The B&B Team Blog

What is it? More important, should you be doing it? I will attempt to decode some of the marketing jargon and bring the reality of yield management out of the airline and hotel realms to our neck of the hospitality business.

One interesting fact I discovered was that yield management has only become a part of mainstream business over the past fifteen to twenty years. It started with the deregulation of the airline industry, then spread to other travel and transportation companies in the early 1990’s.

Here are some terms that we at The B&B Team have found in our research that best defines yield management.

• The control of inventory to sell it to the right customer at the right time for the right price.
• The process of understanding, anticipating and influencing consumer behavior in order to maximize yield or profit from a fixed or perishable resource.

Your inventory is of course your rooms. Because you don’t have 500 hotel rooms or 5000 airline seats to sell by a certain date to meet a marketing quota strategy doesn’t mean your inventory is any less challenging to manage.  In an article written by Glenn Withiam from the Center for Hospitality Research at Cornell University, he writes about the ‘Four Cs’, Calendar, Clock, Capacity and cost. A fifth (which is most important) is Customer. Let’s break these down to our industry.

• Calendar – The majority of our properties have seasonal rates. These rates reflect when consumers are most likely going to want to stay in your location. The term marketer’s use is ‘demand fluctuations’. These fluctuations can be fairly predictable based on historical demand but can also be hard to predict at times. They are influenced by weather, gas prices, when certain holidays land in the week, just to name a few.
• Clock – Your inventory becomes perishable at 12 midnight. Here is an example of managing that one last empty room at 6 PM.
  •  Scenario: Your neighbor Inn who is full, calls and tells you he has a couple standing in front of him that wants to stay for one night, can you accommodate them? First thing you do is ask to talk to them, eliminate the third person. Tell them that you have a room left for this evening and that you would love for them to come by and take a look. Getting them to your Inn is preferable but if there is any hesitation than you can skip right to the rate. “We have our 6 PM special rate for first time guests” (you can come up with your own spin on a spur of the moment special, remember the clock is ticking!).  At this point you offer them an attractive rate that will hopefully get them in your door.
• Capacity – This is the size of your property and the amount to rooms you have to sell. The variable is the size of the room and the amenities offered. These variables will determine the rates you set. The challenge is in managing your capacity, to minimize any lost revenue. In other words, not leaving any money on the table! A good example in managing capacity is group reservations for weddings, family reunions and other events. Booking the Inn for a weekend event may restrict the reservations you could get for a possible Thursday through Monday booking. There are no general rules for group reservations. The rules are what work best for you. Some innkeepers restrict group reservations during peak seasons. Another example of managing your capacity is being creative when you need to fill the booking ‘holes’.  You may have single rooms available for one or two nights but a customer wants three nights.  In order to fill those ‘holes’ you offer to book them in one of the available rooms for two nights and move them for the third night. In our experience as innkeepers most guests don’t mind the move when you make it seamless.
• Cost – This is the part of selling your inventory for the right price. The spread between the cost of renting your room and the revenue you receive should be as large as possible. You, the Innkeeper know what your rooms are worth, the great service you provide, the great breakfasts, the value added amenities, etc. But…does your customer know they are paying a fair rate for what you have to offer? Some do and are willing to pay the rate you offer. Some are not and are looking only for the rate they want to pay.  Mr. Withiam from Cornell calls these customers ‘price sensitive’.  I have heard innkeepers use many other phrases! This is when the clock and capacity come into play. You have to match what you have to the customer’s willingness to pay for the service in relation to its timing. Let’s go back to the “6 PM special first time guest rate” This approach has everything to do with what you have in inventory at a specific time and engaging a customer to accept an attractive rate at that moment in time.  Have fun with this approach; it is even more fun when they book the room!  Just remember the special rate (I’m not going to use the word discount) is better than an empty, and perishable, room.
• Customer – Let’s go back to one of the first definitions. ‘The process of understanding, influencing and anticipating the customer’s behavior.’ Innkeepers are constantly trying to understand their customers. It is one of the most challenging and interesting parts of being an Innkeeper. Many have indicated to us that their guests have become more demanding, more ‘price sensitive’ and expect certain amenities that in the past were not as important to them. Are these questions familiar: Do you have TVs in your rooms? Can we buy a bottle of wine from you or do we have to bring our own? I am allergic to fruit, gluten, eggs, dairy products and honey, can you accommodate my dietary needs? (Scream) All your answers should be Yes, Yes and (gulp) yes. Knowing what your customers are looking for, anticipating their needs is an art and comes with experience. If your guests know that you are working hard at accommodating their wants and needs they are more likely to return and influence their friends and family to stay.

In conclusion….Yield management is nothing more than knowing what you have to sell, your inventory, and managing it in a way that will result in maximizing your revenue. Obviously you want and need to sell as many rooms at the highest possible seasonal rates. But you know that some of your rooms will be available at certain times and will need to be let go at lower rates.  The definition of yield is to produce something as a result of cultivation that in turn gives profit. It also means to stop resisting.

So you have to yield a bit at times, especially before midnight when that empty room goes ‘poof’ and disappears.