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8/14/2019 Yield Management Seminar 22.01.09
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An Introduction to YieldManagement
Mark Harris
Marrying Supply & Demand…
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Or…
“The biggest sin is to
overprice, and the secondbiggest sin is to underprice.”
George Goring
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Who am I?
• 20 years in business travel
• Business Travel Industry Personality of the Year 2007
• Writer, publisher, sponsorship,conference moderator & speaker
• Former Marketing Director:– Expotel, First Option
– Institute of Travel Management
• Started TIN 2005
• Past/current clients include
– Hotel Booking Agents Assoc, MPI– BSI, Grass Roots HBI, Apartment
Service
– Business Travel Market, Classic BritishHotels
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What we do
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Seminar Timetable
• SESSION 1– Presentation
– What is Yield Management?
– Q&A• SESSION 2
– Workshops
• SESSION 3
– Group presentations– Discussion
– Wrap up
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Our topic
Yield Management
Revenue Management
DISCOUNTING
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So what is it?
• An inventory management system thatallows hoteliers to:
– Forecast supply
– Forecast demand per market segment– Adjust pricing strategies accordingly
– Determine group block sizes & cutoff dates
– Set preferred arrival/departure patterns
– Set reservation restrictions
– Create food and beverage guidelines
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Or…
• Sell the good product tothe right person at theright time
• Increase revenuethrough customerselection
• Select the guestaccording to the revenuepotential
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Origins?
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Global Distribution Systems
• GDS systems launched by airlines in early 80’s
• Displays inventory to travel agencies worldwide
• GDS serve 500,000 travel agencies worldwide
• Developed when reservations made by phone, faxor telex
• Hotel booking agencies pre-date GDS
• Being overtaken by online distribution– Less costly – GDS fees have to be factored into rates
• Few independent hotels on GDS• GDS providers now down from 5 to 2 - Amadeus,
Sabre & Galileo
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• REVPAR– Revenue per available
room
– Total accommodationrevenue / roomsavailable
– Allows different hotelsto be compared
• TREVPAR– Total revenue per
available room
– Total hotel revenue /rooms built
• ARR– Average room rate
– Total accommodationrevenue / rooms sold
• TO/OCC– Number of rooms sold /
number of rooms built
RM Definitions
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Example
• 3 hotels
• Same size (52 beds)
• Same area
• Which is the best revenue performer?
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OccupancyOccupancy
AverageAverage
Room RateRoom Rate
Hotel AHotel A Hotel BHotel B Hotel CHotel C
92%92%
£91£91
63%63%
£126£126
98%98%
£79£79
Which hotel makes most money?
Revenue £4368 £4158 £4029
Revpar £83.74 £79.38
£77.42
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The evolution of RM in hotels
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RM in other sectors
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• Fixed capacity: impossible to adapt the size of the hotel tothe demand on a short term basis.
• Perishable inventory: impossible to re-use unsold rooms ata later date.
• Ability to segment markets: various booking behaviourscan be observed.
• Products sold in advance: there is a reservation process
• Fluctuating demand: level of demand is not the samedepending on the day of the week or on the month
• Low cost for an additional sale: variable costs are very lowand any additional sale will contribute to cover overheads.
Implementing RM– you need…
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Transient
GroupsMICE
Leisure
Travel market segments
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Know your customer…
CorporateLeisure
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• Market more and more challenging– Increased competition
– Corporates downtrading
– Credit crunch discouraging leisure travellers
– Meetings avoidance/alternatives, e.g. VC
• Too risky to increase rates
• Hotels draw clients from different marketsectors
• They pay different prices
• So the best way to increase revenue is toselect the customer!
Driving rates = driving revenue?
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How price is set
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Managing the inventory
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Hospitality market 2009
• Corporate business down by 30%
• Leisure business down by 40%
• RevPar predicted drop by 5 – 10%
• Demand is unpredictable
• Pressure on hotels to cut rates
• 5* hotels may have to take 4* business,
and so on downwards
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Action Plan to drive RM
• Increased conversion of phone enquiries– Closer communication with res teams
– More mystery shopping – listen to customers
– Improve training
• More pro-active marketing– Strength of £ to drive UK long/short breaks
– E-marketing offers greater measurability
– Benchmark the competition
• Add more value– Rates inc breakfast, car parking etc
– Examine T&C’s – do they meet current market needs?
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2009 – main RM challenges
• Market conditions– Customer demanding lower rates and more VFM– Rate reductions drive short term occupancy but can
damage image/reputation.
• Technical issues– Forecasting– Overbooking– Asset tracking
• More informed customer– Fewer bookings via agents
– Used to dynamic pricing & online booking• Corporates learning how RM works• Commercial acumen of Revenue Managers
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Future of RM
• Increased reliance on technology will see RM expandto all areas of hospitality
– Spa’s
– Function space (and integrate with rooms)
– F&B• Lots of scope for improving RM techniques
• Revenue Managers recruited from outsidehotels/travel to handle more sophisticated systems
• OR – could be outsourced• BUT – recession may make RM forecasts based on
2008 data redundant
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RM & the corporate –key messages
• Understand additional spend in negotiations
• Automation must be robust
• Moving business to shoulder nights benefits buyer& hotel
• Closer management of production vs forecast
• Better understanding of hotel targets
• Keep communication simple throughout process
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Q&A
End of Part 1
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Session 2
Workshops
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Workshops
• 3 groups
• Different types of hotel
• Objectives– Identify likely issues
– Outline rates strategy for 2009
– Outline other activity to support
– Quantify projected benefits
• You have 30 minutes to prepare a presentation
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Group Composition
• Group A
• Group B
• Group C
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Group Scenarios
• Group A– Central London 4-5* large chain hotel
– 200+ bedrooms
– Rack rate £140 per person per night
• Group B– Manchester suburban 3* small chain hotel
– 100 bedrooms
– Rack rate £90 per person per night
• Group C– Llandudno Junction, private 1-2* seafront hotel
– 15 bedrooms
– Rack rate £65 per person per night
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Session 3
Group presentations
Discussion
Final Q&AWrap
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Thank you.
Mark Harris
Travel Intelligence Network