rentals.
Let’s talk about your challenges in Revenue Management and Yield Management. Please drop your email-id and a message for our consulting team. We will contact you instantly.
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