Yield management is a pricing strategy, which is commonly utilised by businesses in hospitality, air travel and other tourism related fields, in order to generate maximum revenue from a perishable inventory (e.g. hotel rooms, or airline seats). Here, we answer the question ‘what is yield management?’ and provide an explanation for why it is so useful for hotel owners and others working in hospitality.
Defining Yield Management
In simple terms, yield management is a strategy based on selling to the right customer, at the right time, for the right price. Within the hotel industry, this typically means selling the right room, to the right guest(s), at the best possible time, for the highest amount, in order to maximise the revenue earned.
Yield management shares many similarities with the concept of revenue management, but has actually existed for longer. Nevertheless, it is important to note that yield management has a more narrow focus and is concerned only with the selling price and the volume of sales, so that the best possible revenue yield can be achieved.
The basic concept behind yield management is that certain fixed, time-limited resources, such as hotel rooms, can be sold for different prices, based on the time of year, the level of demand, the number of rooms already sold and a wide range of external factors besides.
The same product (i.e. a hotel room) can be sold to two different customers for entirely different prices, because of the amount of variables involved in the process. Yield management strategies take a data-driven approach to ensuring pricing is adjusted in order to maximise business results.
Why is Yield Management Important?
Adopting a yield management strategy allows hotel owners to maximise the amount of money they make from a finite number of hotel rooms, which need to be sold by specific times. Through the use of past performance data and general industry trends, managers can anticipate demand and respond accordingly.
Yield management also allows hospitality businesses to focus on optimising the pricing and selling strategy of their single most important resource – the rooms they have available. This allows hotel owners, for example, to get the basics of their business right, by maximising revenue from rooms alone.
Yield Management vs Revenue Management
Within hotel management, yield management and revenue management are two of the most useful tools available to managers, allowing them to maximise the amount of money they make from guests. Although the two concepts are closely linked and share a lot of similarities, there are some important differences too. For more detailed information about revenue management, please also read the article “What is Revenue Management?”.