27 ms·

Hotel yield management is about a decade or so behind the airlines, but they're catching up, so this is probably going to get a bit harder from the OTA's/custom

by patio11 14y ago

Hotel yield management is about a decade or so behind the airlines, but they're catching up, so this is probably going to get a bit harder from the OTA's/customer's perspectives before it gets easier. (Yield management means the art/science of room pricing such that you sell out nearly all of your inventory while maximizing profits. It has gotten radically more sophisticated over the years -- loyalty programs, for example, are only about 30 years old, and they virtually transformed the industry. (They're patterned off of airline mileage programs, which debuted in 1979.) This is, by the way, one of those boring fields where people who look like programmers, talk like programmers, and act like programmers take home bonuses like bank presidents. (Interview question: "To within an order of magnitude, how much money does it make Marriott if we increase systemwide occupancy rates by 5 basis points this year?")

Evbn 14y ago
Why on earth would you want to sell out all rooms as a goal?
- tesseract 14y ago
  There's an implicit "for the best price each room could possibly bring" attached to that goal. The reasoning is basically that the cost of a hotel room (construction, upkeep, etc) is not affected too much by whether it is occupied or not. (In that way it's very similar to a seat on an airliner.) So considering your costs as a hotel operator are nearly fixed, you're quite obviously better off selling 50 rooms at $200 and then 50 more rooms at $100, than if you had kept the price at $200 and only been able to sell the first 50 rooms. Of course in the real world the pricing strategies are a lot more complicated than that and depend on having good models for how many people are willing to pay what price, and when.
- CamperBob2 14y ago
  I must be missing something here. How does an empty room make any money?
  - kodablah 14y ago
    In many occupancy-based price optimization algorithms (at least in the multi-family sector where I previously worked), it is not optimal to maintain 100% occupancy. It doesn't allow much flexibility. I've seen recommendations for apartments around 95% to cope with fee changing, turn over maintenance etc. I'm sure hotels are in a similar situation (but have even lower percentage due to guest volatility).
  - socrates1998 14y ago
    I first realized this concept on much simpler level. In college, my older friend and I were slowing waking up after a very successful party. There was one beer left. And I said, "That would perfect if we had zero beer left". He replied, "No, one beer is perfect. It means everyone got enough. If there were zero then that means someone could have tried to get a beer after we ran out. With one left, we know that everyone got exactly as much as they wanted."
  - hondje 14y ago
    If a guest knows they can get a better rate they will force you to drive down rates longterm. Also if you sell out, that means you could have charged more and made more in net
ChuckMcM 14y ago
I've spent a lot of time researching the economics of information and one of the interesting things that popped out of that was when I looked at yield management, as a research topic, I realized that that is what information markets would look like when mature.
smtm 14y ago
yield management is the exercise you do when your - the individual hotel's - distribution system is set up perfectly and humming along. The biggest gains for hotels happen actually when they set their mind to it that they want to shift the source of their business away from the OTAs to more direct business: direct can be the online booking tool on their own hotel website, mails, repeat customers, phone calls. yes even phone calls, that should be one of the goals when setting up a mobile hotel website. To achieve this hotels should invest in a decent website, start blogging with a voice that they cultivate over time and go for better rankings in the SERPs. That, plus a humming hotel operation with systems in place to handle the direct business is the way to go. This way even smallish properties can run circles arround bigger competitors. The bigger hotels have a hard time to copy this, as they are not as agile, and need meetings to figure out a "social media strategy". Figure I know quite a bit on how to make hotels way more independent of OTAs as a booking source: this is actually the core of my SaaS offering: http://www.igumbi.com http://www.igumbi.com . It is an online pms, revenue/ yield management system and has a online booking tool for the hotel website. JSONP based and no sucky flash or iframe. The most important aspect of the yield management architecture I find to be the use of nesting. It's a very flexible, value based approach on assigning fixed capacties to sellable allotments. This robust inventory algorithm, devised by MIT's Belobaba, is the thing that executes the yiled management settings. And I totally agree with the use of loyalty programs and direct chstomer interaction. That's why we also have a mailchimp list integration, so it becomes virtually a no brainer to keep your mailing list up to date in he daily business operations
- rubyrescue 14y ago
  who is your typical customer?
  - smtm 14y ago
    Small independent Hotels, Apartments & Fincas. Mostly in Austria, Germany, recently Spain and Switzerland. Properties between 1 and 30 units. Typically they are looking for a management approach that helps them to handle the reservations remotely. 1-4 Staff are dealing with the reservations.
- 14y ago
tantalor 14y ago
Is that interview question supposed to be for programmers or account managers? Is there a difference? I can't imagine how answering that question correctly indicates a good candidate for software engineer.
- patio11 14y ago
  It's a joke, patterned off the famous "Estimate how many golf balls fit in a schoolbus" interview questions that are just windows into how candidates would think about such things. (They're terrible questions for engineers. Don't ask them.) The dual purpose of the joke is that, if you played it straight, you'd probably come up with a number in or near the millions, which I am suggesting is a reasonably achievable result from comparatively trivial optimization work applied at scale. (That's sort of a thing for me.)

