Revenue Management

There are some common characteristics of the service products which can be described as intangibility, inseparability, variability, perishablity and the inability ( Kandampully,Z et al:2000;Palmer, A:1994; Rust et al:1996)). In addition, Zeithaml& Bitner(1996) indicates that fluctuating demand should be considered in hospitality industry. Additionally, Lee- Ross and Johns (1997) claims that yield management could be used to assist the service organization to maximize revenue when the demand is fluctuating and product is perishable. Thus, due to the perishablity of the service products fluctuating demand, the hoteliers could apply yield management system in order to maximize the revenue.

Kimes (2000) claims that Yield (or revenue) management is a method for managing capacity profitably and the term ЎҐyieldÐŽ¦ refers to yield (or revenue) per available time-based inventory unit. It refers on the revenue per available room nights in hotel and revenue per available seat hours in the restaurant. In addition, Kimes (2000:4) defines that ÐŽ§yield management is the application of information systems and pricing strategies to allocate the right capacity to the right customer at the right place at the right time.ЎЁ She suggest that Yield Management are applicable where the following conditions predominated:

Ñ"Ь Capacity is relatively fixed

Ñ"Ь Demand can be predicated separated in to distinct market segment

Ñ"Ь Inventory is perishable

Ñ"Ь Products is sold well in advance of consumption

Ñ"Ь Demand fluctuates substantially

Ñ"Ь Marginal sale costs are low and production costs are high

Moreover, Kimes (1998, 2000) suggests that the following factors are the necessary ingredient for a yield management system:

Ñ"Ь Market Segmentation

Ñ"Ь Historical Demand and Booking Patterns

Ñ"Ь Forecasting

Ñ"Ь Pricing Knowledge

Ñ"Ь Overbooking Policy

Ñ"Ь Information System

Furthermore, Jones and Kewin (2000:234, cited in Ingold et al.) extended the definition of ÐŽ§Yield Management to incorporate historical performance, demand forecasting and decision-making to enable revenue optimization.ЎЁ Lieberman (2000:234, cited in Ingold et al) considers that Yield Management is a management tool with the capacity to yield a net result of enhancing revenue and customer service capability through a melding of information system, technology, probability, statistics, organizational theory and business experience and knowledge.ЎЁ

According to the above definition and conditions, yield management can be applied to many different industries. Due to the scale of this essay, the author will only discuss the hotel industry.

The above definitions have identified that historical performance, accurate forecasting, information system, technology and management knowledge are vital to success yield management. However, these definitions fail to address how to operate the yield management system effectively. There are some models have been proposed by different authors in regarding about successful implement yield management in the hotels.

The goal of hotel management is to generate revenue with the hotelsÐŽ¦ available resource and the key factors in determining room revenue are occupancy and average room rate (Donaghy et al: 1995). Yield management aims to optimize both these variables simultaneously (McMahon-Beattie and Donaghy: 2000) and this can easily be seen in OrkinÐŽ¦s (1988) efficiency statistic:

In addition, Orkin (1988) realized revenue is ЎҐactual sales receiptsÐŽ¦ and potential revenue is ЎҐincome that could be secured if 100 per cent of available rooms are sold at full rack rateÐŽ¦ (Cited in McMahon and Donaghy 2000: 235)

However, Donaghy et al (1995) and McMahon and Donaghy (2000) challenged OrkinÐŽ¦s definition, they points out due to many hotels are rely on discounted leisure and/or conference guests and there are no industry specific criteria for the establishment of the rack rate, the use of the yield efficiency statistic result may be unrealistic and misleading in comparisons across hotels.

Donaghy et al (1995: 141) defines ÐŽ§ Yield Management is a revenue maximization technique which aims to increase net yield through the predicted allocation of available bedroom capacity to pre-determined market segment at optimum priceЎЁ. In addition, Jauncey et al (1995:25) defines that ÐŽ§Yield Management is an integrated, continuous and systematic approach to maximizing room revenue through the manipulation of room rates in response to forecasted patterns of demand.ЎЁ According to their definitions, the accurate forecast demand, allocation capacity, market segment and optimum price are the essential issues for hotelier to manipulate different room rates in order to maximize room revenue. Furthermore, Jauncey et al (1995) suggests that the hotels need an integrate application to systematically record the history patterns of demand and analysis the data in order to predict the future demand accurately in term of the rates and the occupancy of the specific date. Furthermore, they suggest that the hotels should analysis the actual demand through an integrated application (property management system) and compare it with the predicted demand in order to set the optimum rates and manipulate these rates to maximize room revenue.

The above definitions point out the essential elements in implementing the Yield Management. Base on these definitions, several models have been proposed by different researchers. The first model was proposed by Jones and Hamilton (1992), they interviewed a number of managers and concluded that due to the management considers it is too complicate to process it in term of lack of the range and depth of the information they require, none of the hotel were implementing the a complex yield management. In addition, Jones and Hamilton (1992) claimed that interviewed manager indicates that they were tracking declines; segmenting the market carefully; and some were using price-value relationship. Furthermore, they found there are two major problems due to focus on introducing new technology and more sophisticate techniques: ÐŽ§ (1) a focus on the detail and manipulate