Global Reservations Technologies

enough to explain amenities and provide seasonal information. Information should be written in
a variety of languages which parallel languages used by the hotel’s guests. And the website should
enable guests to make other on-site reservations (golf and dining, for example). No wonder the
hotel’s website is being called the front desk of the new millennium.
hotel websites Hotel managers realize the importance of spending marketing dollars
on the Web just as they spend on billboards, print media, brochures, and so on. A realistic goal
for a property is to spend approximately 40% of its annual marketing budget in online products.
A worthy goal, though today’s industry is not yet there. In a recent study (see Exhibit 10),
most hotels stated they were spending only $1,000–$35,000 annually in online marketing. That
approaches only 10% of the average property’s annual marketing budget.
Spending online in such areas as search optimization, regularly updated content, rich
imagery, and interactive maps can return substantial profits. When a guest books directly into a
hotel’s proprietary website, profits rise because the reservation has lower, if any, associated costs
or fees. A $100 room booked through the property’s website is worth $100 (less nominal pay-per-
click fees charged by the search engines). A $100 room booked through an Internet travel site
(Expedia, for example) may be worth just $60 or less!
Chain websites In the early years of the Internet, lodging chains lost ground quickly
to third-party travel sites and lodging aggregators like Expedia, Orbitz, Hotels.com, and
Travelocity (see Exhibit 11). Early on, these third-party travel sites attracted greater demand
from Internet users than chain websites. By establishing certain inventory and room-rate
pricing rules that all hotels were required to follow, heavily promoting low-price guarantees,
and investing substantially in attractive and easy-to-use websites, the travel sites were running
before the chains could react.
Times have changed, however, as third-party travel companies have begun losing
Internet demand back to the chain websites. The catalyst for this change was a gutsy move by
Intercontinental Hotels Group in November 2004. Intercontinental announced it would pro-
vide the best room prices on its own website. Shortly thereafter, most of the other major lodging
chains followed suit, undercutting the biggest attraction for third-party travel sites, lowest rate
guarantees (see Exhibit 12).

Budget Percentage of Hotels

$60,000+ 17

$35,000−59,999 13

$20,000−34,999 19

$1,000−19,999 21

Exhibit 10 The weighted

average annual expenditure by
hotels for online marketing is
just $26,400. This correlates to
only about 10% of the average
hotel’s overall annual marketing
$0−999 30
and advertising budget. Online
expenses are projected to grow
as a percentage of a hotel’s
overall marketing budget for
years to come.

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Exhibit 11 The top 10 Internet travel sites by gross annual revenues. New competitors with
unique ways of scouring the Internet for lowest rates are constantly threatening these proven brands.
A recent study found that newly designed AAA.com offered the lowest rates more often than Expedia,
Travelocity, or Orbitz!

C h e c k R a t e s a n d A va i l a b i l i t y
The Shangri-La Hotel, Beijing
Address: 29 Zizhuyuan Road
Beijing, China, 100089
Tel: (86-10) 6841 2211
Fax: (86-10) 6841 8002/3
Email: [email protected]

A rri v a l D ate: April 5

D e p a r ture D ate: April 6
N u m b er of R ooms/S ui tes: 1
N u m b er of A dul ts: 1 †(per room)
R a te Pl an C ode: (optional)

Professional Identification (Opti onal Informati on)

C o rp o rate R ate ID :
T ra v e l A gency: (IATA/ARC/TIDS)

Clear Form Check Availability

Exhibit 12a Making reservations online is as easy as it is widespread (see Exhibits 1 and 6).
This Shangri-La Hotels & Resorts online reservation form walks the guest through the process step
by step. First we pulled up www.shangri-la.com. Then we selected Beijing, China, and clicked on
“reservations.” At that point, an availability screen popped up (Exhibit 12A). Once availability was
assured, we were given a choice of any different room types and rates. Each room type was detailed:
including rate; room description; bed type; and amenities; such as computer, Internet connections,
hairdryer, minibar, voicemail, even shoe shine availability. Once we selected our room type, a “required
fields” screen pulled up for us to complete and send the reservation (Exhibit 12B). Courtesy of
Shangri-La Hotels & Resorts, Hong Kong.

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 Global Reservations Technologies

R e s e r v a t io n R e qu e s t

The Shangri-La Hotel, Beijing

Address: 29 Zizhuyuan Road
Beijing, China, 100089
Tel: (86-10) 6841 2211
Fax: (86-10) 6841 8002/3
Email: [email protected]
Arriv al D ate: F r id a y , Ap r il 5 , 2 0_ _
Depart ure D ate: Sa t u r d a y , Ap r il 6 , 2 0_ _
Dail y R ate: 2 0 0 . 0 0 Un it e d St a t e s Do lla r s
( P e r n ig h t su b je ct t o a p p lica b le t a x a n d se rvice ch a rg e s)

Num ber of R ooms/S uites: 1

Num ber of A dults: 1

SHANGRI-LA HOTELS WORLD’S FINEST CHOICE *SG*

Guarantee Policy:
CREDIT CARDS: AX VI CA DC JC VS MC
Cancellation Policy:
ONE NIGHT CXLN CHARGE AND TAX
Deposit Policy:
DEP CREDIT CARDS: AX VI CA DC JC VS MC

*Requir e d I n f o r m a t io n

*First Name:
*Last Name:
*Telephone:
*Email Address:
(Please double check your email address before submitting your information as your confirmation will be sent to this address.) †

*Street Address:

*City:
*State/Province: Choose a State (Required only for the United States and Canada)

*Postal/ZIP Code: (Required only for the United States and Canada)

*Country: Choose a Country

(A credit card number is required to confirm/guarantee your reservation.)

