Yield Management by Distribution Channel
An Important Aspect of a Hotel's distribution Strategy
By Bhanu Chopra CEO, RateGain | September 24, 2017
The hospitality industry is one of those industries where the people running the show of hotel business cannot lay back and earn easy revenues. Revenues of a hotel may fluctuate like weather depending upon a number of factors like demand, competitor rates, climatic conditions, security & political situation, holiday season, events etc. Revenue managers are always on their heels to ensure that the hotel operates at maximum occupancy throughout the year. Every empty hotel room is a loss of revenue as the operational cost of running a hotel remains broadly the same for 50 customers or 100 customers.
Yield management is a variable pricing strategy based on the theory of supply and demand: guests pay different prices for the same room, depending on a variety of factors like time of booking, demand, and supply, the occurrence of any important event, competition pricing, etc. Therefore, hotels change their rates accordingly to get more incremental value.
In simple words, yield management can be termed as the practice of extracting the most revenue from each room under given circumstances. In this article, we will discuss about the importance of the distribution channel in yield management.
The primary factor that drives yield management in the market is demand. As per the demand rule, hotels slash prices in times of low demand to increase the number of bookings to break even operational costs. However, the real game is when the demand is high. That is when hotels have both their hands in honey as they sell the inventory at marked up prices. This practice lets hotels earn handsome revenues on every booking and help them make up for low revenues in times of low demand.
There are various occasions when a hotel can sell inventory for inflated prices. For e.g. weekends see more turnout than weekdays (for non-business hotels) and it is the other way round for business hotels. Similarly, extended weekends see a huge rush as compared to normal weekends. Keeping such instances in mind, including competitor pricing, hotels tweak their room prices according to a surge in demand. More the demand, the higher the price and vice- versa.
Yield management has been the backbone of the hotel management for long. In yesteryears, yield management was only linked to revenues. It was primarily the onus of sales and marketing departments of the hotel to sell rooms at the highest rate undermining the injuries it could inflict on the long-term revenue and reputation of the hotel. More the revenue, higher the yield. Achieving the highest rate was considered yield optimization.