What is the meaning / definition of Yield Management in the hospitality industry?

Simply put, the purpose of Yield Management (aka Revenue Management) is to achieve maximum revenue/profit. To do this, a yield management strategy needs to be both reflective and forward-looking. That is, yield managers should attain a clear yet detailed understanding of what has happened before, and what is happening now. The most efficient way to do this is to draw from historical data to predict what may then happen in the future. So, the process of effective yield management involves understanding, anticipating and reacting to consumer behaviour (to ultimately maximise revenue!).

By optimising yield management, an independent hotel or a chain of hotels can adjust its prices, to meet the total demand characteristics of its markets.

Prices can be determined by:

  • Service
  • Group of services
  • Market (consumer type or geographical), or
  • 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

These days, smart yield managers or yield management teams use specifically- developed software, particularly when formulating variable pricing strategies.

Where a small or newly opened hotel perhaps needs help and advice on orchestrating and then successfully implementing a well thought through yield management strategy, the services of an outside consultancy firm or indeed an independent freelance consultant could be utilised. This can prove a wise investment, saving hotels years of trial and error when trying to get to grips with effective yield management. An experienced consultant can advise on key steps, formulas, ideas and best practices, as well as sharing a few little-known industry tips and tricks.

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