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.

A Practical Guide to Hotel Marketing Budget Planning

by Josiah Mackenzie on September 8, 2009

Many hotels are working on their marketing budgets right now. I have received multiple requests for advice on budgeting this week, and wanted to put together this practical, straightforward guide. We will examine the biggest factors to consider when planning your Internet marketing budget, 11 major categories hotels should budget for, and finally 3 basic hotel budgeting approaches.

This advice comes from my own real-world experience as the marketing manager or consultant for dozens of leading organizations around the world — and also as the owner of three companies. When your own company’s money is on the line, you tend to take a very pragmatic approach to marketing, and that’s what I intend to do in this article.

Factors to consider while planning your hotel marketing budget
Many industry professionals recommend you start with the industry average marketing budget. I disagree. Every business success I’ve been involved with has been contrarian. If you spend your resources like everyone else, you’ll get average results. Breakthrough campaigns often require unusual approaches. You decide what works for you.

Be aware of industry standards, but don’t feel bound by them. It can be helpful to know the average prices hotels are paying for individual marketing tactics — if only for a point of reference.

Start with an internet marketing plan for the year. Sounds simple, but true. If you don’t know how you want to spend your money, calculating the amount will be extremely difficult! Some tactics to include are explained below.

A good budget will take into mind past results your company experienced — but will also realize that things change. What worked five years ago may not work over the next five years.

Remember your primary business objective. Do you want more overall sales, to build your brand, or consolidate your profits? Each requires a different approach, which we’ll cover later.

Know your marketing priorities. Separate the “musts” from the “wants.” So many things can happen along the way that cause you to deviate from a plan made months ago. Having priorities ensures the essential gets done.

Identify which marketing strategies you don’t need to implement. There are a seemingly unlimited number of marketing tactics you could try, so identifying the non-essential helps you focus and cut costs. Every hotel doesn’t need to do every tactic out there.

Be aware of trends, and budget appropriately. Some organizations on annual budget cycles approve money for trends way too late — and missed the boat. Make sure the resources that you’re dedicating to a tactic or strategy will be valid 1, 2, 5 years from now. You don’t want to outdate yourself.

I personally recommend most hotels abandon all traditional marketing and advertising in favor of any Internet focused strategy: 75% of budget for web-based communications, 25% for PR. You can discount this advice as someone who has worked in web marketing his entire career, but the numbers don’t lie. In the campaigns that I’ve been involved in, we have achieved phenomenal return on investment… and received media coverage an organization our size shouldn’t normally be entitled to.

Separate your marketing costs into two categories. Initial development costs include research and strategy development, website design, content creation, marketing systems set up. Ongoing expenses and maintenance include e-mail marketing, pay per click advertising, search visibility improvement, website maintenance and development, consulting fees, and analytics and tracking analysis.

Ensure that you are sufficiently capitalized. Many marketing tactics will take several months to show results, and often the best results are obtained by sticking with your marketing plan month after month — for the next 12 months. You may have to adjust your marketing plan to enable this, but make sure your budget is sufficient to accommodate consistent execution.

Be aware that your most important marketing investments may not even be under the traditional ‘marketing’ budget category. For example, introducing a fabulous collection of guest amenities can cause your guests to promote your hotel for you. At the end of the day, your guest experience is the marketing. Money you spend to create an amazing guest experience at your hotel has some of best ROI.

Finally, think of your marketing program as an investment. If you are promoting properly, every dollar that you spend on marketing will come back to you many times over. Good hotel marketing budgets are never an expense, and it’s important we remember this.



11 most important hotel marketing budget categories

Staffing expenses. Whether it’s a content writer or social media marketing assistant, a major shift in marketing strategy usually requires a shift in HR priorities. These salaries can be a big expense. But it’s important to remember that good employees are always free: they earn your company more money than you pay them in salary.

Training fees. I personally spend a large portion of my money to train and educate my employees. This includes everything from paying them read articles and important books to registration fees for workshops and seminars. Your people are one of your most important resources, and an investment into making them more effective marketing professionals will always pay off.

Consulting fees. There will always be times when you cannot do everything in-house. If you have a short-term assignment, it can make sense to bring in outside expertise to help. Look at your Internet marketing plan and budget for this type of help appropriately.

Website optimization. The vast majority of hotels have at least a halfway decent website up. The big challenge is making sure it runs well: turning browsers into bookings. This is website optimization, making sure your website sells well and is easy to find in search engines. It’s an ongoing process, but your biggest investment will be at the start — having a professional analyze and make the changes.

Search visibility improvement. Earning top rankings in search engine results is important for bringing new visitors to your website. It needs to be an ongoing part of your Internet marketing campaign: both to improve position and to keep up with competitors that are doing the same thing. Top budgeting priorities for hotels include adjusting the website for important keywords, and building links through various tactics.

