What are the key strategies of yield management? How does yield management help in generating increased revenue? To facilitate a better understanding of these concepts, the ‘Inn or Out’ yield management simulator, an in-class game, lets students take on the role of a hotel manager in charge of room bookings and guest check-in. While playing the game, students manage the hotel booking needs of guests, who have varying profiles and differing amounts they are willing to pay, and decide whether to accept or reject a booking. At the end of the game, students are presented with a total score, which represents the revenue they have generated from their bookings for the hotel. The scores depict how efficiently a student has utilised available rooms to generate revenue.

Yield management as a concept first emerged in the 1980s, when Robert Crandall, CEO of American Airlines, used it to sell airplane tickets efficiently and maximise revenue. Crandall later explained to Bill Marriott, then Executive Chairman of Marriott International, how yield management had helped American Airlines solve its perishable inventory problems, which inspired the latter to adopt the strategy in hotel bookings with great success.

Perishable inventory in the airline and hotel industries was unsaleable inventory – once a plane had taken off or a night had passed, its revenue prospects were over. Yield management strategies involve adjusting pricing to match booking demand to maximise revenue during peak season and increase revenue during the low season. In other words, it involves changing prices to match ongoing fluctuations in supply and demand.

Yield management is now widely practiced as a dynamic pricing strategy in the hotel industry, to maximise revenue generation from hotel rooms, which have a fixed and time-limited inventory. The approach uses existing information to understand and predict consumer behaviour, tweak sales strategy accordingly and generate maximum revenue for all vacant rooms (also known as revenue per available room or RevPAR). In other words, yield management allows hotels to sell the right room to the right customer at the right time and at the right price or rate.

Modern day online travel agencies like Booking.com have automated algorithms to implement yield management strategies and perform automated data analysis to provide the pricing rates that will yield the best results in terms of revenue.

The ‘Inn or Out’ game tries to test students on their understanding of the presented data in the game and apply yield management principles, for two specific scenarios. The first scenario (Phase 1) is well before the holiday season when prospective visitors want to book their stay in advance. The second scenario (Phase 2) consists of last-minute bookings. In these phases, students will have to decide whether to accept the bookings before the timer runs out. The booking will be rejected if no input is detected when the timer runs out.

After Phase 2, the game has an automated check-in phase where students can check the number of guests who have arrived and those that did not show up. At the end of the game, a summary of all the bookings made, with the revenue generated, vacant room penalties, overbookings, and total score, is presented. Students will be rewarded based on the yield generated by their bookings and how efficiently their allocation has utilised the availability of the rooms. Penalties are imposed for overbooking and vacant rooms.

By allowing students to apply different strategies for high and low season bookings, the game is designed to help students understand the various factors that need to be considered to generate maximum yield based on the price a customer is willing to pay at a given time.

Written by Marcus Ang, SMU Associate Professor of Operations Management; Bernie Koh, Assistant Director from the Centre for Teaching Excellence; and Lipika Bhattacharya, Assistant Director from the Centre for Management Practice (CMP) at SMU; this game case illustrates the value of yield management strategies and underscores the various factors that impact consumer demand for a fixed product (in this case hotel rooms).

To read the case in full, please visit the CMP website by clicking here.