Business Case

A yield management system, which can also be referred to as revenue management, is a system that attempts to understand, anticipate and then react to consumer behaviour in order to maximise revenue/profit.

To succeed maximum revenue/profit, a yield management system needs to have an understanding of what has happened before and what is happening now in the organisation; using this historical data to predict what may then happen in the future. So the yield management system will periodically review transactions that have occurred between the consumer and the hotel. Other external information is then fed into the yield management system and this can include statistical data, events such as public holidays, competitor price information, seasonal buying patterns, etc. A predictive modeller then attempts to forecast the total demand within a specific period for the services on offer by market segment and price point.

Clayton W. Barrows(2009) mentioned that "going beyond maximize rates, hotels are using yield management to take more multiple-night reservations during the busy periods on the theory that multiple-night reservation offers less risk of having vacant room following checkout and thus is worth more to the hotel ".

The process of yield management optimisation helps an organisation to adjust its prices so that they meet the total demand characteristics of its markets. In order to maximise the revenue, prices can be determined by:

 Service

 Group of service

 Market (consumer type or geographical)

Yield management models are most effective where the service being supplied is characterised as:

 Capital intensive

 Perishable (revenue is lost if the product/service is not sold by a particular point in time)

The demand side is characterised with:

 Variability of demand