What is Yield Management Software?
Yield management, similar to revenue management, is a special form of price differentiation.
In contrast to classic price differentiation, prices vary not only on the product level, but for individual goods. In this way, the hotelier optimises his prices accordingly for the guests and thus starts his revenue management.
Influences on yield management
According to the definition of yield management, there are internal and external influencing factors. The factors contribute to the consideration of the right pricing.
The hotelier must consider internal and external factors to determine the best price for each date.
Normally the internal factors form the basis. Based on this, the external factors determine the price. On the one hand, the prices must not be below the price floor and at the same time they must not be so high that the willingness to buy falls away.
However, the decision of a low price is not only based on numbers, but is also influenced by the hotel’s image. Because a low price gives a hotel a different image than a high-priced hotel.
Which factors influence the optimal price?
Key figures for yield management
It is important for the hotelier to recognise when the majority of hotel bookings are made for a particular date.
There may be irregular bookings that take place earlier or later. However, the focus of yield management is on volume, i.e. the majority of bookings.
This key figure is known in the hotel industry as pick up. The number expresses how many bookings were made in a certain period of time for a specific overnight stay. The level of the pick up indicates a high demand. The hotel must be able to recognise such a pick up.
The definition of a high pick up is different in every hotel. Therefore, the hotelier must know how high a regular pick-up is. Then he is able to recognise a change in time.
What is behind the quotas?
Another special feature is that it is based on quotas. If a quota is used up, the associated tariff is no longer available.
What makes quotaing seem somewhat unusual at first glance is that corresponding quotas can be linked not only to observable or verifiable criteria (student, club member), but also to behaviour (booking period).
Individual tariffs are available for selection
Tariffs are only available on a limited basis
Different tariffs are possible
Tariffs should be comprehensible
Yield management software as a form of price differentiation
Yield management is a special form of price differentiation. However, prices do not vary at product level, as the principle of price differentiation actually envisages, but at individual goods. In addition, the contingent plays an important role in price setting. If the contingent of price offer 1 is sold out, the tariff is no longer available, only other price offers are. The prices here are not only based on target groups and buyers, but also on random behaviour, such as time of booking.
Quotas create different prices and offers. For customers, it seems as if the price increases over time.
Price differentiation on individual goods
There are different methods of price differentiation. In this version the differentiation is based on individual goods. The days are fixed and do not usually vary. Using the example of a low-priced theatre performance: it is not price differentiation to give a 10% discount on ticket prices every Tuesday, but it is if it’s done only on specific days. Performances on 8.10., 13.10. and 24.10. are 10% cheaper – this is differential pricing.
Price differentiation on quota
Another example would be that the theatre provides a quota with 20 seats for students and the rest is sold at the normal rate. Airline quotas are also common. Different price quotas are created. Depending on the time of booking, a flight ticket can have different prices. The prices start very low – the first to arrive gets the cheapest price still available. To the outside world, it looks as if the prices will increase over time.
Price differentiation through distribution channels
Another effective method of yield management is to control availability on the distribution channels instead of controlling prices. When demand is weak, supply can be public on all distribution channels to increase the number of bookings. When demand increases, individual distribution channels can be deactivated. The best approach here is to gradually close external channels. Ultimately, only direct sales via the hotel should be active in order to achieve a high turnover.