Andrews University Affiliated and Extension Programs
Yield Management techniques in hospitality industry –A comparison with reference to Trinidad and Tobago Business and leisure Hotels
Content
ANDREWS UNIVERSITY AFFILIATED AND EXTENSION PROGRAMS UNIVERSITY OF THE SOUTHERN CARIBBEAN P.O. BOX 175, PORT OF SPAIN
An Assignment Presented in Partial Fulfillment Of the Requirement of the course
Yield Management techniques in hospitality industry – A comparison with reference to Trinidad and Tobago Business and leisure Hotels
Front Office Management
INSTRUCTOR: Cliff Hamilton B.B.A.
By
Onika Blandin
11th October 2012
Introduction It would be safe to say that the general key economic objective of most countries is full employment; sustainable economic growth, far income distribution efficiency of resource allocation and stability. The processes pursued in order to achieve these objectives are of course informed by Management, Culture, History and Technology. The hospitality industry has been recognized as being instrumental in sustaining society’s economic growth and development globally. Travel & Tourism is one of the world’s leading industries, or economic sectors, representing a major source of GDP,employment, exports and taxes. ( (World Travle & tourium Council, 2011). Historically Trinidad and Tobago economy has been driven by the energy sector, new emphasizes on expansion and diversification in Private and Public sector. Growth is expected to be in the vicinity of 1.2 per cent anchored on the improved performance of the non-energy sector. ( (MINISTER OF FINANCE AND THE ECONOMY, LARRY HOWA, 2012) This diversifictioan has seen the positioning of the twin islands tourism development as two distinctive tourism market providers- business and leisure. As a tourism destination Trinidad and Tobago traditional sun, sea and sand holidays in Tobago, including excellent diving, to adventure and ecotourism … or business tourism and meetings, incentives, conferences and exhibitions (MICE travel) in Trinidad. (WTTC, 18 July 2005) The lodging operations seen in the Hyatt and Carlton Savanna Port of Spain; Magdalena and Stone Haven are representations of the current Hospitality and tourism land scape. A comparative analysis can be useful for identifying differences and similarities between approaches to management, targeted market segments, and
1
property types. This paper hower will limit it report on the yield management strategies and techniques implemented by the interviewed manageress of the above mentioned Lodging operations as an index for identifying benefits and dis-benefits of Yield management practices in the current economic climate Challenges The intangibility of the lodging industry product presents operating, marketing, technological and economic challenges. Yield Management can systematically address these challenges and holds high relevance in cases where the constant costs are relatively high compared to the variable costs. The less variable cost there are, the more the additional revenue earned will contribute to the overall profit. (Vani Kamath*, 2008)
What is Yield Management? On researching the topic the writer found that Yield Management and Revenues Management are used synonymously and defined in many ways from technological application and a management function as seen in the following; Yield Management-Demand forecasting systems designed to maximize revenue by holding rates high during times of high guest room demand and by decreasing room rates during times of lower guest room demand (Robert H. Woods* Jack D. Ninemeier**David K. Hayes). Yield management is the umbrella term for a set of strategies that enable capacity-constrained service industries to realize optimum revenue from operations. The core concept of yield management is to provide the right service to the right customer at the right time for the right price. That concept involves careful definition of service, customer, time, and price. (Withiam, 2001) In other words Yield management tries to maximize revenues by managing the tradeoff between a low occupancy and higher room rate scenario. It
2
applies the basic principle of supply and demand economics in a tactical way to generate incremental revenues with in the following parameter and expectations: • A fixed amount of resources available for sale. (Perishability) • Different customers’ willingness to pay a different price for using the same amount of resources. (Market Segment/ Target)
How does Revenue Management work?
Hotels identify the type of customers and the price they are willing to pay for utilizing the service. This can be done on the basis of the following parameters.
Physical characteristics High Price Low price
View
Pool view, ocean view, hill view
Non scenic view
Size
Bigger rooms with more facilities
Small rooms with few facilities
Temporal
Weekday bookings
Weekend bookings
Logical Fences
.
