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

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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

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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 Short stay. One or two days Longer stay.

Flexibility Cancellations and rescheduling are

allowed at a low penalty.

High penalty for cancellation and

schedule

change

Time of purchase Bookings are made very close to date Bookings are made quite early

Privileges Are rewarded loyalty privileges 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

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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

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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

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Revenue Management as a Business Process

.

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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.

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Market size variation: Hotels are commonly referred to begging ether business or leisure-

oriented. 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 Orientation Location

Carlton Savanna boutique hotel

Business“ especially fashioned for business travelers and locals”

“In Trinidad, the financial seat of the Caribbean” Port of Spain

Hyatt Regency Trinidad hotel and conference

center

Business“The world-class meeting and event facilities, and the most expansive and contemporary conference center in the Caribbean”.

Hyatt Regency Trinidad#1 Wrightson Road,

PortofSpain, Trinidad,

Magdalena Grand

Beach Resort

Leisure Tobago Plantation

Estate, Lowlands

Stone Haven Villas Leisure “The Villas at Stone haven is an inspired Caribbean resort “

Tobago

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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

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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

- Place,

- Promotion

- Price

Technology

- Electronic

Distribution

- RM Systems

Distribution

- In-house systems

and their ability to

integrate

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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."

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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. Retrieved Novemeber 11/25/2012, 2012, from [PDF] Government of the Republic of Trinidad and Tobago BUDGET ...: http://www.guardian.co.tt/sites/default/files/story/Budget-Statement-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.

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