The Basics of Yield Management

The Basics of

Yield Management
Weld-management systems have boosted revenue at many properties, but these electronic tools are not always compatible with the operating atmosphere of a hotel. If you want to introduce yield management at your property, you may need to make some changes first

by Sheryl E. Kimes
YIELD MANAGEMENT is becoming part of the standard operating procedure for many hotels with sophisticated electronic property-management systems. Appropriately tailored to the hotels they serve, yield-management systems generally increase revenue and take much of the guesswork out of rooms-management decisions. However, installing a yield-management system can create problems if management does not lay the proper groundwork. This article addresses the issues operators should consider in determining whether yield management is right for their property and discusses
Sheryl E. Kimes is an assistant professor of'quant#ative ~llel]lods at the School of Hotel Administration at Cornell University. She has a Ph.D. in operations management from the Universit), of Texas-Austin.

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some of the measures managers should take to pave the way for successful adoption of such systems.

What is Yield Management?
Basically, yield management is the process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield. In the case of hotels, yield management is concerned with the n u m b e r of rooms that should be sold at various rate levels. Obviousl); a tradeoffexists. T h e manager would prefer to sell all rooms at the highest rate possible, but since this rarely is feasible, following this policy may lead to empty rooms and lost revenue. Conversel}; ira hotel fills its rooms with low-price customers, the revenue that could have been obtained from higher rates will be lost. T h e objective of yield management, then, is to define what these trade-offs should be. How

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