CH.3 Rooms Division Operations - How hotels using yield management to maximize their profit

Yield management is the process of understanding, anticipating and influencing consumer behavior in order to maximize yield or profits from a fixed, perishable resource (Netessine, S. and R. Shumsky (2002), for example, the limited rooms within a hotel. Which means it is the techniques in allocating the right type of rooms and services to the right people at the right price and at the right time.

Yield management in hotel business can be summarized as some Cs: Calendar, Capacity, Cost and Customer. These elements are interdependent, which means yield manager should take account to all these effects like the peak seasons, inventory control and customers behavior

A simple formula: Profit = Revenue – Cost, to maximize profit, either increase the revenue or lower the cost.

Demand Forecast

To increase revenue, yield manager should get a good understanding on the demand patterns, for example, from year to year, month to month even week to week as the market demand changes rapidly nowadays. A good understanding on the demand pattern could be helpful on the inventory forecasting and control.





On the other hand, in order to anticipate the no show issues, hotel may usually allow overbooking of the rooms that exceed the actual capacity during the peak seasons as to compensate the lost on those who made reservation but no show. In case of no rooms available once customers arrived due to overbooking, hotels often maintain partnerships or some agreements with other hotels to utilize as alternate arrangements for overbooked customers.

Hotel may also try to influence customers’ behavior, for example, based on customers' demand levels and preferences, management is able to shift the demand of price sensitive but time insensitive customers from peak times to off-peak times by offering discount rooms, vice versa.

To control the costs, hotel management should have a good inventory management, forecasting in order to reduce the unused waste. Also, some maintenance procedures can be outsourced to the specialists like the window cleaning company.

Reference: http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-13622.html