Length of stay Flexibility
Short stay. One or two days Cancellations and rescheduling are allowed at a low penalty.
Longer stay. High penalty for cancellation and schedule change
Time of purchase Privileges
Bookings are made very close to date Are rewarded loyalty privileges
Bookings are made quite early No privileges
Size of Business provided
Corporate business customers booking frequently
Self-funding vacationers booking rarely
Point of sale
Physical delivery and confirmations
By email or phone
3
Demand forecasting: Pricing and demand are inter-related and need to be coordinated. In the hospitality Industry, demand for a room is cyclic in nature and follows a trend. Revenue management models help pinpoint demand by minimizing uncertainty and producing the best possible forecast. Allocation: the revenue management also puts light on the allocation of
inventory (hotel rooms) among different segments. For example, if a hotel has two price categories of rooms, say Rs.4500 and Rs. 6000.Since the pricing is different for the two rooms, these rooms are each targeted at a different customer set. Based on the historical preference pattern of customers in each segment, it would be possible to estimate the number of customers who would be willing to buy these rooms at a given price with a reasonable variance. For example, an average 50 customers may be willing to pay Rs. 6000 for some rooms, but it could also mean that the actual number of customers who turn up for Rs. 6000 could be 60 or even 40 with some probability, or 80 or 30 with a lesser probability. Two Prices: Two Market Segments
Source http://www.assignmenthelp.net
4
Overbooking: Overbooking is a practice of intentionally selling more rooms than available in order to offset the effect of cancellations. For example, suppose in the hotel industry, there are 180 rooms available, there is no certainty that all the rooms would be booed at a point of time. In the same way, during the season, there is a possibility of over booking. Therefore if the booking is done 181 customers instead of 180, the hotel may end up with only 173 or less than 180 customers. Since the probability of exactly 181customers turning up is low, the revenue from that additional customer generally compensates more than the expected cost. For this example, the optimal number of customers that can be booked would be 186 as illustrated in the following figure.
Source http://revenue-management-2010.blogspot.com
5
Revenue Management as a Business Process
.
6
Classification of Rates Normally hotels have four rate categories: (1) Rack rates are normal room rates. It is based on the category of the room, type of bedding and occupancy. Unless specified, guests are quoted the rack rates and are charged for the same. (2) Group and Tour rates are a discounted room rate for an organization, which has blocked a large number of rooms. Most hotels have group rates that are lower than the rack rates. This rate is generally extended to a trade association or fraternal organization that has scheduled a meeting, seminar or conference at the hotel. Discounts are also offered to a tour operator, in return for a commitment to purchase a minimum number of rooms over a given period of time. (3) Special and promotional rates are offered to corporate travellers, traveling sales representatives, military personnel, airlines staff or other regular clients. Sometimes special rates are also offered along with an advertising campaign or to promote the hotel during lean periods. (4) Package rates are offered to the public along with other services such as banquet or a ball, or recreational facilities or a special event. Such a package normally includes accommodation, tickets to the concerned event and transportation from hotel to the venue and back. Other popular packages offered by hotels are honeymoon, weekend, Christmas, New Year or any other sports activity. The package rate is normally lower than the combined component or rack rate.
