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Yield Management and Its Practical Application in Hotels UNLV Retrospective Theses & Dissertations 1-1-1997 Yield management and its practical application in hotels Jeffrey M. Caneen University of Nevada, Las Vegas Follow this and additional works at: https://digitalscholarship.unlv.edu/rtds Repository Citation Caneen, Jeffrey M., "Yield management and its practical application in hotels" (1997). UNLV Retrospective Theses & Dissertations. 3315. http://dx.doi.org/10.25669/cgb2-kn6r This Thesis is protected by copyright and/or related rights. It has been brought to you by Digital Scholarship@UNLV with permission from the rights-holder(s). You are free to use this Thesis in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s) directly, unless additional rights are indicated by a Creative Commons license in the record and/ or on the work itself. This Thesis has been accepted for inclusion in UNLV Retrospective Theses & Dissertations by an authorized administrator of Digital Scholarship@UNLV. For more information, please contact [email protected]. INFORMATION TO USERS This manuscript has beei reproduced from the microfrhn master. UMI films the text directly fix>m the original or copy submitted. Thus, some thesis and dissertation copies are in typewriter Ace, i^ddle others may be from ary type of computer printer. The quality of this reproduction is dependent upon the quality of the copy submitted. Broken or indistinct print, colored or poor quality illustrations and photographs, print bleedthrough, substandard marins, and improper alignment can adversely affect reproduction. In the unlikely event that the author did not send UMI a complete manuscript and there are missing pages, these will be noted. Also, if unauthorized copyright material had to be removed, a note will indicate the deletion. Oversize materials (e g., maps, drawings, charts) are reproduced by sectioning the original, b%inning at the upper 1^-hand comer and continuing from left to right in equal sections with small overlaps. Each original is also photographed in one exposure and is included in reduced fr>rm at the back o f the book. Photographs included in the original manuscript have been reproduced xerographically in this copy. Higher quality 6” x 9” black and white photographic prints are available fr)r any photogrsq>hs o r illustrations spearing in this copy for an additional charge. Contact UMI directly to order. UMI A Bell A Howell bfim iiation Company 300 North Zeeb Road, Ann Aibor MI 48106-1346 USA 313/761-4700 800/521-0600 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. YIELD MANAGEMENT AND ITS PRACTICAL APPLICATION IN HOTELS by Jeffery M. Caneen A thesis submitted in partial fulfillment of the requirements for the degree of Master of Science in Hotel Administration William H. Harrah College of Hotel Administration University of Nevada, Las Vegas August 1997 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UMX Number: 1387120 UMI Microform 1387120 Copyright 1997, by UMI Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. UMI 300 North Zeeb Road Arm Arbor, MI 48103 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ©1997 Jeffery M. Caneen All Rights Reserved Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The Thesis of Jeffery M. Caneen for the degree of Master of Science in Hotel Administration is approved. Cha'lrperson, Zheng Gu, Ph.D. Examij .ng Committee Member, John Bowen, Ph.D. Examining ' 5 ^ n ^ i t t e e Member, Michael Petrillose, Ph.D. Graduate Faculty Representative, Anthony Townsend, Ph.D. Dean of che Graduate College, Ronald W. Smith, Ph.D. University of Nevada, Las Vegas August 1997 11 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ABSTRACT Yield management is an approach to pricing that is often used by industries in which the marginal production cost is relatively high, while the marginal sales cost is relatively low. The hotel industry meets this criteria. Industry publications demonstrate a keen interest in the revenue enhancing potential of yield management, but there has been little research on the extent to which this pricing technique is actually utilized by hotel general managers. This research tests the proposition that there are eight basic elements of yield management in hotels. The degree to which yield management is practiced is indicated by the extent that these eight elements are in place. It was found that there is a positive relationship between a manager's perception of his or her own yield management utilization and the extent to which the 8 elements are used. It was also found, however, that while 7 6.9% of hotels claim to be utilizing yield management techniques extensively, very few are using all of the basic elements in their efforts to maximize revenue. I l l Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS ABSTRACT ................................................... i ü LIST OF FIGURES ..............................................vi ACKNOWLEDGMENTS .......................................... vii CHAPTER 1 INTRODUCTION ................................... 1 History .............................................. 2 Definition ............................................ 5 Problem Statement ...................................... 7 Research Hypotheses ................................. 9 Contribution of This study ............................ 11 Delimitations ........................................ 11 Organization of This Study ............................ 11 CHAPTER 2 LITERATURE REVIEW ............................... 13 Y i e l d .................................................. 13 Elasticity of Demand ................................. 17 Segmentation .......................................... 19 Booking Patterns ...................................... 22 Demand Patterns ...................................... 24 Sales, Denials and Regrets ........................... 24 Forecasting ........................................... 25 Pricing and Marginal C o s t ............................ 28 Optimal Allocation of Room Inventory ............... 31 S u m m a r y ................................................ 35 CHAPTER 3 METHODOLOGY ...................................... 38 Questionnaire Design ................................. 38 Survey Administration and Sample Selection ......... 41 Data Collection ....................................... 41 Data Analysis ......................................... 50 Hypothesis Testing ................................... 50 S u m m a r y ................................................ 54 CHAPTER 4 RESEARCH RESULTS ............................... 55 Survey D a t a ............................................55 Hypothesis Testing ................................... 67 Yield Management .................................68 Willingness to P a y .............................. 69 Booking Patterns ............................... 7 0 Demand Patterns ................................. 71 S a l e s ..............................................72 Denials and Regrets .............................. 7 3 Forecasting....................................... 7 4 Price Floor ....................................... 75 IV Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Allocation Methods ............................. 77 Summary of Survey Data and Hypothesis Testing . 78 CHAPTER 5 DISCUSSION AND CONCLUSION.................. 82 Sources of Survey B i a s .................................84 Representativeness of Survey Sample ............... 8 6 Implications for the Hotel Industry ............... 87 Legal Challenges ............................. 87 Marketing Considerations 8 8 Human Resources ................................... 90 Information ....................................... 91 S u m m a r y ................................................ 92 APPENDIX A QUESTIONNAIRE AND COVER LETTER ............... 93 APPENDIX B COMPARISON OF RESPONDENTS AND NON-RESPONDENTS ............................... 98 BIBLIOGRAPHY ............................................ 100 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF TABLES Table 1 Equivalent Yield Combinations .................... 14 Table 2 Equivalent REVPAR Combinations .................. 14 Table 3 Contribution Margin by S e g m e n t ................... 17 Table 4 Sample segment Allocation ........................ 32 Table 5 Response Rate by S t a t e .......................... 4 3 Table 6 Response Rate by Size of Ho t e l ................... 45 Table 7 Response Rate by Type of Organization ........... 45 Table 8 Response Rate by Service Le v e l ..................4 6 Table 9 Response Rate by Primary Market ..................4 6 Table 10 Response Rate by Average Daily R a t e ............. 47 Table 11 Response Rate by Occupancy ...................... 4 8 Table 12 Response Rate by G.M. E x p e r i e n c e ................. 48 Table 13 Response Rate by G.M. E d u c a
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