Pay-per-click advertising. This is one of the only advertising methods I recommend most hotels budget for. The flexibility and return on investment can be impressive. You’ll need to budget for campaign management, and the actual clicks that you purchase from search engines. This can cost several thousand each month, but the return on investment is typically much better than other advertising options.

Online reputation management. I tend to talk a lot about this on this blog, and you are probably aware, this falls into two major categories: monitoring your Web presence, and proactively encouraging positive content. Monitoring expenses include software and/0r someone to scour the web for data. Reputation building requires the development of a savvy outreach program.

E-mail communications. E-mail software is usually a relatively small expense, so your investment in e-mail marketing will be in people. Specifically, two types of people: the content writers and the marketing specialists. E-mail is a writing-intensive medium, so you need to allow someone to spend the time to develop this content. The marketing expertise is important to make sure your communications are effective — reaching the right people and generating the right response.

Content development. This includes all of the information you publish on and off the web. It includes blogs, websites, articles, and more. Many hospitality companies hire outside freelance journalists to help them with this. The good news is that much of it can be re-purposed for other formats.

Media production. Producing high-quality photos and videos of your hotel is more or less a one-time expense, but very important for future marketing efforts. You can reuse great photography and videos in many ways, online and off.

Press relations & media outreach. This category includes outbound communications such as press releases and media kits, the development of content that interests the media, and relationship building with journalists and media outlets. Even for mid-sized properties this can be a full-time job — but the return can be excellent. When your hotel gets positive coverage in the media, you get credibility and increased awareness that you cannot buy. This is the reason I spend a full 25% of my marketing budgets on media relations. This figure is typically higher if you are a new business.

3 marketing budgeting approaches I’ve observed
The ‘increase overall sales’ hotel budget. This strategy is often used by companies that are brand-new and want to get the word out. In this case, the budgeting focus is on tactics that bring in immediate new sales now. As long as the campaign is profitable, there is less focus on low cost marketing, and more priority on high volume. Advertising and media relations take priority over content-based tactics.

The ‘build our brand’ hotel budget. This strategy is used for hotels that want to establish a great reputation and word-of-mouth. The budget will reflects this with low cost, but labor-intensive content marketing tactics. You either need to have a great team of people in house, or hire an outside agency to develop this. The great thing? Once the campaign is developed, your ongoing cost is usually quite low.

The ’save our profits’ hotel budget. Several older, established hotels I’ve worked with seem to be on marketing cruise control. They already have an outstanding reputation among their target audience, and they’re not in a big hurry to try new things. This can be one of the cheapest strategies, but also the least likely to increase sales.The big challenge here is to make sure their online presence matches their great off-line presence. Hotels using this strategy may invest in guest relationship management tactics such as e-mail. The spending priority is more on people that can manage this, and less on new technology.

The hotel marketing budget approach I recommend
As mentioned earlier, companies I own or manage have obtained excellent results through a hybrid online communications and media outreach system.

But every hotel and organization is different. You need to take into consideration factors I described earlier, along with your hotel’s unique priorities, and put together a budget to meets your needs.

10 najvećih hotelskih lanaca u svetu

Prosečne cene soba u evropskim hotelima

Holiday Inn Beograd, dobitnik priznanja Torchbearer

REVENUE MANAGEMENT – Definicija i osnove

Ovako glasi osnovna definicija Revenue Management-a:

‘’Selling the Right Room to the Right Client at the Right Moment at the Right Price’’, odnosno ‘’Prodati odgovarajuću sobu, odgovarajućem klijentu, u odgovarajućem trenutku, po odgovarajućoj ceni’’.

U međuvremenu je dodato i sledeće:

‘’On the Right Distribution Channel with the best commission efficiency’’, odnosno ‘’Preko odgovarajućeg distributivnog kanala, uz najefikasniju proviziju’’.

Revenue Management (RM) nam omogućava da u odnosu na obim potražnje optimizujemo popunjenost i prodajne cene, sve u cilju maksimizacije prihoda. Revenue Management je princip po kome ćemo sobu danas prodati po jednoj ceni a već sutra, kada očekujemo veću potražnju po drugoj, višoj.
Najveći izazov u RM-u je kako pronaći način za prikupljanje informacija o tržištu, da bi se moglo reagovati proaktivno a ne reaktivno. Pouzdane informacije su neophodne za pravovremeno planiranje distribucije prema odgovarajućem klijentu u odgovarajućem trenutku po odgovarajućoj ceni.
Važno je prihvatiti da Revenue Management nije aktuelan isključivo u periodima visoke popunjenosti, jer on može značajno stimulisati potražnju u vreme kada je niska i može sprečiti takozvani cenovni kanibalizam, odnosno prodaju po cenama koje su ispod praga isplativosti.
RM je dugoročna strategija, koja usaglašava funkcije prihoda i profitabilnosti.