7
Market size variation: Hotels are commonly referred to begging ether business or leisureoriented. Although each hotel attracts a specific clientele most hotels find that they actually serve multiple types of guest (Robert H. Woods* Jack D. Ninemeier**David K. Hayes)
Name of hotel Type Carlton Savanna boutique hotel
Orientation Business“ especially fashioned for business travelers and locals” Business“The world-class meeting and event facilities, and the most expansive and contemporary conference center in the Caribbean”. Leisure
Location
“In Trinidad, the financial seat of the Caribbean” Port of Spain
Hyatt Regency Trinidad hotel and conference center
Hyatt Regency Trinidad #1 Wrightson Road, PortofSpain, Trinidad,
Magdalena Grand Beach Resort Stone Haven Villas
Tobago Plantation Estate, Lowlands
Leisure “The Villas at Stone haven is an inspired Caribbean resort “
Tobago
8
Yield Managements Strategies: (1) Discriminatory pricing according to consumer’s willingness to pay, (2) seasonal pricing to smooth out peak/off-peak demand, (3)inventory control to keep spare capacity for the highest paying customer, (4) overbooking to compensate for no-shows and cancellations, and (5)discounting to attract incremental business during low demand periods
Disbenefits Customer conflicts: (1) perceived unfairness or inequity, (2) perceived financial risk, (3) perceived price gouging, (4) perceived uncertainty, (5) perceived profiteering, (6) perceived lack of customer appreciation, and (7) perceived change in the nature of the service... Too much of an emphasizes on price may: (1) Drive down rates (2) Decrease the reference price (3) Cause customers to see hotel rooms as commodities (Customers may not differentiate between high-end budget and luxury properties offerings If done incorrectly money can be lost, not made Due to the fact that hotels often forecast the demand will be strong but will expect to have some empty y rooms, there is a need to simultaneously: - optimize… and - stimulate This is what is most difficult… to minimize : -Profit Erosion -Revenue Dilution
9
Analysis It boils down to three issues People - Customer Leisure, business, individual, group contract Ledership Management of revenue generating areas Sales( &data input) staff: desk reservations Technology vendors Distributors Product Technology Electronic Distribution RM Systems Distribution In-house systems and their ability to integrate
Place, Promotion Price
10
Conclusion Yield Management practices between Trinidad and Tobago are influenced by the islands current market position and response to the seasonality of demand. Tobago is particularly affected by limited international market options and a local market that expects “more for less,” was a common sentiment of the interviewed managers. Who found it necessary to split their rates into categories of local and international rates in response to the increase local demand i.e .discounting to attract incremental business during low demand periods. Trinidad Business position can be seen as less seasonal However the Carnival period has been recognized as holding the opportunity for maximum occupancy and rates as a result of increased activity in the city. The questions and challenged is How does Trinidad and Tobago perpetuate its period of high demands on a continues basis? as seen in the major cities of the world, this will lie in the repositioning of the Islands current distinct market position, an emphasizes on the unique experience of the city Of Port Of Spain would facilitate wider market segments coupled with economic and social development . Yield management applied from a holistic view incorporates culture, people, customers, management, sales& data input, staff: front desk, sales reservations, and technology vendor’s distributors. As Alvin Toffler explains, “Society needs all kinds of skills that are not just cognitive; they're emotional, they're affection AL. You can't run the society on data and computers alone.”
Toffler
also states,
in Rethinking the Future, that "The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn."
11
Reference
Buckhiester Management. (n.d.). Retrieved November 11/24/2012, 2012, from http://www.buckhiester.com/revolution_process.htm MINISTER OF FINANCE AND THE ECONOMY, LARRY HOWA. (2012, OCTOBER 1). BUDGET STATEMENT 2013. Government of the Republic of Trinidad and Tobago BUDGET ...: http://www.guardian.co.tt/sites/default/files/story/BudgetStatement-2013.pdf Robert H. Woods* Jack D. Ninemeier**David K. Hayes. (n.d.). Profesional Front Office Management. Vani Kamath*, S. B. (2008). Revenue Management techniques in hospitality industry –. DSpace at Indian Institute of Management Kozhikode , 9. Withiam, G. (2001). Cornel Univerisity School of Hospitality Administration. Retrieved Novemeber 11/25/2012, 2012, from http://www.hotelschool.cornell.edu/research/chr/: http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-13622.html World Travle & tourium Council. (2011). Travel and Tourisum 2011. 1-2 Queen Victoria Terrace,Sovereign Court,London E1W 3HA United Kingdom: WTTC. WTTC. (18 July 2005). TRINIDAD AND TOBAGO THE IMPACTOFTRAVEL &TOURISM ON JOBSANDTHE ECONOMY.
