GROUP 7

Gaurav Vij
2014095
Goldy Goel
2014103
Hitesh Patidhar
2014108
Himanshu Aditya
2014106
Himanshi Tiwari
2014114
Karishma Khurana
2014129

STRATEGIC
LEVERS OF YIELD MANAGEMENT
______________________________________________

DEFINITION
A STRATEGY THAT ENABLES THE SERVICE INDUSTRY TO
OBTAIN OPTIMUM REVENUE THROUGH OPERATIONS
A METHOD BASED ON REAL TIME FORECASTING AND ON
THE DEMAND FOR A PRODUCT OR SERVICE OFFERED
A METHOD OF CONTROLLING CUSTOMER DEMAND
THROUGH THE USE VARIABLE PRICING AND CAPACITY
MANAGEMENT TO ENHANCE PROFITABILITY

WHAT DOES THE DEFINITION

ACTUALLY MEAN?
SELLING THE RIGHT PRODUCT
CORRECT BRAND, ROOM TYPE AND/OR MEETING SPACE

TO THE RIGHT CUSTOMER

TRANSIENT OR GROUP/BUSINESS OR PLEASURE

AT THE RIGHT TIME

THE BOOKING WINDOW OF HOW FAR OUT GUEST BOOK

FOR RIGHT PLACE

PROPERLY POSITION RATES FOR EACH SEGMENT

4CS OF PERISHABLE SERVICE

Cost

Capaci
ty

Calen
dar

Clock

CUSTOMER
DEMAND

Strategic Levers
Aim: To predict a successful yield management strategy
on the effective control of customer demand
How: 2 interrelated strategic levers
Prices: Can be fixed or variable
Duration of customer use: Can be predictable or
unpredictable

STRATEGIC LEVERS

USING STATEGIC LEVERS

DURATIO
N
PRICE

UNCERTAINTY OF ARRIVAL
UNCERTAINTY OF DURATION
REDUCE TIME BETWEEN
CUSTOMERS
REFINING THE DEFINITION OF
DURATION
PROPER PRICE MIX
RATE FENCES

DURATION
Can be predictable or unpredictable
By implementing duration controls companies can maximize
overall revenue across all time periods rather than just the
peak periods

DURATION
REFINE DEFINITION

TIME
EVENT

UNCERTAINTY OF ARRIVAL : INTERNAL

MEASURES

FORECASTING
OVERBOOKING

UNCERTAINTY OF ARRIVAL : EXTERNAL

MEASURES

PENALTY
DEPOSIT

UNCERTAINTY OF DURATION : INTERNAL

MEASURES

FORECASTING BY TIME OF ARRIVAL,

LENGTH OF STAY AND CUSTOMER
CHARACTERISTICS

UNCERTAINTY OF DURATION : EXTERNAL

MEASURES

PENALTIES
RESTRICTIONS
PROCESS ANALYSIS

REDUCE TIME BETWEEN CUSTOMERS

PROCESS ANALYSIS

REFINING THE DEFINATION OF DURATION

DURATION: For how long customers use a service

Measured in terms of time or by event
If defined in terms of time rather than events better forecasting
For e.g. In the hotel Industry most hotels sell room from 3 P.M to next
day noon.

UNCERTAINITY OF ARRIVAL
Many firms have perishable inventory
Must protect themselves from no shows or late arrivals
INTERNAL APPROACH: Obtain accurate no show and cancellation
information
Develop overbooking levels that will maintain an acceptable level of
customer service
External Approach: Taking advance deposits for reservation and penalties
for late arrivals or no shows. i.e. shifting the responsibilities towards the
customers

UNCERTAINITY OF DURATION
INTERNAL APPROACH: Accurately forecasting for how long the
customers will be using the services and the number of early and
late arrivals helps managers make decisions as to which requests
to accept
EXTERNAL APPROACH: Deposits and penalties
May work in short term but there is a risk of hurting the company in the
long run

REDUCE TIME BETWEEN

CUSTOMERS
Reducing the changeover time between customers implies more
customers can be served in the same or shorter period of time.

PRICE
PROPER PRICE MIX

PRICE ELASTICITY
COMPETITIVE PRICING
OPTIMAL PRICING POLICIES

RATE FENCES : PHYSICAL

TYPE OF INVENTORY
AMENITIES

RATE FENCES : NON-PHYSICAL

RESTRICTIONS
TIME OF USAGE
TIME OF RESERVATION
GROUP MEMBERSHIP

PRICING AND CAPACITY ALLOCATION : EVENT

CAPACITATED WITH TWO CLASSES
Capacity of 100
Discount class unlimited demand at $75
Premium price
$100
Premium demand 100

110
90
80 100

Premium revenue 10,000 8,800 9,000

Discount revenue 0 1,500 0
Total revenue

10,000

10,300

9,000

LESSON:
in the capacitated environment pricing depends on the relative
demand/capacity relationships

ELEMENTS OF A YIELD MANAGEMENT SYSTEM

OVERBOOKING
PRICING
CAPACITY ALLOCATION
DISTINCT VERSUS NESTED
STATIC VERSUS DYNAMIC

OVERBOOKING
TWO BASIC COSTS
STOCK OUTS
CUSTOMERS HAVE A RESERVATION AND THERE
ARE NO ROOMS LEFT

OVERAGE
CUSTOMERS DENIED ADVANCE RESERVATION
AND ROOMS ARE UNOCCUPIED

EXAMPLE: HOTEL SMI

Stock outs: 0.8 x $150 = $120
Overage: $50

HOTEL SMI NO-SHOW EXPERIENCE

NO-SHOWS % OF EXPERIENCES
EXPERIENCES

0
1
2
3
4
5
6
7
8
9
10

5
10
20
15
15
10
5
5
5
5

5
15
35
50
65
75

80
85
90
95
100

CUMULATIVE % OF

OVERBOOKING APPROACH 1: USING

AVERAGES

IN TABLE 9.1 THE AVERAGE NUMBER OF NOSHOWS IS CALCULATED BY 0X0.05 + 1X0.10 +

2X0.20 + 3X0.15 ++ 10X0.05 = 4.05.
TAKE UP TO FOUR OVERBOOKINGS.

OVERBOOKING APPROACH 2: SPREADSHEET

ANALYSIS

OVERBOOKING APPROACH 3: MARGINAL COST

APPROACH
BOOK MORE GUESTS UNTIL:
E(COST OF DISSATISFIED CUSTOMER) = E(COST OF EMPTY
ROOM)
COST OF DISSATISFIED CUSTOMER *
PROBABILITY THAT THERE ARE FEWER NO-SHOWS
THAN OVERBOOKED ROOMS
COST OF EMPTY ROOM *
PROBABILITY THAT THERE ARE MORE NO-SHOWS
THAN OVERBOOKED ROOMS

MOVING TO A MORE PROFITABLE QUADRANT

THANK
YOU