Analysis and Description of Yield Management

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1. Yield management is a technique used in reservations, in a recent analysis by Donaghy et al(2008) the definition of yield management states that ‘Yield management is a revenue maximisation technique which aims to increase net yield through the predicted allocation of available bedroom capacity to predetermined market segments at optimum price’. This practice, used in almost all hotels, can be affected by many issues that can have a detrimental effect on profits, image and productivity.

2. Conceptually, yield management works within a framework set out by Jones and Lockwood (2005) who identified strategic operations as being concerned with the long term (focused on by head office), medium term (operations management) and the short term being handled by operational management (sales, front office, etc.). An issue with this however, is that such planning cannot always predict market conditions for the period, many hotels now allot rooms for use or sale (e.g. 50% of rooms kept unsold until a set date). This can tell the people in charge of yield management what a good price for the product is.

This can prove a very difficult balancing act for hotels, as many customers may have a more profitable stay for the hotel, but the chances of returning are far slimmer than another guest. In many cases, the short term yield is looked after more than the potential of a return customer, this in the short term increases profit, but risks losing a return customer. An example of this could be a couple on their honeymoon being preferred guests over a businessman who will be required to frequent the area many times, but with a shorter stay, the businessman may take his business elsewhere, or if accommodated for may bring much more revenue over a l...

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