The Spread of Yield Management Practices: The Need for Systematic Approaches

By. Fabiola Sfodera 04th Oct 2005

Book Discription

Yield management has always been considered a teclinique for large companies, whether these be airlines, railroad, car rental or hotel companies. Its application to the small and medium sized businesses that characterise the tourism industry in many countries, Italy in the first place, has never been totally excluded, but its implementation and subsequent actuation has always been considered too expensive for this type of business. In recent years all this has been changing. Technology and research have opened up new possibilities for its application at costs, and following methods, that are acceptable even to those who cannot access sophisticated statistics or mathematics instruments.

The evolution and the rapid changes in the reference scenarios both of the demand and the offer, have done the rest. It has become clear that to compete in a market as vast as the tourism one, one must apply the principles and techniques of marketing to produce and deliver a service that can satisfy the needs of the client better than the competition. In the same way, however, a deeper knowledge of the processes of the clientele’s choice, acquisition and consumption permits the formulation of increasingly accurate forecasts of their behaviour and an understanding of the significance and importance that each client segment attaches to the purchase and consumption of a particular service. In this way the application of the yield management technique has assumed a new and more important position as well as a greater and constant spread. It has become clear that, moving from a marketing point of view. It is possible to satisfy the clients’ needs better and, at the same time, appropriate a part of their revenue, by asking the highest price that each is willing to support to acquire a specific product or service. From a scientific viewpoint this makes it possible, even in the tourism sector of restaurant and hospitality businesses, to reconcile product differentiation with price discrimination.

Book Information

Print Length

170 Pages





Publication Date

October 4, 2005


6 x 0.39 x 9 inches





About The Author

About Fabiola Sfodera

Associate professor of Marketing and Tourism expert

View Complete Profile

Table Of Contents

What is the position of yield management in hotel business organizations? What is its potential? Is this totally achieved or is there still an unexpressed margin? And with what organizational form does yield management best develop its potential? Innovations regarding organizational structure and work organization in hotels have placed in doubt the role and position which yield management currently holds in hotels. This paper analyses, first of all, the principal causes for the failure of yield management systems and then relates these to the organizational structures widespread in the tourism-hospitality business.

Increasingly one witnesses the failure of yield management applications in hotel statures. The analyses conducted in Italy through the research and degree theses prepared at the Italian Centre for Advanced Studies in Tourism of Assisi (CST) and those published in the principal sector journals\ have demonstrated that the main causes of failure in the implementation of a yield management system are:

  1. an inadequate information system;
  2. the crystallization of the current organization. Often it is not adapted for the functioning of the yield management system, an added activity in the organization;
  3. non-incisive training: just techniques. The entire organization is not trained in the implementation of the system. Only the staff directly involved are taught the software application;
  4. the marketing objectives are unclear and segmentation not well defined;
  5. difficulty, for independent hotels, in defining the standard product upon which yield management is applied;

A prescient comment from the floor at the 4^^^ Annual International Yield and Revenue Management Conference posed the question what does one do when everyone is utilizing Yield Management [YM\1 This paper takes up that challenge and integrates the operational implications of YM into the strategic perspectives of hospitality organizations. Recognizing that one needs to seek out a suitable framework for analysis (Bettis & Prahalad)(Phillips, 1998), this paper takes a systems approach (Johns & Jones, 1999a&b) (Forrester, 1995), addressing thi’ough-lifecycle issues (Langston, 1999) (Parry, 1999a). Recognizing that any ‘Hospitality system’ is governed by feedback loops (Senge, 1990) – this paper addresses a simple acid test for the effectiveness of YM, namely its ability to influence and determine commercial valuations (Marshall & Williamson, 1994) (Heer & Koller, 2000) (Hsu & O’Halloran, 1997).

Many commentators on Yield Management (YM), for example, Rowe, (1989); Brotherton and Mooney, (1992); Harris, (1995); Yeoman and Watson, (1997); Donaghy et al, (1997); Lee-Ross and Johns, (1997), have stressed the importance of considering the ‘people element’ in hotels seeking to adopt a YM system and its associated business philosophy. In spite of this hotel companies invariably either
ignore, or relegate to a subsidiary consideration, the fundamental human issues such a change inevitably generates. The intiroduction of a Computerized Yield Management System (CYMS) involves far more than those logistical and teclmical changes to existing systems required
as an integral element of this process. Such a change not only alters the nature of the capacity management infrastructure within the hotel, it also impacts on the
work roles, mindsets and behaviour of reservations staff, their relationships with customers, and how they perceive the operation of a YM-driven environment.

