Today I'll be talking about the topic from the subject of Front office operations and management and

the topic is yield management well after completing this unit the students will be able to understand
the concept of yield management.
The terms yield management and revenue management are now interchangeable. Yield management
was the earlier concept from which revenue management developed.
Revenue is the money you collect for providing a product or service.
Yield is income-expense = yield {profit margin}
The actual difference between revenue management and yield management= Whereas Revenue
Management involves predicting consumer behaviour by segmenting markets, forecasting demand,
and optimizing prices for several different types of products, Yield Management refers specifically to
maximizing revenue through inventory control.
While ADR measures the Average Daily Rate, ARR is the Average Room Rate calculation, which
tracks room rates over a longer period of time than daily. ARR can be used to measure the average
rate from a weekly or monthly standpoint. You can calculate both with the same formula, however,
the ADR number will typically be lower because it refers to a day and not a longer period of time.
ARR calculations typically include time periods of higher rates and occupancy, like weekends and
holidays, which may increase the average rate.
Revenue Management (RM) is the art and science of maximizing revenue under variable conditions.
It is a management tool that aims to increase sales revenues by manipulating the prices at which fixed
products are made available for sale about the current and forecasted demand. The essence of this
discipline is in understanding the customers' perception of product value and accurately aligning
product prices, placement and availability with each customer segment.
The goal of revenue management is twofold: to maximize profit for guest room sales and to maximize
profit for hotel services.
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. Pricing strategy where the prices of goods are set according to the intensity
of consumer demand at any point in time.
Yield management is based on demand and supplies higher the demand for rooms is equalled to
maximising room rates which means the hotel is having high occupancy and the demand for rooms is
very high then the hotel should sell the rooms on rack rate or maximum rate and avoid giving discount
low demand for rooms is equals to maximize room sales which means the hotel is having low
occupancy and less demand of rooms due to slack season then the hotel should aim to maximize
occupancy by selling rooms on a right discounted price the hotel aim is should be from high volume
booking to high-profit booking which means the hotel should focus on higher profit by selling lesser
rooms instead selling rooms in volume which is not making enough profit.
RM’s objective is to increase bottom-line profitability in hotels/organizations that have the following
characteristics:
Characteristics of revenue management perishable inventory we all speak about rooms are a
perishable commodity right you have gone through that so why are we saying rooms are perishable
room is not a dish that will go bad or perish or go stale but yes it is a perishable inventory in the sense
that if that room is not sold tonight it cannot be sold tomorrow for last night can you tell against listen
them sorry yesterday we couldn't sell this room can you pay for last night as well so room revenue
lost for that night is lost forever isn't that true for a line seat once the flight takes off can you really
account for that flight a seat money no that revenue is lost forever so perishable inventory in that
sense relatively fixed capacity an airline aircraft even if it's a it's an airbus it has fixed number of
seats our hotel has rooms for instance so that capacity is rooms yes maybe for a conference you can
sell it at triple occupancy and take it to guests but not beyond that so relatively fixed capacity you
can't quickly build a room on the terrace and say that you know I'm increasing the capacity high fixed
costs low variable costs fixed cost is your salary if you're working in hotel you can't be told that listen
the occupancy this month is little less we can't pay you full salary no salaries our fixed costs for
example variable costs are low and those vary according to our occupancies so things like your
electricity consumption or the supplies that you keep in the guest room etc advanced reservations
almost all the industries where a new management is applicable have a facility of advanced
reservations time variable demand so the demand for hotels varies the Maldives resort that you are
booked for now is again seasonal so there is a peak season there is a shoulder season and there's of
course a lean season or Valley period so it's very seasonal you know that our hill station is the most
crowded during summers or on the weekends a resort is more booked of city hotel in a Pune or a
Mumbai or Delhi typical with business client they have a very busy Monday to Thursday or Monday
to Friday by Friday there are a lot of checkouts because it's a city hotel business hotel guests check
out for the weekend and then again occupancy start going up for the week men table markets various
segments and hotel has transient gas it has groups it has crew members or airline crew it has
corporates fi T's so various it's single lady travelers senior citizen June nowadays hotels want to
increase the segments and cater to that segment families children etc so think about this now that you
know what is basic revenue management.
now let's see the application of yield management in front office yield management seeks to maximize
revenue by using forecast information with the help of these three tools or methods capacity
management or selective overbooking balances risk of overbooking against potential loss of revenue
from reservation cancellations early departure and no shows capacity management involves various
methods of controlling and limiting room supply in some cases a hotel may well choose to accept
more bookings than it can actually accommodate for example hotels will typically accept a
statistically supported number of reservations in excess of actual rooms availability in an attempt to
offset the effects of early departure cancellations and no shows capacity management also called as
selective overbooking which balances the risk of overselling guest rooms against the potential loss of
revenue arising from the room's spoilage now what is rooms polish which means rooms going
unoccupied after the hotels stop taking reservations for a given date discount allocation or differential
pricing now it restricts time period and product mix which is rooms available at reduced or discounted
rate which means allowing discount on room rate that is rates below rack rate rooms for a restricted
period of time that is to say for a specific period the main idea behind discount allocation is to sell the
room and earn some revenue at least rather than keeping the room vacant earning no revenue at all
this process of allowing discount by room type serves two purposes protect enough remaining rooms
at a higher rate and b it encourages upselling for effective decision making the management must be
supported by a reliable demand forecast system third duration control or duration restriction this
means that it is based on the management information system the reservation department might find it
more beneficial for the hotel to refuse a request of reservation made by a guest for one night even
though the room may go vacant for that night this is done with an objective that an expected request
for more nights reservations by another guest in other words higher level of revenue shall be accepted
so places time constraints on accepting reservations in order to protect rooms for multi-day
reservation which represents higher levels of revenue

