YIELD MANAGEMENT

Opening Dilemma:

Yield management is the process by which the front-office manager maximizes the hotels revenue by adjusting rates and instituting reservation policies (sometimes referred to as restricting inventory) according to the market demand during a specific time frame.

As demand for a hotel room increases, so does the price of the room to the consumer.

It is important that the front-office managersresearch in advance any special events that may be occurring in the area so that he or she can adjust the hotels reservation policies and rates accordingly.

If this is not done in a timely manner, the hotel runs the risk of being sold out at a rate much lower than was possible. The result is a loss of revenue to the hotel.

Of course the hotel may not increase the rate on rooms already reserved, so rates should be set as much time before an event as possible, which may depend on just when the events date is set.

It is usually best to set rates no less than 13 months prior to an event. Holidays for example, are generally events where early rate setting is possible.

Some holidays involve lots of travel and may allow managers to set higher rates. However, other holidays generate relatively low demand and perhaps are best addressed with lower rates so that more rooms are booked.

MINIMUM LENGTH STAYS

One tactic front-office managers can use to increase occupancy is the minimum-length stay, which requires guests to stay a certain number of nights. For example, a local university may have scheduled its spring commencement on a Saturday afternoon.

Knowing that all hotels in the area will be filled for Saturday night, the front office manager is able to increase rates.

However, since most guests want to stay over Saturday night, the hotel has few reservations for Friday and those guests who want to stay both Friday and Saturday cannot do it because Saturday is booked up.

This is a case where a minimum length stay of two nights could help the manager fill the hotel both Friday and Saturday nights.

Of course, guests wishing to reserve for only Saturday would be turned away, but if the demand for two-night reservation is strong enough the hotel could dramatically increase revenues by filling the hotel both nights at top dollar.

OVERBOOKING

Another tactic front-office managers use is overbooking, where more rooms are reserved than available. While it might seem that a hotel with all rooms reserved will have a perfect sell-out, this doesnt take into consideration nonguaranteed reservations, which dont penalize guests who dont show up.

Since a percentage of these guests wont likely arrive, the front-office manager must make an educated guess as to the number of no-shows and then allow overbooking by that amount.

To make the decision, the manager will look at the number of nonguaranteed no-shows for that day in previous years, the yearly average of no-shows for the day.

If the front-office manager allows overbooking and there are fewer no-shows than expected, the hotel will need to accommodate guests- which means the hotel will have to find rooms for them in other hotels.

To maintain goodwill, the hotel will usually provide transportation to the other hotel and pay for the room.

Front-office managers should do their best to avoid this situation because it will at least annoy guests and may seriously inconvenience them if no rooms are available in nearby hotels.

Overbooking is especially risky during special events when all area hotels are likely to be filled.

RATE SETTING

Rate setting is another way front-office managers maximize revenues. There are various computer software programmes that help with the rate allocation process.

As described earlier, rates can be adjusted to take advantage of higher demand during special events, but front-office managers also need to carefully set rates for all other times.

For example, some hotels may have higher demand on weekends and therefore can risk higher rates. Rates can vary according to type of room or room amenities.

For instance, larger rooms, rooms with more amenities, rooms near the pool, or rooms with special views can all command higher rates.

Dilemma

You have been appointed as the new general manager at the Richmond Continental Hotel in Ghana. The groups C.E.O told you about how the company is nose diving. Upon assumption it took three months to appreciate the full extent of the problems facing the hotel chain of ten with its headquarters in Accra.

The simple conclusion you came across after 12 weeks of keeping your eyes wide open, while at the same time allowing the rest of the staff to believe you were half-asleep, was that the hotels profits were being stolen.

The Richmond staff were working at a collusive system on a scale he had not previously come across. His first problem now was not to let anybody know the extent of his discovery until he had a chance to look into every department of the hotel.

It didnt take long to figure out that each department had perfected its own system of stealing. Deception started at the front desk, where the clerks were registering only eight out of every ten guest and pocketing the cash payment from the remaining two. This system was permeating through almost all thedepartments, F&B, Housekeeping, Maintenance and engineering, etc.

With your knowledge in Front office management, how would you remedy this problem.