Information teleology is allowing services organizations to set their prices in very much the same way as traditionally practiced in eastern bazaars – by individual bargaining and haggling. “The price list” is not typical of small businesses dealing with small numbers of buyers. It has no part in the business methods of traders in many eastern countries for whom bartering on a one-to-one basis is the norm. Price lists emerged in response to the industrialization of economies and the growth in the size of markets served by individual firms. Price lists became a method of simplifying transactions between a large organization and large numbers of its customers.

Over time, there has been a tendency for societies to fragment in their motivations to make purchases, which has been reflected in companies developing increasingly fine methods of segmenting markets (Kotler et al., 1996). In the move from mass marketing to target marketing, firms subtly developed multiple price lists, based on slightly differentiated product offers aimed at different market segments.

Today, the process of market segmentation has proceeded to the point where companies can realistically deal with individual market segments (Peppers and Rogers, 1995).

This paper focuses on the control activities entailed within a Yield Management (YM) system for the hospitality business. The technical literature on this issue is rather rare despite the fact that this topic is very critical in the evaluation of the
business effectiveness of the whole YM process.
Our intention in this introduction is to define the meanings of “YM system” and of “control” to avoid possible misunderstandings. Our framework is based on the
following assumptions:
1. We agree with the YM system definition contained in EC report (European
Commission, 1997). Precisely, we think that an authentic YM system corresponds to those classified as “very high” in the report cited above.
2. The generic conceptual framework of a YM system is organized into five main function components: market segmentation, pricing, forecasting, inventory management and reservation.
3. The general criterion for managing the YM system is the concept of bid-price.
4. The control regards a single-unit firm. We have not considered the case of multiple-unit firms such as hotel chains, consortia, et cetera.

Visitor attractions form an integral part of the total tourism product for both the domestic and incoming visitors to a region. Attractions cover a broad spectrum of activities based upon the natural or man-made environment ranging from heritage sites thorough to purpose built centers usually devoted to leisure and recreational activities (Getz, 1993; Swarbrooke, 1999; Hall and Page, 1999).
The attractions sector is complex in definition and provides different levels of engagement with the visitor when the ‘encounter’ takes place (Crouch, 1999).
While visitors enjoy this variety, attractions offer an intangible experience (Yeoman and Leask, 1999) which makes visitor management and marketing complex (Prentice
et al, 1998J since seasonality and a spatial element enters into
the pricing strategy.

A key factor in the performance of any new attractions is being ready for the main tourism season. Although the EcoTech Centi’e opened in the spring of 1999, delays to building and site completion coupled to poor weather did not turn the opening into a recipe for a disaster, but did impact upon visitor targets. The EcoTech Centre opened to a fanfare of high media coverage and the management
team recorded visitor responses from the first day of opening.

Within the food and beverages industry revenue management is defined by Farell, K. and Whelan-lyan, F. (1998) as “the allocation of fixed capacity to various segmented markets in such a way as to meet customer requirements and to provide
maximum returns on available capacity by the application of discriminatory pricing”.
Revenue management includes all kinds of price discrimination that can be used to maximise the revenue when the capacity is fixed (HOREST A, 1999} The theory
was developed, coined for and refined by the airline industry following airline deregulation in the 1970s. Today the technique is widely accepted and extensively used tliroughout the world, mainly among large hotels (Baum, T and Mudambi,
R., 1998, p. 68) but also among large cruise liners, tour operators, and car rental companies. As far as the author knows, and according to experts within the field of revenue management, the theory has not yet been applied to the restaurant sector.
Some authors (Kimes, S.E., et al, 1998; Kimes, S.E., 1999) are occupied with the theoretical aspects of revenue management in relation to the restaurant sector,

Revenue management is one of the more innovative phenomena which have characterized the management of tourist businesses in the last fifteen years.
Experience has demonstrated that such a system can really contribute to increasing a company’s revenue, through management following models that keep in mind the particulars related to the production capacity of the business (supply) and at the same time as those related to the differentiated behaviour of the clientele