A Definition Of Yield Management

Yield Management:
A yield management system, which can also be referred to as revenue management, is a system that attempts to understand, anticipate and then react to consumer behaviour in order to maximise revenue/profit.

How Does Yield Management Work?

To achieve maximum revenue/profit, a yield management system needs to have an understanding of what has happened before and what is happening now; using this historical data to predict what may then happen in the future. So the yield management system will periodically review transactions that have occurred between the consumer and the hotel. Other external information is then fed into the yield management system and this can include statistical data, events such as public holidays, competitor price information, seasonal buying patterns, etc. A predictive modeller then attempts to forecast the total demand within a specific period for the services on offer by market segment and price point.

In simple terms yield management tries to answer the question “Given our operating constraints, what is the best mix of services for us to sell within a particular timeframe, so that we generate the highest revenue?”

The process of yield management optimisation helps an organisation to adjust its prices so that they meet the total demand characteristics of its markets. In order to maximise the revenue, prices can be determined by:

  • Service
  • Group of services
  • Market (consumer type or geographical)
  • A combination of the above

Yield management models are most effective where the service being supplied is characterised as:

  • Capital intensive
  • Perishable (revenue is lost if the product/service is not sold by a particular point in time)

and the demand side is characterised with:

  • Variability of demand
  • Variability of value

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