Most people look at yield management as a “task” that relates directly to increasing room rates. When demand is high, basic economic rules indicate that we should change our prices accordingly. In effect, this means that our first instinct when confronted with high demand is to open our channel manager systems and increase the Best Available Rate, even if it’s only by 5 or 10€.
However, before changing rates or closing sales, we need to be sure we’re making the right decision. We should always keep in mind Robert G. Cross’s definition of effective revenue management: “Sell the right product to the right customer at the right time for the right price.”
1. Sell the right product
Pay attention to your demand behaviour patterns: are you attracting reservations for all your room types? Should you increase rates for all categories, or only for those being booked?
For example, if your customers are booking seaview rooms only, it could be a mistake to increase prices for lower category rooms. Your prices might become uncompetitive, resulting in a reduction of sales.
Tip: be ahead of the game and look beyond your booking analysis data. Check historic data to understand whether there is a direct connection between booking seaview and other types of room. Make sure that you can clearly identify the different products within your hotel’s inventory and manage each according to its patterns.
2. To the right customer
If reservations are coming through flash offers or M&I Groups, should you be increasing rates online?
When a specific date is particularly requested, we can often feel tempted to increase online rates, with the objective of optimizing the average daily rate. This is when managing your business mix efficiently can get the most out of the market demand for a specific date. We should first understand demand patterns, identifying whether pick-up is made of group sales, transient corporate or transient online before implementing yield measures. For example, instead of pushing rates from 140€ to 170€ on our website and OTAs, we should make sure that first we’re closing all lower rates on other distribution channels (such as discounted rates, discounted group rates, campaigns, less profitable packages, etc.).
Tip: don’t just take visible prices into consideration – a commissionable rate of 140€ isn’t necessarily more profitable than a “net” rate of 120€
3. At the right time
Do you believe that setting rigid rules between occupancy and rates – for example, increasing rates by 10€ every time occupancy reaches 55% – will maximize all your yield opportunities?
We often come across systems providing features that allow revenue managers to set their yield management rules automatically. But, as our previous points show, significant amounts of money can be lost if all variables aren’t taken into account. In this regard, it’s important to take the time to reflect on your market segment booking windows. The simplest way to demonstrate this is to consider whether achieve 55% occupancy/10€ rate increase rule should apply equally for a date 6 months in the future as for tomorrow. Obviously, increasing rates by 10€ when 45% of my rooms have to be sold by the next day is very different from increasing rates when there is a six month period in which to sell the same number of rooms.
Tip: analyse your property booking window carefully to make sure you’re making the right decisions. If your revenue management system allows it, you should cross-reference booking windows according to different market segments, nationalities, room types, etc., so as to better understand whether you’re receiving exceptionally high demand for a specific date or period.
4. For the right price
Is your hotel strategy determined by price only? Or are you taking wider factors into account, assuring that customer satisfaction index is not critically affected by rate decisions?
With the increasing importance and exposure of online satisfaction indexes, hotels are reluctant to push their rates as high as the market is willing to buy, so as to avoid jeopardizing their rankings. General managers are keen to assure they not only match, but go beyond guests’ expectations – i.e. they are thinking of the benefits of long term reputational prestige as opposed to short term profitability. Pushing rates 50€ or even 100€ higher than competition or hotel’s normal rates impacts directly on guests expectations and if the product or service does not meet these there is likely to be negative feedback online.
Tip: make sure your peers (Front Office, Food & Beverage, etc.) are involved in your yield measures, and if market indicators tell you that higher rates will be accepted, the hotel should be prepared to raise quality accordingly.
These are only a few examples of variables we need to analyse when managing price and inventory on our distribution channels on a daily basis. Your revenue management system should allow you read all these indicators at a glance, intuitively.