Price elasticity in revenue management
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What is yield management software?
So-called yield management is similar to Revenue Management, a specific form of price differentiation.
In contrast to classic price differentiation, prices vary not only at product level, but also for individual goods. With that optimizes The hotelier sets prices for the guests accordingly and thus starts his revenue management.
Impacts on yield management
According to the definition of yield management, there are both internal and external influencing factors that contribute to taking the right pricing into account.
The hotelier must consider internal and external factors to determine the best price for a fixed date.
However, the internal factors normally form the basis and based on this, the external factors determine the price. On the one hand, prices must not be below the lower price limit and at the same time not be so high that the willingness to buy ceases.
However, the decision for a cheap price is not only based on figures, but is also influenced by the image of the hotel. Because a low price gives a hotel a different image than a high-priced hotel.
Which influencing factors determine the optimal price?
Internal and external factors influencing revenue management include:
✓ Costs
✓ Booking situation
✓ Holidays, vacations
✓ Experience
✓ Competitor prices
✓ Fairs, special events
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Yield Management Metrics
It is important for the hotelier to recognize when the majority of hotel bookings are made for a specific date.
It is true that there may be irregular bookings that take place sooner or later. However, yield management focuses on volume, i.e. the majority of bookings.
In the hotel industry, this key figure is known as Pick Up. The number expresses how many bookings were made in a specific time for a specific date of stay. The amount of the pick up shows a high demand. The hotel must be able to recognize such a pick up.
The definition of a high pick up is different in every hotel. To do this, the hotelier must know how much a regular pick up is in order to be able to identify a change in good time.
What is behind the quotas?
Another special feature is that it is based on quotas. If a quota is used up, the associated tariff is no longer available.
What makes quotas somewhat unusual at first glance is that corresponding quotas can be linked not only to observable or verifiable criteria (student, club member), but also to behaviours (booking period).
✓ Individual plans are available
✓ Only limited rates are available
✓ Different rates are possible
✓ Tariffs should be comprehensible
Yield management software as a form of price differentiation
Yield management is a special form of price differentiation. However, prices do not vary between Product level, as the principle of price differentiation actually provides, but for individual goods. The quota also plays an important role in setting prices. If the quota of price offer 1 is sold out, the tariff is no longer available, only other price offers. The prices depend not only on target groups and buyers, but also on random behaviours, such as the booking period.
Plan quotas
Quotas create different prices and offers. For customers, it seems as if the price is rising over time.
Price differentiation based on examples
Here is a collection of different price differentiations based on yield management.
A distinction can be made between price differentiation based on individual goods, quotas and sales channels.
Price differentiation for individual goods
There are different methods of price differentiation. Here, differentiation is based on individual goods. The days are fixed and do not apply in principle. Using a cheap theatre performance as an example: there is no price differentiation to give a 10% discount on admission prices every Tuesday, but only on specific days. Performances on 8/10, 13/10 and 24/10 are 10% cheaper — this involves differentiated pricing.
Price differentiation based on quotas
Another example would be that the theatre provides a quota of 20 seats for students, the rest being sold at the normal rate. Quotas can also be found frequently with airlines. This creates various price quotas. Depending on the time of booking, such a flight ticket may have different prices. The prices start very cheap — whoever comes first gets the cheapest price still available. Outwardly, it looks as though prices will rise over time.
Price differentiation through sales channels
Another effective method of yield management is to control availability on sales channels instead of controlling prices. When demand is weak, the supply can be public across all sales channels so that the number of bookings increases. If demand increases, individual sales channels can be deactivated. The best way to do this is to gradually close external channels. Ultimately, only direct sales through the hotel should be active in order to achieve a high turnover.
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