Lesson 1.2 Yield Management in the Hospitality Industry

DCT Online Academy

28 Aug 202201:56

Summary

TLDRThe transcript discusses the adoption of yield management practices from the airline industry by other sectors, notably Hertz in car rental and Marriott in hospitality. Marriott adapted yield management into revenue management, focusing on optimizing length of stay and meal duration. They invested in automated systems for forecasting demand and inventory, targeting marketing, and pricing strategies. As online distribution evolved, revenue management also considered distribution channels to determine optimal pricing.

Takeaways

🛫 Yield management was first successful in the airline industry.
🚗 Hertz was the first car rental company to implement yield management in the early 1980s.
🏢 Marriott International adapted yield management for hospitality in 1989.
🏨 Hospitality industry challenges, such as seasonality and perishable inventory, are similar to those in other industries.
💼 Marriott's adapted system was called revenue management in hospitality.
📊 Revenue management optimizes the length of stay and meal duration, a unique aspect for hospitality.
💻 Marriott invested in automated revenue management systems and forecasting tools.
📈 These tools calculated daily demand forecasts and made inventory recommendations based on various factors.
🎯 The system allowed for more effective targeted marketing based on rate offerings segmented by customer type.
📊 Revenue management tools evolved to optimize negotiated and group rates.
🌐 With the rise of online distribution in the early 2000s, revenue management started considering distribution channels for pricing.

Q & A

What is yield management?
-Yield management is a strategy used in industries such as airlines and car rentals to maximize revenue by optimizing the price and availability of goods or services based on demand.
Why did the airline industry's yield management practices attract attention from other industries?
-The success of yield management in the airline industry demonstrated its effectiveness in maximizing revenue, which led leaders from other industries to consider adopting similar practices.
Which car rental company was the first to implement yield management?
-Hertz was the first car rental company to implement yield management in the early 1980s.
In what year did Marriott International decide to adapt yield management for hospitality?
-Marriott International decided to adapt yield management for hospitality in 1989.
What challenges in the hospitality industry are similar to those in other industries employing yield management?
-The hospitality industry faces challenges such as seasonality of demand, purchase before consumption, and perishable inventory, which are similar to those in other industries using yield management.
How did Marriott International adapt yield management for the hospitality industry?
-Marriott adapted yield management by embracing a system referred to as revenue management, which included optimizing the length of stay or duration of a meal in addition to maximizing revenue.
What tools did Marriott invest in to support their revenue management system?
-Marriott invested in automated revenue management systems, specifically forecasting tools that calculated daily demand forecasts and made inventory recommendations.
How did Marriott's revenue management system optimize rates?
-The system optimized rates by calculating daily demand forecasts, making inventory recommendations based on length of stay, optimum rates, and rates per segment.
How did Marriott's revenue management system facilitate targeted marketing efforts?
-The system allowed for more effective targeted marketing efforts by basing rate offerings on segments.
What changes occurred in revenue management tools over the years following Marriott's implementation?
-Revenue management tools evolved to provide recommendations for negotiated rates and group rates, in addition to optimizing public individual rates.
How did the development of online distribution in the early 2000s affect revenue management?
-With the development of online distribution, revenue management began to consider distribution channels while recommending the optimum price point, in response to the related increase in cost of sales.

Outlines

00:00

🚀 Introduction to Yield Management in the Hospitality Industry

The script discusses the adoption of yield management practices from the airline industry by other sectors, notably the car rental company Hertz in the early 1980s. Marriott International was a pioneer in adapting yield management for the hospitality sector in 1989. The hospitality industry faces similar challenges as airlines and car rentals, such as demand seasonality, perishable inventory, and the need for purchase before consumption. Marriott recognized these similarities and implemented an adapted system known as revenue management, which includes optimizing the length of stay and meal duration. The company invested in automated revenue management systems that forecast demand and recommend inventory and pricing strategies based on various factors, including optimal rates and segment-specific rates. This approach also facilitated more effective targeted marketing. Over time, revenue management tools expanded to provide recommendations for negotiated and group rates. With the rise of online distribution in the early 2000s, revenue management began to consider distribution channels when determining the optimal price point.

Mindmap

Keywords

💡Yield Management

Yield management is a strategy used to maximize revenue by optimizing the pricing and availability of a company's inventory. It is defined as the use of predictive analytics to anticipate consumer behavior and adjust prices or inventory availability accordingly. In the context of the video, yield management was initially successful in the airline industry and was then adapted by other industries, such as car rental and hospitality. The example of Hertz implementing yield management in the early eighties illustrates its application in optimizing car rental availability and pricing.

