Assignment on Tourism Marketing
By :Anita Bhochhi Bhoya
EURO MBA - Marketing
----------Yield Management Case
• You are the regional Marketing Vice President of a well-known hospitality group and your President’s (your boss) daily question is: Do we need to sell a room immediately at a discounted price in order to ensure its occupancy or should we take the risk to wait for a customer to go in our hotel and is ready to pay the full price?
• Your president asks you about the pricing policy in the group. In fact, he has an idea: He wants you to develop a Yield Management program to increase revenue in practicing a multiple price policy.
• Your pilot (main) hotel is a two-star hotel of 400 rooms called “World Nature,” in fact this hotel has a good occupancy rate of 70 to 90%, but its revenue is poor compared to its OR (Occupancy Rate). Average prices of the rooms are from 55 to 77 €.
• Explain what YIELD MANAGEMENT with what you already know is and with a search on the internet and what are its differences with a price list.
Yield management, also known as Revenue Management, is the process of understanding, anticipating and reacting to consumer behaviour in order to maximize revenue or profits. In another word, Yield management is the umbrella term for a set of strategies that enable capacity-constrained service industries to realize optimum revenue from operations. The core concept of yield management is to provide the right service to the right customer at the right time for the right price. That concept involves careful definition of service, customer, time, and price. The service can be defined according to the dimensions of the service, how and when it is delivered, and how, when, and whether it is reserved. Timing involves both the timing of the service delivery and the tining of when the customer makes known the desire for the service, whether by reservation or by walking in to the business. Price can be set according to the timing of the service, the timing of the reservation, the type of service, or according to other rules that seem appropriate. Finally, the customer can be defined according to demand characteristics relating to the service, the timing, and the price. The ideal outcome of a revenue management strategy is to match customers' time and service characteristics to their willingness to pay-ensuring that the customer acquires the desired service at the desired time at an acceptable price, while the organization gains the maximum revenue possible given the customer and business characteristics.
Enterprises that use yield management periodically review transactions for goods or services already supplied and for goods or services to be supplied in the future. They may also review information (including statistics) about events (known future events such as holidays, or unexpected past events such as terrorist attacks), competitive information (including prices), seasonal patterns, and other pertinent factors that affect sales. The models attempt to forecast total demand for all products/services they provide, by market segment and price point. Since total demand normally exceeds what the particular firm can produce in that period, the models attempt to optimize the firm's outputs to maximize revenue.
Optimization can help the firm adjust prices and to allocate capacity among market segments to maximize expected revenues. However, the optimization attempts to answer the question: "Given our operating constraints, what is the best mix of products and/or services for us to produce and sell in the period, and at what prices, to generate the highest expected revenue?"
The lodging is the one where yield management is used most heavily. Basically, yield management is an inventory management system that allows hoteliers to forecast supply and demand and adjust their pricing strategies accordingly. Yield management also plays an integral role in determining the size of group blocks, group cutoff dates, preferred arrival/departure patterns, reservation restrictions, and food and beverage guidelines. So, Hotels use Revenue Management to calculate the rates, rooms and restrictions on sales in order to best maximize the return for the property.
So, the yield management is different from the price list because the price list is fixed one while the yield management is variable and flexible. That is with the price list the firm can’t optimize there revenues while the yield management can maximize there expected revenues during the peak seasons.
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• Yield Management: Most wanted prices are from 55 to 77 € depending on seasons. You will try to find the best global revenue for the hotel knowing that in the n°3 question, 41% of sales are at 55€ with a occupancy rate of 81%. In the n°4 question 59% of sales are at 77€ with an occupancy rate of 90%. (LOOK AT THE TABLE BELOW AND FILL IT)
• Calculate Global Revenue
• Calculate Medium Revenue
• Calculate REVPAR (Revenue Per Available Room)
• Calculate the number of rooms according to their prices
It’s ALL THE BLANK THAT YOU MUST FILL
World Nature Hotel (two-star hotel, 400 rooms) # of Rooms at 77€ # of Rooms at 55€ Total # of Rooms sold Occupancy Rate per Room Global Rev. In € Medium Revenue REVPAR
Question #
1. Max. Rooms less # 80 280 360 90% 21,560 59.89 € 53.9
2. Max. Rev./Room 248 40 288 72% 21,296 73.94 € 53.24
3. YM best OR & Rm to increase Global Revenue 191 133 324 81% 22,022 67.96€ 55.06
4. YM low price until late with OR of 90% with max. price 212 148 360 90% 24,464 67.96€ 61.16
Calculation:
1.Max. Rooms less #
REVPAR:21,560/400=53.9
2.Max. Rev./Room
REVPAR: 21,296/400=53.24
3.YM best OR & Rm to increase global Rev:
Total # of rooms sold = 400 x 81/100 = 324
# of rooms at 55 euro = 324 x 41/100 = 132.84 = 133
# of rooms at 77 euro = 324 – 132.84 = 191.16 = 191
Global Rev in euro = (77 x 191) + (55 x 133) = 22,022
Medium Revenue = 22022 /324 = 67.96
REVPAR = 67.98 x 81%(22,022/400) = 55.06
4.YM low price until late with OR of 90% with max piece:
Total # of rooms sold = 400 x 90/100= 360
# of rooms at 77 euro = 360 x 59/100 = 212
# of rooms at 55 euro = 360 – 212.4 = 148
Global Rev in euro = (77 x 212) + (55 x 148) = 24,464
Medium Revenue = 24464/360 = 67.96
REVPAR = 67.98 x 90%(24,464/400) = 61.16
• 3 )What is your first conclusion?
Here, I think the yield management is very good as we are getting profit from this calculation.
• The General Manager thinks that you can have a better chance of optimizing prices (prices for Business class rooms, prices for groups, prices for individuals…) do you think Yield Management is the good response?
Yes of course, i think the yield management is the good response as it is variable as well as flexible. It is sure that it will give good profit especially during the season time. Good yield management maximizes (or at least significantly increases) revenue production for the same number of units, by taking advantage of the forecast of high demand/low demand periods, effectively shifting demand from high demand periods to low demand periods and by charging a premium for late bookings. While yield management systems tend to generate higher revenues, the revenue streams tends to arrive later in the booking horizon as more capacity is held for late sale at premium prices. But the things is the manager should have the good knowledge on the yield management, as “It is currently a supplier's market. Rate and occupancy will continue to increase over the next few years.”
• What are the different constraints a hotel manager is confronted doing his price list?
One of the major effects of yield management is more consistent pricing from sales manager to sales manager, hotel to hotel, and competitor to competitor. Translation? Less negotiating power and rate flexibility for the meeting planner.
Demand drives hotel pricing. Hotels do not have consistent margins; their product is perishable and its shelf life is one day.
Many variables affect pricing; the key is to be flexible and knowledgeable about your meeting and your group. As firms faced with lack of pricing power sometimes turn to yield management as a last resort. After a year or two using yield management, many of them are surprised to discover they have actually lowered prices for the majority of their opera seats or hotel rooms or other products. That is, they offer far higher discounts more frequently for off-peak times, while raising prices only marginally for peak times, resulting in higher revenue overall. By doing this, they have actually increased quantity demanded by selectively introducing many more price points, as they learn about and react to the diversity of interests and purchase drivers of their customers.