12
An Assignment Presented in Partial Fulfillment Of the Requirement of the course
Yield Management techniques in hospitality industry – A comparison with reference to Trinidad and Tobago Business and leisure Hotels
Front Office Management
INSTRUCTOR: Cliff Hamilton B.B.A.
By
Onika Blandin
11th October 2012
Introduction It would be safe to say that the general key economic objective of most countries is full employment; sustainable economic growth, far income distribution efficiency of resource allocation and stability. The processes pursued in order to achieve these objectives are of course informed by Management, Culture, History and Technology. The hospitality industry has been recognized as being instrumental in sustaining society’s economic growth and development globally. Travel & Tourism is one of the world’s leading industries, or economic sectors, representing a major source of GDP,employment, exports and taxes. ( (World Travle & tourium Council, 2011). Historically Trinidad and Tobago economy has been driven by the energy sector, new emphasizes on expansion and diversification in Private and Public sector. Growth is expected to be in the vicinity of 1.2 per cent anchored on the improved performance of the non-energy sector. ( (MINISTER OF FINANCE AND THE ECONOMY, LARRY HOWA, 2012) This diversifictioan has seen the positioning of the twin islands tourism development as two distinctive tourism market providers- business and leisure. As a tourism destination Trinidad and Tobago traditional sun, sea and sand holidays in Tobago, including excellent diving, to adventure and ecotourism … or business tourism and meetings, incentives, conferences and exhibitions (MICE travel) in Trinidad. (WTTC, 18 July 2005) The lodging operations seen in the Hyatt and Carlton Savanna Port of Spain; Magdalena and Stone Haven are representations of the current Hospitality and tourism land scape. A comparative analysis can be useful for identifying differences and similarities between approaches to management, targeted market segments, and
1
property types. This paper hower will limit it report on the yield management strategies and techniques implemented by the interviewed manageress of the above mentioned Lodging operations as an index for identifying benefits and dis-benefits of Yield management practices in the current economic climate Challenges The intangibility of the lodging industry product presents operating, marketing, technological and economic challenges. Yield Management can systematically address these challenges and holds high relevance in cases where the constant costs are relatively high compared to the variable costs. The less variable cost there are, the more the additional revenue earned will contribute to the overall profit. (Vani Kamath*, 2008)
What is Yield Management? On researching the topic the writer found that Yield Management and Revenues Management are used synonymously and defined in many ways from technological application and a management function as seen in the following; Yield Management-Demand forecasting systems designed to maximize revenue by holding rates high during times of high guest room demand and by decreasing room rates during times of lower guest room demand (Robert H. Woods* Jack D. Ninemeier**David K. Hayes). Yield management is the umbrella term for a set of strategies that enable capacity-constrained service industries to realize optimum revenue from operations. The core concept of yield management is to provide the right service to the right customer at the right time for the right price. That concept involves careful definition of service, customer, time, and price. (Withiam, 2001) In other words Yield management tries to maximize revenues by managing the tradeoff between a low occupancy and higher room rate scenario. It
2
applies the basic principle of supply and demand economics in a tactical way to generate incremental revenues with in the following parameter and expectations: • A fixed amount of resources available for sale. (Perishability) • Different customers’ willingness to pay a different price for using the same amount of resources. (Market Segment/ Target)
How does Revenue Management work?
Hotels identify the type of customers and the price they are willing to pay for utilizing the service. This can be done on the basis of the following parameters.
Physical characteristics High Price Low price
View
Pool view, ocean view, hill view
Non scenic view
Size
Bigger rooms with more facilities
Small rooms with few facilities
Temporal
Weekday bookings
Weekend bookings
Logical Fences
.
Length of stay Flexibility
Short stay. One or two days Cancellations and rescheduling are allowed at a low penalty.