Revenue Management se u poslovanju hotela primenjuje zbog:
· činjenice da sobu koju ne prodamo danas, nikada više nećemo prodati (u tom danu)
· podsticanja klijenata da što ranije rezervišu sobu
· isti proizvod (sobu) možemo prodati po značajno različitim cenama
· tražnje koja evoluira
· bolje segmentacije tržišta
· sigurnosti da ćemo pokriti operativne troškove

Primenu Revenue Management-a su započele Avio kompanije ( prva Pan American, sedamdesetih godina). Danas je sve više industrija koje aktivno primenjuju RM:
· Hoteli
· Rent a car kompanije
· Železničke kompanije
· Pozorišta i Bioskopi
· Restorani (od skoro)
· Trgovinski lanci ( koji promovišu sniženja u periodima kada je potražnja slabija)

Merenje performansi hotelskog poslovanja - REVPAR i GOPPAR

Autor teksta:
Bojan Popivoda
Savath Hospitality Management

U prošlosti se najčešće, rezultat hotelskog poslovanja merio stepenom popunjenosti kapaciteta.

Nešto kasnije, u obzir se uzimao i indikator ADR (Average Daily Rate) – prosečno ostvarena dnevna cena sobe.

Nakon toga, sa pojavom Revenue Management pristupa, kao najznačajniji indikator posmatra se REVPAR (Revenue Per Available Room) – prihod po raspoloživoj sobi.

U današnje vreme, ključna reč je GOPPAR! U čemu je prednost ovog indikatora ključnih performansi poslovanja u odnosu na REVPAR?

Najpre, razjasnimo definicije oba navedena indikatora:

REVPAR = (Rooms) Revenue / (per) Available Rooms, ili,

REVPAR = ADR (average daily rate) x Occupancy %

i,

GOPPAR = GOP (gross operating profit) / (per) Available Rooms

Osnovna razlika između ova dva indikatora je što GOPPAR uključuje i operativne troškove poslovanja. Konkretno, REVPAR podrazumeva isključivo odnos ukupnih prihoda (od prodaje soba) i ukupnog broja raspoloživih soba, pa se prilikom upoređivanja poslovanja više hotela, vrlo lako može steći pogrešan zaključak.

Primer:

Pred nama je zadatak da uporedimo uspešnost poslovanja dva hotela A i B koji raspolažu sa po 100 soba. Ukupan broj raspoloživih soba u oba hotela je 100 x 365(dana) = 36.500.

Hotel A ima godišnju popunjenost od 65% (23.725 prodatih soba) a Hotel B, popunjenost od 50% (18.250 prodatih soba).

ADR u Hotelu A je 100 EUR a u Hotelu B je 125 EUR.

Ukupan prihod od prodaje soba (Rooms Revenue) u Hotelu A iznosi 2.372.500 EUR a u Hotelu B - 2.281.250 EUR.

Izračunajmo sada REVPAR za oba hotela:

REVPAR Hotel A = 2.372.500 EUR / 36.500 = 65 EUR

REVPAR Hotel B = 2.281.250 EUR / 36.500 = 62,5 EUR

Posmatrano na osnovu REVPAR indikatora, Hotel A je uspešnije poslovao jer je ostvario prihod po raspoloživoj sobi veći za 2,5 EUR u odnosu na Hotel B.

Međutim, pretpostavimo da ukupni godišnji fiksni troškovi u oba hotela iznose po 800.000 EUR.

Takođe, neka varijabilni trošak za svaku prodatu sobu u oba hotela iznosi 30 EUR po sobi.

Ukupni varijabilni troškovi za navedene hotele iznose:

Hotel A – 23.725 (prodatih soba) x 30 EUR = 711.750 EUR
Hotel B – 18.250 (prodatih soba) x 30 EUR = 547.500 EUR

U tom slučaju GOP (Gross Operating Profit) za navedene hotele iznosi:

GOP (Hotel A) = 2.372.500 EUR (Ukupni prihodi) - 800.000 EUR (fiksni troškovi) - 711.750 EUR (varijabilni troškovi) = 860.750 EUR

GOP (Hotel B) = 2.281.250 EUR (Ukupni prihodi) - 800.000 EUR (fiksni troškovi) - 547.500 EUR (varijabilni troškovi) = 933.750 EUR

Konačno, možemo izračunati GOPPAR za oba hotela:

GOPPAR (Hotel A) = 860.750 EUR (GOP) / 36.500 = 23,6 EUR
GOPPAR (Hotel B) = 933.750 EUR (GOP) / 36.500 = 25,6 EUR

Iz priloženog se jednostavno može zaključiti da je profit po raspoloživoj sobi u poslovanju Hotela B veći nego profit koji ostvaruje Hotel A.

Ako se osvrnemo na početak teksta, jasno je da isključivo prema ostvarenom profitu treba meriti performanse poslovanja. Isto tako zaključujemo da je prosto posmatranje popunjenosti i ukupnog prihoda, nedovoljno za realnu ocenu rezultata poslovanja hotela.