What do you think about yield management for room prices ?

[New Hotel]

One point which came up in discussions last week was how we price the rooms. I guess all the options are already familiar to most people what with various low, shoulder, high and peak seasons etc. and I'm taking it that everyone understands the economics of supply and demand. What I want you to think about is the use of yield management for room pricing.

 

If you've used a budget airline such as Air Asia, then you know that many people pay different prices for the same flight on the same day. Outside of Bt1 offers etc. they have a cap and collar policy where fares cannot fall below a certain level and also cannot rise above a certain maximum. That is one model. Other models shift the parameters according to season and some have tight variations and others quite large differences between the top and bottom price.

 

We would like your comments on using yield management to price the rooms.

 

One problem with yield management is that you have to pay in advance and terms and conditions of the cheapest rooms are stricter the cheaper the rate. A reasonable example of this in practice is the Ibis or Accor hotel website and their plus or minus terms. Yield management also means that you would be faced with potential price changes for each day you stayed. Extending your stay would probably require booking at the current rate, which may be higher than the rate you could have booked at when you made your reservation.

 

As I've said previously, we're floating ideas around at the moment which may or may not be incorporated. My gut feeling is that guys are worried about paying in advance for a number of reasons but I guess they do it in 100s of other areas on the net and don't bat an eyelid. There would of course be top end security and most likely you'd have to be Verified by Visa or have Mastercard Secure Code. Payment details are much farther down the line so don't worry about that too much and just think about the concept.

 

As a customer, one benefit is that I can see where vacancies are available and all in real time. I would have a guaranteed booking either with flexibility to change or cancel or not, depending upon the rate chosen.

 

Maybe it is too impersonal and manual bookings are what people want ? What is certain is that far too many people make bookings for multiple hotels and guest houses and then never cancel. That means lost business and pushes rates up. We'd rather manage things as efficiently as possible to keep costs down as far as possible.

 

Nothing has been decided and does not have to be until we choose the software we intend to use. I think there are more positives than negatives but we really need your comments on this one. Straight up gut feelings about the idea please.

[Sailfast]

One point which came up in discussions last week was how we price the rooms. I guess all the options are already familiar to most people what with various low, shoulder, high and peak seasons etc. and I'm taking it that everyone understands the economics of supply and demand. What I want you to think about is the use of yield management for room pricing.

 

If you've used a budget airline such as Air Asia, then you know that many people pay different prices for the same flight on the same day. Outside of Bt1 offers etc. they have a cap and collar policy where fares cannot fall below a certain level and also cannot rise above a certain maximum. That is one model. Other models shift the parameters according to season and some have tight variations and others quite large differences between the top and bottom price.

 

We would like your comments on using yield management to price the rooms.

 

One problem with yield management is that you have to pay in advance and terms and conditions of the cheapest rooms are stricter the cheaper the rate. A reasonable example of this in practice is the Ibis or Accor hotel website and their plus or minus terms. Yield management also means that you would be faced with potential price changes for each day you stayed. Extending your stay would probably require booking at the current rate, which may be higher than the rate you could have booked at when you made your reservation.

 

As I've said previously, we're floating ideas around at the moment which may or may not be incorporated. My gut feeling is that guys are worried about paying in advance for a number of reasons but I guess they do it in 100s of other areas on the net and don't bat an eyelid. There would of course be top end security and most likely you'd have to be Verified by Visa or have Mastercard Secure Code. Payment details are much farther down the line so don't worry about that too much and just think about the concept.

 

As a customer, one benefit is that I can see where vacancies are available and all in real time. I would have a guaranteed booking either with flexibility to change or cancel or not, depending upon the rate chosen.

 

Maybe it is too impersonal and manual bookings are what people want ? What is certain is that far too many people make bookings for multiple hotels and guest houses and then never cancel. That means lost business and pushes rates up. We'd rather manage things as efficiently as possible to keep costs down as far as possible.

 

Nothing has been decided and does not have to be until we choose the software we intend to use. I think there are more positives than negatives but we really need your comments on this one. Straight up gut feelings about the idea please.

 

Have you been in the hotel business before?