Longer stay. High penalty for cancellation and schedule change
Time of purchase Privileges
Bookings are made very close to date Are rewarded loyalty privileges
Bookings are made quite early No privileges
Size of Business provided
Corporate business customers booking frequently
Self-funding vacationers booking rarely
Point of sale
Physical delivery and confirmations
By email or phone
3
Demand forecasting: Pricing and demand are inter-related and need to be coordinated. In the hospitality Industry, demand for a room is cyclic in nature and follows a trend. Revenue management models help pinpoint demand by minimizing uncertainty and producing the best possible forecast. Allocation: the revenue management also puts light on the allocation of
inventory (hotel rooms) among different segments. For example, if a hotel has two price categories of rooms, say Rs.4500 and Rs. 6000.Since the pricing is different for the two rooms, these rooms are each targeted at a different customer set. Based on the historical preference pattern of customers in each segment, it would be possible to estimate the number of customers who would be willing to buy these rooms at a given price with a reasonable variance. For example, an average 50 customers may be willing to pay Rs. 6000 for some rooms, but it could also mean that the actual number of customers who turn up for Rs. 6000 could be 60 or even 40 with some probability, or 80 or 30 with a lesser probability. Two Prices: Two Market Segments
Source http://www.assignmenthelp.net
4
Overbooking: Overbooking is a practice of intentionally selling more rooms than available in order to offset the effect of cancellations. For example, suppose in the hotel industry, there are 180 rooms available, there is no certainty that all the rooms would be booed at a point of time. In the same way, during the season, there is a possibility of over booking. Therefore if the booking is done 181 customers instead of 180, the hotel may end up with only 173 or less than 180 customers. Since the probability of exactly 181customers turning up is low, the revenue from that additional customer generally compensates more than the expected cost. For this example, the optimal number of customers that can be booked would be 186 as illustrated in the following figure.
Source http://revenue-management-2010.blogspot.com
5
Revenue Management as a Business Process
.
6
Classification of Rates Normally hotels have four rate categories: (1) Rack rates are normal room rates. It is based on the category of the room, type of bedding and occupancy. Unless specified, guests are quoted the rack rates and are charged for the same. (2) Group and Tour rates are a discounted room rate for an organization, which has blocked a large number of rooms. Most hotels have group rates that are lower than the rack rates. This rate is generally extended to a trade association or fraternal organization that has scheduled a meeting, seminar or conference at the hotel. Discounts are also offered to a tour operator, in return for a commitment to purchase a minimum number of rooms over a given period of time. (3) Special and promotional rates are offered to corporate travellers, traveling sales representatives, military personnel, airlines staff or other regular clients. Sometimes special rates are also offered along with an advertising campaign or to promote the hotel during lean periods. (4) Package rates are offered to the public along with other services such as banquet or a ball, or recreational facilities or a special event. Such a package normally includes accommodation, tickets to the concerned event and transportation from hotel to the venue and back. Other popular packages offered by hotels are honeymoon, weekend, Christmas, New Year or any other sports activity. The package rate is normally lower than the combined component or rack rate.
