The Downside to Aggressive Hotel Yield Management

The Downside to Aggressive Hotel Yield Management

Yield management for hotels is widely touted as being about providing the right product (in this case a room), to the right person at the right price. But it is fundamentally flawed when looked at through the lens of the guest experience. 

I recall watching a fascinating documentary recently about Marriott in the USA highlighting how complex and sophisticated their yield management algorithms were.

The problem I have with the term "right price" is that this refers to the right price for the hotelier. Or in other words, it's the price that maximises the profit for that limited resource - the hotel room.

We all know that yield management is used to maximise revenue across the hospitality industry, - and I am sure we understand the concept and principles behind it.

In the video above the representative from Marriott explains that they prefer to wait until their competitors have sold out and then raise prices accordingly. 

That would seem on the face of it to be a clever tactic. But what about the poor guest? That guest needs a hotel room in that city on that night for any number of intractable reasons (wedding, funeral, important business meeting). In many cases, they simply don't have a choice except to pay the exorbitantly inflated price.

It doesn't really matter how fantastic the "service" then is at that hotel. The guest (if they are paying the bill) is simply going to have a less than stellar overall guest experience. That's because the the "product" of the hotel remains the same. 

That is because the way we look at Guest Experience is to consider it in the context of product, service and value. And if the value isn't there - the only way to compensate for this is by improving the service as the product remains the same.

A guest who is paying "through the nose" for their room will view everything from the perspective of how much the room cost them. If the room cost twice as much, the "service" has to compensate four fold! Otherwise, it follows that an average or poor review will ensue on TripAdvisor and Google.

I believe yield management has its place - but it should not be overly aggressive or extreme. At the end of the day, the most important outcome medium to long term is the guest experience and the reputation of the hotel.

Poor reviews and a diminished reputation have a knock on effect on both your future bookings and potentially even Google My Business (local) ranking.

Google review count and score are also factored into local search ranking—more reviews and positive ratings will improve a business’s local ranking.
— Google Support Page

This is backed up by solid research in the area of guest satisfaction which makes the clear (some might say obvious) correlation between price and satisfaction.

This 2003 study from the Journal of Hospitality & Tourism Research titled 'Relationships between Hotel Room Pricing, Occupancy, and Guest Satisfaction: A Longitudinal Case of a Midscale Hotel in the United States was very revealing.

This case study examined the relationship among hotel room prices, occupancy percentage, and guest satisfaction using 3 years of data from 3,875 actual guest satisfaction surveys at an upper-midscale hotel. The study concludes that price was a significant predictor of overall guest satisfaction and three key guest-satisfaction components: guest room cleanliness, maintenance, and attentiveness of staff (with negative, curvilinear relationships in all cases).

So if you are adopting an aggressive yield management strategy, I would urge you to consider the impacts on guest satisfaction and online reviews, rather than meeting short term budgets.

Jacking Up Prices During Special Events

This is a common tactic used by hotels which apparently "all hotels do". That is actually a misconception, because many smaller or boutique hotels do not raise prices during increased demand. No wonder they often have much higher satisfaction rates and TripAdvisor rankings.

Here is another very revealing video about yield management with some rather frank views expressed by some of the participants. It was way back in 2012 but it is still worth watching.

Fast forward to about 17.00 minutes to hear his comments.

For the guys that come in one time, we’ve got X number of rooms allocated on a really high rate - you know, honestly, we don’t care. Because we know they’ll never come back because they are only there for that experience.
— Withheld

Well there is some honesty for once. The gentleman in question was referring to the practice of jacking up hotel prices to "really high rates" during the Malaysian Grand Prix. He appeared to work for a hotel management company in Malaysia responsible for running a number of hotels directly and under management.

I don't think I have ever heard of a hotel manager claiming "we don't care" about guests. Quite a remarkable comment and one that spurred one of the other panelists to note that if you were a budget hotel chain and your brand promise was "value" then not caring about pricing could do irreparable damage to your brand. Wise words.

My opinion is that if you stop caring about the guest — you are no longer operating in the "hospitality" industry.

Chris Jack is the editor of Locus Focus and a professional hotel photographer based in Brisbane with over 20 years experience in digital marketing. He also hosts the weekly "Sharper Hotel Marketing" podcast.