 

I don't think you are going to reinvent the wheel when it comes to bookings and payments. Many hotels are flexible with bookings, cancellations and payment. It's the cost of doing business.

 

Flexibility today with a cancellation policy and the guest may very well return when they can. Try just one time to hold them to something and you will lose them forever.

 

As for pricing, well, that's why hotels have a rack rate that is often much higher than a reserved room. You walk in off the street and need a room now, you might pay a premium. That premium helps cover revenue lost through other means. If you have lots of room for the guy off the street than maybe you offer him a discount off the rack rate or wait till he makes a counter offer. This isn't that much different than what airlines do. They just make it seem more complicated.

 

Don't tell me anyone would think to budget a hotel by forecasting a 100% occupancy rate?

 

If I'm a customer who has been staying in your hotel the past two weeks, would like to extend, and you think you will raise my rate just because I want to do more business with you then you are a nutter. You can explain your economic theories to the back of my head as I exit the building.

 

Have you been in the hotel business before?

[BigDUSA]

i agree with Sailfast. Airlines can use yield management because they have very sophisticated programs and large numbers of seats daily. I can understand the hotel owners problem but if you try this when you first open it will kill your business.

[CheshireTom]

One problem with yield management is that you have to pay in advance ......

 

Where is that set in stone?

 

Are you sure your not just doing a college project/assignment, or something?

[CheshireTom]

i agree with Sailfast. Airlines can use yield management because they have very sophisticated programs and large numbers of seats daily. I can understand the hotel owners problem but if you try this when you first open it will kill your business.

 

They won't have any relevant historical data to run a yield management system.

[New Hotel]

Points taken thank you.

 

No, it is not a college project and we have experience but this venture is a lot of money and we'd rather take some time and get less things wrong. Or at least not as wrong.

 

My time on the ground looking at Pattaya based businesses (as well as those in other areas - there is really no discernible difference) has shown me time and time again that many businesses are poorly managed and what scant resources they have are underutilised. This surfaces as waste and often the owners or managers are too busy keeping the wolf from the door. As our proposed business will have significant competition, if we are able to reduce waste and more fully utilise our resources, then we hope to gain a competitive advantage. One way we thought could assist was in the booking process. In the end, the winner is the customer who hopefully gets a better product at a better price.

 

I guess I didn't consider that Pattaya was so unique a destination that potential customers might not be interested in availing themselves of cheaper accommodation rates by forgoing some degree of flexibility in their booking. I find it quite common when booking hotels all over the world and as long as it is easy to understand, such as the Ibis / Accor + and - symbols, then I do not see where the issue lies. The choice would always remain with the customer.

 

Reading this forum and indeed others, it seems some people want to have ultimate flexibility and in fact book rooms in multiple hotels and guest houses and simply do not cancel. They do not appear to think that is unfair or wrong and yet I bet they are the same people who complain when asked for deposits or to pay in advance for the peak season. If rooms are left unoccupied because someone just cancels and has no financial penalty, then the loss to the business is recouped through higher room rates all round.

 

Flexibility can be offered whenever possible and as in hotel reward programmes, those who are regular patrons can be awarded greater flexibility as a reward for their past patronage.

 

Mr Tom, I take your point that there would be no historical data for this business but that does not mean a yield management system could not be implemented. It would develop over time for sure but the objective is quite simple, to have a full house at prices which guests are happy paying and offering services which will have them booking again in the future.

 

Thanks again for all the comments. Now back to school !

[CheshireTom]

Mr Tom, I take your point that there would be no historical data for this business but that does not mean a yield management system could not be implemented. It would develop over time for sure but the objective is quite simple, to have a full house at prices which guests are happy paying and offering services which will have them booking again in the future.

 

Yes. It's called a SWAG.

 

Thanks again for all the comments. Now back to school !

 

Don't forget the credits.

[Obsession]

I have paid in advance a couple of times and wanted to leave. I wont be doing so again.

Last trip I was in a place and they had to do work on a burst pipe. I stayed a few days, then left because of the noise and dirt. Thankfully I was paying by the day. But what if the noise was from next door, or there was some other reason for you to move? Best to pay by the day, imho. And be a bit suspicious of any GH/hotel wanting paid in full up front.