7
Market size variation: Hotels are commonly referred to begging ether business or leisureoriented. Although each hotel attracts a specific clientele most hotels find that they actually serve multiple types of guest (Robert H. Woods* Jack D. Ninemeier**David K. Hayes)
Name of hotel Type Carlton Savanna boutique hotel
Orientation Business“ especially fashioned for business travelers and locals” Business“The world-class meeting and event facilities, and the most expansive and contemporary conference center in the Caribbean”. Leisure
Location
“In Trinidad, the financial seat of the Caribbean” Port of Spain
Hyatt Regency Trinidad hotel and conference center
Hyatt Regency Trinidad #1 Wrightson Road, PortofSpain, Trinidad,
Magdalena Grand Beach Resort Stone Haven Villas
Tobago Plantation Estate, Lowlands
Leisure “The Villas at Stone haven is an inspired Caribbean resort “
Tobago
8
Yield Managements Strategies: (1) Discriminatory pricing according to consumer’s willingness to pay, (2) seasonal pricing to smooth out peak/off-peak demand, (3)inventory control to keep spare capacity for the highest paying customer, (4) overbooking to compensate for no-shows and cancellations, and (5)discounting to attract incremental business during low demand periods
Disbenefits Customer conflicts: (1) perceived unfairness or inequity, (2) perceived financial risk, (3) perceived price gouging, (4) perceived uncertainty, (5) perceived profiteering, (6) perceived lack of customer appreciation, and (7) perceived change in the nature of the service... Too much of an emphasizes on price may: (1) Drive down rates (2) Decrease the reference price (3) Cause customers to see hotel rooms as commodities (Customers may not differentiate between high-end budget and luxury properties offerings If done incorrectly money can be lost, not made Due to the fact that hotels often forecast the demand will be strong but will expect to have some empty y rooms, there is a need to simultaneously: - optimize… and - stimulate This is what is most difficult… to minimize : -Profit Erosion -Revenue Dilution
9
Analysis It boils down to three issues People - Customer Leisure, business, individual, group contract Ledership Management of revenue generating areas Sales( &data input) staff: desk reservations Technology vendors Distributors Product Technology Electronic Distribution RM Systems Distribution In-house systems and their ability to integrate
Place, Promotion Price
10
Conclusion Yield Management practices between Trinidad and Tobago are influenced by the islands current market position and response to the seasonality of demand. Tobago is particularly affected by limited international market options and a local market that expects “more for less,” was a common sentiment of the interviewed managers. Who found it necessary to split their rates into categories of local and international rates in response to the increase local demand i.e .discounting to attract incremental business during low demand periods. Trinidad Business position can be seen as less seasonal However the Carnival period has been recognized as holding the opportunity for maximum occupancy and rates as a result of increased activity in the city. The questions and challenged is How does Trinidad and Tobago perpetuate its period of high demands on a continues basis? as seen in the major cities of the world, this will lie in the repositioning of the Islands current distinct market position, an emphasizes on the unique experience of the city Of Port Of Spain would facilitate wider market segments coupled with economic and social development . Yield management applied from a holistic view incorporates culture, people, customers, management, sales& data input, staff: front desk, sales reservations, and technology vendor’s distributors. As Alvin Toffler explains, “Society needs all kinds of skills that are not just cognitive; they're emotional, they're affection AL. You can't run the society on data and computers alone.”
Toffler
also states,
in Rethinking the Future, that "The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn."
11
Reference
Buckhiester Management. (n.d.). Retrieved November 11/24/2012, 2012, from http://www.buckhiester.com/revolution_process.htm MINISTER OF FINANCE AND THE ECONOMY, LARRY HOWA. (2012, OCTOBER 1). BUDGET STATEMENT 2013. Government of the Republic of Trinidad and Tobago BUDGET ...: http://www.guardian.co.tt/sites/default/files/story/BudgetStatement-2013.pdf Robert H. Woods* Jack D. Ninemeier**David K. Hayes. (n.d.). Profesional Front Office Management. Vani Kamath*, S. B. (2008). Revenue Management techniques in hospitality industry –. DSpace at Indian Institute of Management Kozhikode , 9. Withiam, G. (2001). Cornel Univerisity School of Hospitality Administration. Retrieved Novemeber 11/25/2012, 2012, from http://www.hotelschool.cornell.edu/research/chr/: http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-13622.html World Travle & tourium Council. (2011). Travel and Tourisum 2011. 1-2 Queen Victoria Terrace,Sovereign Court,London E1W 3HA United Kingdom: WTTC. WTTC. (18 July 2005). TRINIDAD AND TOBAGO THE IMPACTOFTRAVEL &TOURISM ON JOBSANDTHE ECONOMY.
12
