What…Why Yield Management is………!!!!

Definition of Yield Management

Yield management is an inventory management system that allows forecasting supply and demand and adjusting 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.

Fields of Application for Yield Management

The various industries applying yield Management techniques have certain features in common.

Perishable inventory: They market perishable services or products whose value disappears after its date of production. All unoccupied airplane seats or vacant hotel rooms have a net value of zero: they are known as "zero turnover stocks".

Variable demand and fixed production capacity: Demand fluctuates (sometimes higher, sometimes lower than available capacity). Production resources are most often fixed and adjusting capacity carries a high price.

Sales via reservations: These industries sell inventory before the effective date of production using an order-taking system (reservations).

Multiple pricing structures: Since the demand/price elasticity varies according to the segment of clientele, these sectors generally practice differentiated pricing. Thanks to lower prices, this technique maximizes the revenue generated by attracting the portion of demand that is most prices sensitive.

Very low variable unit prices: In the hotel industry, for example, the variable cost of selling an additional room (room cleaning and related services) represents only a very small portion of the hotel's fixed costs (personnel and the amortization of construction costs are fixed costs that are basically independent of a sales transaction).

Price is a powerful lever: Pricing control can be very powerful in increasing operating income. An increase of 1% in revenue per unit generally translates into a 10% to 20% increase in income for these sectors and vice versa.

ADVANTAGES OF YIELD MANAGEMENT

Yield management has gained popularity due to the following factors;

• Increased revenue by maximizing occupancy and protecting rates when necessary.
• Typical minimum net revenue increase of between 4-7% from year one with very little outlay.
• Accurate statistical reports future, current and historical.
• Detailed demand forecasting information to help with sales and marketing initiatives.
• Competitor analysis on the internet to help react to market influences.
• Group analysis to help evaluate the impact group reservations have on occupancy and therefore revenue.
• Series analysis which assesses the impact a tour series contract will have on your property.