[joekicker]

Yield management also means that you would be faced with potential price changes for each day you stayed. Extending your stay would probably require booking at the current rate, which may be higher than the rate you could have booked at when you made your reservation.

 

In addition to agreeing with all comments above... I presume you mean that the price you charge me up-front would be a different rate per day. I don't care. I want to know how much the stay is. Just like I don't care the cost of each leg of my flight, I just want the fare from A to Bangkok. If you mean I am going to wake up each morning wondering what today's rate is, well, heh. that isn't going to happen.

 

The second sentence is simply wrong. Extending my stay would depend entirely on the state of bookings. If you have a half-empty hotel and you're suddenly going to double my room rate because I didn't book it three months in advance, dream on -- that isn't going to happen.

 

This "plan" needs quite a bit of work.

 

.

[darkmancomes]

I was once told about 2yrs ago now I think, that there was 35000 beds for tourist in Pattaya. Bearing that in mind and the current global financial crisis I think we as tourists that still go there are in the "buyers market" and are spoiled as such. Not forgetting that there are people on different budgets etc it must be remembered that Asia by nature is a country where you can bargain for anything so the same for hotel prices. I have been going to Pattaya for some time now maybe three four times a year my first place to stay as recommended by friends was flipper lodge and yes I went back a second time but have since discovered better and cheaper. That's life we live and learn and get experience of places we go. I now prefer to stay on soi Bukaow as its quieter cheaper and if I want to visit the soi's its only a short walk. I have now got used to a particular place and I email them get the rate go there no deposit and if I decide to extend my stay beyond that booked I expect and will get the same rate as I booked at otherwise like previously mentioned there are plenty of other places who will want my trade. One thing I would suggest to the person starting the topic is that to give consideration to a westerner as a manager it would smooth out lots of problems that I have witnessed in the past. Also if genuine I for one appreciate that you took the time to ask the members of this forum for their opinnion. It is a big audience and one that has experience in such subjects.

[laffnliv]

I certainly don't have any experience in the hotel business. And I will now prove it.

 

If the OP is experienced in the business why is he asking on a monger's board how he should organize the business?

 

If the OP is not experienced he shouldn't even try such a business in Thailand. Just my own take on this whole thread.

 

Little Roy

[short]

Don't use Verified by Visa.

 

I made about 10 hotel and airline purchases using my visa card. But when I used it for an airline that uses Verified by Visa, the bank froze the card.

 

 

Evidently the kinks havn't been worked out.

Edited November 30, 2009 by short

[Obsession]

Don't use Verified by Visa.

 

I made about 10 hotel and airline purchases using my visa card. But when I used it for an airline that uses Verified by Visa, the bank froze the card.

 

 

Evidently the kinks havn't been worked out.

 

I had so many problems with V V , that I stopped using it.

[torrenova]

............ be a bit suspicious of any GH/hotel wanting paid in full up front.

 

Pretty much every hotel chain has their lowest prices linked to full prepayment with no changes to the reservation possible. They do have rooms on less strict conditions but with higher rates. I recently booked the Marriott and was able to get some very decent rates but I did have to cede flexibility. I thought it was a very good trade off.

 

Not sure where this business is going though. Maybe prepayment is only possible when you have established your reputation but that guy with the hotel near the airport in Phuket said he was doing the vast majority of his business via prepaid on-line bookings so perhaps it is possible in certain circumstances. His guests certainly did not know who he was.

 

I'd guess a real proper website with some decent money spent on it, rather than the usual $100 crap which most places make do with would go some way to establishing credentials.

[torrenova]

I certainly don't have any experience in the hotel business. And I will now prove it.

 

If the OP is experienced in the business why is he asking on a monger's board how he should organize the business?

 

If the OP is not experienced he shouldn't even try such a business in Thailand. Just my own take on this whole thread.

 

Little Roy

 

I guess the reason he is asking people is that the people on this forum are his target audience and prospective customers. I guess that might be thought of as astute in certain quarters, actually listening to what the customer wants.