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Printed on 9 February 2022

Yield Management – Concept and Importance

https://hmhub.in/yield-management-concept-and-importance/
January 8, 2018
Categories: 6th Sem Front Office Management Notes

Table of Contents
Concept of Yield Management (https://hmhub.in/yield-management-concept-and-
importance/#Concept_of_Yield_Management)
Application of Yield Management in Hospitality Sector (https://hmhub.in/yield-
management-concept-and-
importance/#Application_of_Yield_Management_in_Hospitality_Sector)
Benefits or Importance of Yield Management (https://hmhub.in/yield-management-
concept-and-importance/#Benefits_or_Importance_of_Yield_Management)
 

Concept of Yield Management

The concept of yield management originated in the airline industry. Most travellers
know that passengers on the same flight often pay different fares. Super-saver
discounts, three-day advance-purchase plans, stay-over-Saturday-night packages, and
so forth have become the norm for airline pricing. What is not as widely known is the
potential application of yield management to other service industries. Yield
management has proven successful in the lodging car rental, cruise line, railroad, and
touring industries – basically, in situations where reservations are taken for a perishable
commodity. The key to successful implementation appears to be an ability to monitor
reservations and to develop reliable forecasts.

Yield management is based on supply and demand. Prices tend to rise when demand
exceeds supply; prices tend to fall when supply exceeds demand. Pricing is the key to
profitability. To increase revenue, the hospitality industry is attempting to develop new
forecasting techniques that will enable it to respond to changes in supply and demand
with optimal room rates. The hospitality industry’s focus is shifting from high – volume
bookings to high – profit bookings. By increasing bookings on low – demand days and by
selling rooms at higher prices on high – demand days, the industry improves its
profitability. In general, room rates should be higher when demand exceeds supply. They
should be lower (in order to increase occupancy) when supply exceeds demand.

Application of Yield Management in Hospitality Sector

In the hospitality industry, yield management – sometimes called revenue management
– is a set demand – forecasting techniques used to determine whether prices should be
raised or lowered and whether a reservation request should be accepted or rejected in
order to maximize revenue. Hospitality industry managers have successfully applied
such demand – forecasting strategies to room reservation systems, management
information system, room and package pricing, rooms and revenue management,
seasonal rate determination, pre-theatre dinner specials, and special, group, tour
operator, and travel agent rates.

Benefits or Importance of Yield Management

1. Improved forecasting
2. Improved seasonal pricing
3. Identification of new market segments
4. Identification of market segment demands
5. Enhanced coordination between the front office and sales divisions
6. Determination of discounting activity
7. Improved development of short-term and long-term business plans
8. Establishment of a value based rate structure.
9. Savings in labour costs and other operating expenses
10. Planned responses to guest inquiries or requests regarding reservations.