by patio11 14y ago

Evbn 14y ago

Why on earth would you want to sell out all rooms as a goal?

tesseract 14y ago
There's an implicit "for the best price each room could possibly bring" attached to that goal. The reasoning is basically that the cost of a hotel room (construction, upkeep, etc) is not affected too much by whether it is occupied or not. (In that way it's very similar to a seat on an airliner.) So considering your costs as a hotel operator are nearly fixed, you're quite obviously better off selling 50 rooms at $200 and then 50 more rooms at $100, than if you had kept the price at $200 and only been able to sell the first 50 rooms. Of course in the real world the pricing strategies are a lot more complicated than that and depend on having good models for how many people are willing to pay what price, and when.
CamperBob2 14y ago
I must be missing something here. How does an empty room make any money?
- kodablah 14y ago
  In many occupancy-based price optimization algorithms (at least in the multi-family sector where I previously worked), it is not optimal to maintain 100% occupancy. It doesn't allow much flexibility. I've seen recommendations for apartments around 95% to cope with fee changing, turn over maintenance etc. I'm sure hotels are in a similar situation (but have even lower percentage due to guest volatility).
- socrates1998 14y ago
  I first realized this concept on much simpler level. In college, my older friend and I were slowing waking up after a very successful party. There was one beer left. And I said, "That would perfect if we had zero beer left". He replied, "No, one beer is perfect. It means everyone got enough. If there were zero then that means someone could have tried to get a beer after we ran out. With one left, we know that everyone got exactly as much as they wanted."
- hondje 14y ago
  If a guest knows they can get a better rate they will force you to drive down rates longterm. Also if you sell out, that means you could have charged more and made more in net

ChuckMcM 14y ago

I've spent a lot of time researching the economics of information and one of the interesting things that popped out of that was when I looked at yield management, as a research topic, I realized that that is what information markets would look like when mature.

smtm 14y ago

yield management is the exercise you do when your - the individual hotel's - distribution system is set up perfectly and humming along. The biggest gains for hotels happen actually when they set their mind to it that they want to shift the source of their business away from the OTAs to more direct business: direct can be the online booking tool on their own hotel website, mails, repeat customers, phone calls. yes even phone calls, that should be one of the goals when setting up a mobile hotel website. To achieve this hotels should invest in a decent website, start blogging with a voice that they cultivate over time and go for better rankings in the SERPs. That, plus a humming hotel operation with systems in place to handle the direct business is the way to go. This way even smallish properties can run circles arround bigger competitors. The bigger hotels have a hard time to copy this, as they are not as agile, and need meetings to figure out a "social media strategy". Figure I know quite a bit on how to make hotels way more independent of OTAs as a booking source: this is actually the core of my SaaS offering: http://www.igumbi.com http://www.igumbi.com . It is an online pms, revenue/ yield management system and has a online booking tool for the hotel website. JSONP based and no sucky flash or iframe. The most important aspect of the yield management architecture I find to be the use of nesting. It's a very flexible, value based approach on assigning fixed capacties to sellable allotments. This robust inventory algorithm, devised by MIT's Belobaba, is the thing that executes the yiled management settings. And I totally agree with the use of loyalty programs and direct chstomer interaction. That's why we also have a mailchimp list integration, so it becomes virtually a no brainer to keep your mailing list up to date in he daily business operations

rubyrescue 14y ago
who is your typical customer?
- smtm 14y ago
  Small independent Hotels, Apartments & Fincas. Mostly in Austria, Germany, recently Spain and Switzerland. Properties between 1 and 30 units. Typically they are looking for a management approach that helps them to handle the reservations remotely. 1-4 Staff are dealing with the reservations.
14y ago

tantalor 14y ago

Is that interview question supposed to be for programmers or account managers? Is there a difference? I can't imagine how answering that question correctly indicates a good candidate for software engineer.

patio11 14y ago
It's a joke, patterned off the famous "Estimate how many golf balls fit in a schoolbus" interview questions that are just windows into how candidates would think about such things. (They're terrible questions for engineers. Don't ask them.) The dual purpose of the joke is that, if you played it straight, you'd probably come up with a number in or near the millions, which I am suggesting is a reasonably achievable result from comparatively trivial optimization work applied at scale. (That's sort of a thing for me.)