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уторак, 16. фебруар 2010.

Fundamentals of YIELD Management


Anyone who has booked a flight is familiar with yield management. In fact, yield management was conceived by American Airlines in the late 1970’s as a result of deregulation. American Airlines saved an estimated $1.4 billion and earned a profit of $893 million from 1989-1992 by using yield management techniques. By analyzing past trends and the competitive landscape, the airline industry strives to keep its planes as fully occupied as possible, thus increasing or reducing fares based on the day of the week and time of the year. The goal is to not only maximize revenue during periods of high demand, but also to ensure the greatest amount of revenue is realized during non-peak times, thereby greatly increasing overall profit. Because of this
technique, yield management can actually alter the behavior of consumers. For example, vacation travelers that are not necessarily time sensitive will alter their travel plans and fly on days of the week that are less expensive.

The illustration shows the concept of yield management for an
airplane.

While selling each seat for the maximum amount (A) would generate the most revenue, the reality is that only 25 of the seats will be purchased at that price (B). Using yield management by offering early or bulk purchasers discounts on full fares will result in greatly increased revenue (C) even if every seat isn’t sold (D).

The hotel industry also sets a good example of how successful yield management is exercised. For instance, resort hotels may set their rates at a premium during peak seasons and offer attractive reduced rates at non-peak times. A downtown hotel that focuses on business travel may actually offer specially discounted packages over the weekend to increase non-business related occupancy.

There is a clear set of attributes that determine how successful yield management will work in any particular industry.

The criteria for an industry considering yield management are:
− Perishable Inventory
− Variable Demand, Fixed Capacity
− Sales via Reservations
− Multi-Pricing Capability
− Low Variable Costs
− Pricing is a Powerful Driver

Perishable Inventory
One of the criteria for implementing yield management is that the inventory of the item being sold or service being performed is perishable.

Variable Demand, Fixed Capacity
Yield management is effective in industries that have a combination of variable demand. For example, peak periods of activity such as weekends vs. weekdays, and fixed capacity, which means the inventory available for sale at any one time is constant.
Most spas have some sort of fluctuating demand, whether they are in a seasonal resort or day spa, and nearly all spas have a fixed number of rooms. The combination of these two factors can be greatly influenced by a yield management strategy.

Sales via Reservations
Industries enhanced by yield management strategies conduct the majority of their business through advanced reservations.

Multi-Pricing Capacity
Another aspect to consider is ability to segment customer base. This means different types of guests are willing to pay different prices at different times. For example, a resort hotel may offer preferential pricing to local residents during nonpeak periods.

Low Variable Costs
So an increase in utilization, even at lower rates, will have a positive affect on overall margins because of the low variable costs and generally high gross margin per service.



Pricing is a Powerful Driver

The last attribute to evaluate is whether or not price will influence purchasing behavior. Because price can increase purchasing, strategies can be developed that offer price reductions in non-peak periods, thereby influencing overall revenue.

YIELD MANAGEMENT TECHNIQUES
This section will describe the various ways a hotel operation can implement yield management techniques, including the issues that must be considered and how they can impact the success of a specific strategy.

Dynamic Pricing
Dynamic pricing is the technique of altering the price based on capacity, time or both, similar to the model employed by hotels and airlines. For example, an airline will typically offer a percentage of its fares for a reduced rate. Once those lower fares are purchased, only higher rates will be available until the plane is completely sold out. During a specific time-frame, such as the holiday or high traffic season, the rules can be constrained. No low fares are offered because the demand for seats during that time period, guarantees all inventory will consumed at a premium price.
In a hotel, services can be offered at a reduced price point during non-peak times to encourage an increase in volume. This can be done by creating a menu with price ranges for the services versus set prices. The lowest price would be applied during nonpeak times, while the highest price would be for peak periods. While on the surface this sounds intuitive, it can be a very complex balance between price reductions and what the subsequent increase in volume needs to be to positively impact the overall margins.
Let’s take a simple example of a room that costs $100 with a margin of 25%. If we were to lower the price by $20 during non-peak hours, and assume that the 25% margin does not scale down proportionately with the price (since the bulk of variable cost associated with a service is salary), a hotel would have to sell 5 rooms at the reduced price to match the margin of a single room performed at full price. One alternative to a reduction model would be to increase the price of room during peak periods and keep the ‘standard’ price available at all other times.
For services with higher margins, the impact of a price reduction is less severe to the overall profit. As such, those services can be discounted to stimulate activity in non-peak periods with greater success.
The key to this approach is a thorough understanding of the margins on services and the impact pricing changes will make on the total number of services sold. Without this clear understanding, it is possible for a hotel to increase revenue but decrease overall profit.

Dynamic Availability
Increased profitability can also be achieved by managing the mix of services sold. By altering the types of services offered during peak periods, a hotel overall margin can greatly increase without a significant change in revenue or overall capacity. If a hotel is at capacity on weekends, one alternative for increasing profit would be to offer higher margin services during those times. This technique is known as dynamic availability and is an effective approach to selling higher margin rather than lower margin services during peak periods.
This technique is somewhat similar to how airlines limit certain fares during peak periods. They understand high demand will consume their capacity without having to reduce pricing significantly.

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