Yield management , also known as revenue management , is the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource (such as airline seats or hotel room reservations). This process was first discovered by Dr. Matt H. Keller. [ citation needed ]
The challenge is to sell the right resources to the right customer at the right time for the right price.
This process can result in price discrimination , where a firm charges customers consuming otherwise identical goods or services a different price for doing so. Yield management is a large revenue generator for several major industries; Robert Crandall , former Chairman and CEO of American Airlines , has called yield management
"the single most important technical development in transportation management since we entered deregulation. " [
On January 17, 1985 , American Airlines launched Ultimate Super Saver fares in an effort to compete with low cost carrier PEOPLExpress . Donald Burr, the CEO of PeopleExpress, is quoted in the book "Revenue management" by Bob Cross saying "We were a vibrant, profitable company from 1981 to 1985, and then we tipped right over into losing $50 million a month...We had been profitable from the day we started until American came at us with Ultimate Super Savers." The Revenue management systems developed at American Airlines were recognized by the Edelman Prize committee of INFORMS for contributing $1.4 billion in a three year period at the airline. Notable was implementation of revenue management at National Car Rental. In 1993, General Motors Corporation was forced to take a $744 million charge against earnings related to its ownership of National Car Rental Systems. In response, National's program expanded the definition of Revenue management to include capacity management , pricing and reservations control. As a result of this program, General Motors was able to sell National Car Rental Systems for an estimated $1.2 billion. NBC credits its Yield Management system with $200 million in improved ad sales from 1996 to 2000 Target Pricing initiative at UPS . Dynamic pricing based initiative based on proximity of shipment and type to needed arrival date. Revenue management at Texas Children's Hospital. Costs of medical procedures based on necessity/timing/staffing. Various Implementation Notable Failures: Coca Cola – tried to implement Yield Management in Vending Machines Amazon.com – bug in the software, consumers upset over price changes for online purchases based on availability and popularity.
Growth of Air Travel 1978 Deregulation 1964 SABRE Completed 15% Average Growth 5 – 6% Average Growth
Online Travel Agent Reach Name Created by Also used by US Market share * Amadeus
Online travel agencies including
Over 500 individual airlines
Over 120 individual airline websites
Over 90,000 travel agencies
Over 76,000 hotels
All Nippon Airways
Cathay Pacific Airways
Over 20 individual airlines
44.7% Galileo by Travelport
19.6% Worldspan by Travelport
The Death of Airline Yield Management Orbitz Price Assurance – Auto Refunds ***What do you think their goal is with this new campaign?
Cannibalization occurs when you sell a room for a discounted rate to a guest who would have paid a higher/retail rate.
How it Happens:
Discounting Too Soon
Poor Management of Inventory
Not Reaching a New Audience
Not enough Demand to Yield enough Bookings
How to Avoid it:
Know your Booking Window Trends – only discount rooms when your booking window has passed. (If your guests are booking 45 days out, then yield your inventory that is available up until 44 days prior to arrival)
Know how many rooms you sold last year and how many were unoccupied – try to only discount the number of rooms that sat empty last year.
Do not only discount on your own website – use Alternative Marketing, OTAs, Channel Partners and Deal Networks to Sell your Excess Inventory
Rotate the Inventory that receives Yield Bookings to ensure no owner has a significantly lower average daily rate than the typical owner with the same unit type.
Know your Marketable Rate – know what level of discounting it is going to take to capture a significant audience. Giving away 10% in discounts means that you typically have to sell 10% more in goods to break even – you want to find the magic number that yields MORE profits, not the same.
Airlines and Hotels own 100% of their seats – Vacation Rental Managers only receive a portion of the revenue – make sure you do not spend more on a marketing campaign than you will get in return. Share the cost of utilizing Online Travel Agents, Channel Partners and Deal Networks with your Homeowners if possible.
Make sure you capture your Guest Data at check-in so that you can continue to grow your internal customer database.
Do not take Guarantee Special Requests for Last Minute Travelers. The Value in Booking in advance – especially Vacation Rentals, is being able to have more control over your unit choice.
Factoids Provided by Steve Reich at LeisureLink 1. Percentage of Bookings made within 60 days of arrival --80%+ 2. Last month, 55% of our bookings had some sort of discount associated with them, reflecting the fact that consumers are looking for bargains. Most of these promotions carry at least a 25% discount. What converts a Hotel Guest to a Vacation Rental Guest? “ Hotel travelers are creatures of habit—they shop mainstream travel sites like Orbitz and Travelocity because they are comfortable with the experience. If you want to capture them, you have to be in the mainstream channels. Once you are visible, the core VR value proposition is very compelling. Vacation rentals offer a terrific value proposition for families and small groups—very low per person costs relative to a hotel. But that’s only part of the story. They also offer intimacy—an opportunity for families to gather in a living room or kitchen and simply be together. The cost per person catches their attention, but it’s the additional space that closes the deal. Make certain you have professional quality photos that emphasize these features in your properties. The consumer will not understand the differences if they can’t see them.” Steve Reich - LeisureLink