To make predictions or prepare forecasts, the managers need reliable information about past and
future trends and events. Forecasts help determine whether room rates should be accepted or rejected
to maximize revenue.
the last part of this presentation on introduction of revenue management called benefits of revenue
management so revenue management has really so many benefits that's why it's such a niche or an
expert area today in the industry that's why there are revenue departments in the industry today so
benefits of revenue management improved forecasting you do various studies you look at history you
look at what you have you study every little bit of revenue that's coming from where and how and
from whom so your forecasting is improved because you have so much more data when you have
enough data your forecasting improves improved seasonal pricing and inventory decisions because
your forecasting is better your pricing is better you know exactly when you have the peak periods
when the city is doing really well or your hotel is doing really well and when you can drop your prices
a little also inventory decisions how much can you block for a segment like groups or long stairs or
transient guests identification of new market segments that's very important because every market
segment is unique they have their own demands or needs and if you cater to those needs you do a
success or become a success with that segment some hotels are more popular apart from business also
with families because they've tapped the families of the city very well so they have so many city
dwellers or families coming to them so new market segments could be like our chain has a special
flow for single lady travellers so that's that's how they are tapping an entire new segment of single
lady by giving them specific requirement special deal so identification of new market segments and
identification of market segments demands all this results in better coordination or enhanced
coordination between sales and front office so revenue management sales and front office another
very important point is logical discounting is implemented not ad-hoc you don't want a repetition of
being a hotel which is a discount Hotel no you want your hotel to still be the classy hotel still be well
sought-after but you still want to maximize your revenues so revenue management because you're
forecasting and pricing decisions are right you know exactly how much discount you can give what's
the bar today best available rate for today or this week and everybody in the hotel then speaks the
same language so it's not that or if I go to the manager I'll get this rate if I go to the GM I'll get this
rate so that's logical discounting with our reason not ad-hoc very important point please remember
this all this results in increased profitability because you've looked at every possible aspect of revenue
consistency in procedures your SOPs are so well-defined as I said if you have a walk-in you know
exactly what rate to offer because it's come from your revenue management it is not up to the women
fancy of a manager or the GM so you know exactly what to do with queries with guests inquiries so
consistency in procedures saving in labor costs and other operating expenses because you can focus
better predict better your costs also reduce you know how many add-on contract do you need for that
time period or how many trainees you need how much staff do you need any other things that you
need to prepare and keep so operating expenses also so these are the benefits of revenue management
I hope they're clear

So, the Success of YM depends on:

* Ability to monitor demand
* Ability to develop reliable forecasts
* Having a guest mix of two or more guest
segments