💡Hertz

Hertz is a car rental company that was the first to implement yield management practices in the early 1980s. It is mentioned in the script as a pioneer in adopting yield management principles outside of the airline industry. Hertz's adoption of yield management signifies the recognition of the potential for this strategy to optimize inventory and pricing in the car rental business.

💡Marriott International

Marriott International is a leading hospitality company that decided to adapt the yield management system for its industry in 1989. The company recognized similarities between the hospitality industry's challenges and those faced by other industries employing yield management. Marriott's adaptation of the system to hospitality is a key example in the script, demonstrating how yield management can be tailored to suit different sectors.

💡Revenue Management

Revenue management is an adaptation of yield management specifically for the hospitality industry. It involves optimizing not just the price and availability of rooms but also the length of stay. The script mentions that Marriott embraced revenue management, investing in automated systems to forecast demand and make inventory recommendations based on various factors, including the length of stay. This term is central to the video's theme as it illustrates the evolution of yield management for a specific industry.

💡Seasonality of Demand

Seasonality of demand refers to the fluctuation in consumer demand for goods or services throughout the year due to seasonal changes. In the context of the video, seasonality is one of the challenges faced by the hospitality industry that can be addressed through yield management. The script implies that revenue management systems help Marriott and similar companies to predict and respond to seasonal variations in demand.

💡Perishable Inventory

Perishable inventory pertains to goods or services that have a limited shelf life or a time-sensitive nature, such as hotel rooms or airline seats. The script mentions that Marriott recognized the issue of perishable inventory as a challenge similar to those faced by airlines and car rental companies. Yield management techniques are used to minimize the loss from unsold perishable inventory by adjusting prices or availability.

💡Automated Revenue Management Systems

These are systems that use technology to automate the processes involved in revenue management, such as forecasting demand and making inventory recommendations. The script highlights Marriott's investment in such systems, which calculate daily demand forecasts and suggest optimal rates and inventory levels. This keyword is crucial as it shows how technology is integrated into revenue management practices.

💡Length of Stay

Length of stay refers to the duration for which a guest occupies a hotel room. The script explains that revenue management in hospitality differs from yield management in other industries by needing to optimize the length of stay. This is an important aspect of revenue management as it allows for more granular control over inventory and pricing.

💡Optimum Rates

Optimum rates are the ideal prices set for goods or services to maximize revenue. In the script, Marriott's revenue management system is described as making inventory recommendations based on optimum rates. These rates are calculated to balance supply and demand to ensure maximum profitability.

💡Rate Per Segment

Rate per segment refers to the pricing strategy where different rates are offered to different market segments. The script mentions that Marriott's system allowed for more effective targeted marketing efforts by offering rates based on segments. This strategy helps in tailoring prices to different customer groups, thereby increasing revenue.

💡Negotiated Rates and Group Rates

Negotiated rates and group rates are special pricing agreements made with corporate clients or for group bookings. The script indicates that revenue management tools started providing recommendations for these rates in addition to public individual rates. This shows the evolution of revenue management tools to cater to a broader range of pricing strategies.

💡Online Distribution

Online distribution refers to the process of selling goods or services through the internet. The script mentions that with the development of online distribution in the early 2000s, revenue management began to consider distribution channels when recommending the optimum price point. This highlights the impact of digital transformation on revenue management practices.

Highlights

Yield management was successful in the airline industry and quickly gained interest from other sectors.

Hertz was the first car rental company to implement yield management in the early 1980s.

In 1989, Marriott International adapted yield management for hospitality.

Marriott recognized similarities between hospitality industry challenges and those addressed by yield management in other sectors.

The adapted system in hospitality was called revenue management.

Revenue management in hospitality focuses on optimizing the length of stay and meal duration.

Marriott invested in automated revenue management systems and forecasting tools.

These tools calculated daily demand forecasts and made inventory recommendations based on length of stay.

Optimum rates and rates per segment were determined to optimize revenue.

Revenue management allowed for more effective targeted marketing efforts.

Revenue management tools historically optimized public individual rates.

Later, tools started providing recommendations for negotiated and group rates.

The development of online distribution in the early 2000s influenced revenue management.

Revenue management began considering distribution channels when recommending optimum price points.

The system helped to address the seasonality of demand, a common challenge in hospitality.

The system also addressed the issue of perishable inventory common in hospitality and food service.

Revenue management in hospitality led to more strategic rate offerings based on market segments.

The implementation of revenue management systems improved operational efficiency in the hospitality industry.

The success of revenue management in hospitality demonstrated its adaptability across different industries.