Part I: Yield Management through Rates
Yield management is the strategic control of inventory to sell the right product to the right customer at the right time for the right price. The overall concept: room nights are perishable goods—if any rooms for tonight don’t book, you never have the opportunity to sell those rooms again. The inverse is true as well—once you hit 100% occupancy on any given date in the future, you never have the opportunity to sell those room nights again, unless a cancellation occurs. How can you use a pricing strategy to make the most of these situations? Here are some strategies to consider:
- Supply and Demand: Set your prices for the year taking into account demand in your low season, shoulder season, high season, any peaks within those seasons, weekends, and weekdays. Base all other pricing decisions on what you already know about your market’s demand. Identifying supply and demand alone will tell you what times of year hold the best opportunity to increase revenue or price to attract traffic.
- Manual Rate Adjustments: Keep track of holidays, important events, occupancy levels, and general tourism trends for your region. Based on this information, you can manually adjust rates accordingly. These peak times may have higher demand—even if they fall in your low season.
- Automatic Rate Adjustments/Yield Management Features: Many property management systems now have a feature that automatically adjusts rates based on supply and demand. Consider how far in advance guests book, how much inventory is remaining, and if you have the flexibility to use these features at the times of year you want them to take effect.
Though every business is unique (geographically, demographically, seasonality, etc.), properties that have a pricing structure based on supply and demand, and utilize manual adjustments in conjunction with automatic rate adjustments maximize their lodging revenue year-after-year. This approach is a recipe for financial success.
Let’s explain how…
Focus on Your High Season
When you focus where you have the most demand, you have the best opportunity to make the most revenue because you have more eyes on your property more during that time frame than at any other time. You should be demanding the highest price when your room supply starts to run low. For time frames when you know you have no problem reaching 100% occupancy, consider implementing aggressive yield management rules where your room rates increase as your room availability decreases.
Although it might sound counter-intuitive, don’t allow your rooms to sell too quickly! If you’re selling out months or even just a few weeks in advance, you’re probably under-pricing your rooms.
An Example: A property identified that year-after-year the month of August, a high season month in their region, was trending 85–90% occupancy before August 1 and 98–100% occupancy by August 15. This is an indication that their pricing was too low based on their dwindling supply and high demand. They implemented the following plan:
- Increased room rates by $25 across the board
- Raised rates for the weekend of an annual local event by an additional $20
- Created an automatic rate adjustment rule to increase room rates $25 once they were 50% booked on any given day
By the end of August, their occupancy remained the same but the bank account was much bigger. They plan on repeating the strategy again to help figure out their most profitable price point.
Stay Competitive But Don’t Give Away Your Rooms During Your Low Season
Keep up to date on the events happening around your property because these are the times when visitors are going to be most drawn to your area—and it might not necessarily line up with your high-season!
Did Beyoncé just announce her tour dates which include a night in your city? Did the brewery down the road just announce a special event? Does your area host an annual festival to attract visitors in the low season? Consider manually adjusting the rates up since you know there will be increased demand even though it is your low season.
But what happens if you are just a few weeks or days away and you have rooms left to fill? As the date approaches, consider reducing the price of any unbooked room nights, but remember that it is called a “slow season” for a reason: you just don’t have as many opportunities to sell, so don’t give your rooms away for nothing—price might not be the problem. Instead, set rates you are comfortable with and use upgrades to improve your guest experience. It costs next to nothing to offer a free upgrade to a better room that wouldn’t have otherwise sold and now you have something for your guest to talk about when you ask them to review you on Google or TripAdvisor.
Further Reading and Resources
If you’re a ThinkReservations customer, use your Booking Pace Report to track how your pricing decisions affect the pace of your bookings and profitability of the pricing strategies you try. Customers who regularly consult this report are better able to adjust their pricing decisions to stay profitable.
To learn more about ThinkReservations and to follow the entire Generate More Revenue NOW blog series, visit www.thinkreservations.com. Join us at the CABBI InnSpire Conference & Marketplace where we will explore a variety of yield management strategies at the Opening General Session on January 26, 2020, at 3pm.