*Credit Card Type: Choose Card Type

*Card Number:
*Expiration (MM/YY):

Please indicate any additional request for your reservation such as: bed type, number of
beds or smoking preference. Please note that this request is not guaranteed until check-in.
Comments:

Clear Form Reserve Now

Exhibit 12b

Chain websites have other improvements ahead of them if they hope to challenge success-
fully the third-party travel sites. Hilton Hotels Corporation, for example, recently enhanced each
of its various brand websites to enable users to search for all hotels on one page and then com-
pare them side by side. Marriott International, Inc., has enabled its websites to track Marriott’s
Rewards points in real time. And Westin’s website allows users to search by interest or amenities
with such terms as “spa” or “family” (see Exhibit 13).
third-Party travel websites Even as online travel bookings increase, reservations
through third-party travel sites have slowed. One reason bookings via third-party travel sites are
down is that direct bookings to hotel proprietary websites are up. Good news for hotels (direct
bookings cost less in commissions), but a major concern for third-party travel vendors. Third-
party travel sites have met this news with a renewed commitment to make their sites the best for
consumers in terms of usability, price, selection, and attractiveness.

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Exhibit 13 A sample reservations screen from Best Western International’s proprietary Lynx reservations system (version 9.2.0).
Exhibit 7 shows individual reservations work stations at Best Western International’s Beardsley Operations Center in Phoenix,
Arizona. Courtesy: Best Western International Phoenix, Arizona.

Although business models will certainly change in the coming years, third-party travel
sites will continue to use a proven approach. Contract with the hotel for a set number of rooms
(inventory aggregation) at a deeply discounted rate and then resell those rooms online at websites
known for giving consumers the best rate (see Exhibit 11). One variation has third-party travel
vendors actually purchasing the blocks of rooms to resell rather than merely contracting for their
availability. In either case, this was a winning concept—selling a product the travel sites don’t
own (and have no control over) for a price which is lower than the hotel would ever sell rooms on
the open market. So why did hotels flock to partner with these third-party travel sites? Because
hoteliers hoped this concept was their answer for selling distressed inventory. They believed it
was a sure-fire method of enhancing occupancy during slow periods. It gained credence during
the post–9/11 period when occupancies plummeted.
Hotels with rooms available most nights were prime candidates to sign with one or more
travel sites. Even successful properties with high occupancies contracted with third-party vendors,
because they still had nights with unoccupied rooms. The travel sites had some basic rules and
rooms commitments, but at first glance these policies seemed reasonable to the hotel operators.
Each third-party travel site had its own proprietary rules, but two standards were fairly common
across all vendors. The hotel was required to commit at least 5% of its entire rooms inventory for the
year, and the hotel could not—through any of its numerous channels of distribution—advertise its
rooms at a rate lower than the rate on the travel website. In exchange, the travel websites provided
a steady source of occupied rooms the hotel could readily depend upon.
What the hotels did not consider, until it was too late, was how this concept impacted
the consumers’ view of their product. There is an old adage in the lodging industry: “Once a

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customer has experienced a discounted rate, it is hard to get him to return to regular price.” This
was the case with Internet-savvy users who found it easier and less expensive to shop with third-
party sites than to visit hotel or chain websites. It has taken the lodging industry the better part of
a decade to change that trend and to regain the confidence of customers that chain websites do,
indeed, offer the lowest available rates (see Exhibit 9).
The 5% room commitments were also hard on properties. Those hotels that contracted
with multiple third-party vendors (Expedia, and Hotwire, for example) were sometimes com-
mitting 20% of their inventory to deeply discounted rates. Although the travel websites allowed
hotels to black out certain dates for which the property anticipated sold-out occupancy, the
number was limited to somewhere between 5 and 15 dates per year. For low-season periods,
this might make sense. But on an annualized basis, hotels were experiencing increased occu-
pancy at the expense of profitability. With such deep discounts, even when a hotel was only
reaching 80% occupancy, these significant room commitments were eating into profitability,
ADR, and RevPar statistics.
Today’s industry managers have come full circle. Third-party websites, initially viewed
as saviors, then later scorned, are now seen for what they are: another channel of distribution.
If used wisely they do provide an avenue for unloading distressed inventory. So long as the
hotel operator considers this as just one arrow in a quiver of online reservation channels, it
makes sense.

oPaquE sitEs For hotels that are reluctant to compromise their rate integrity by selling dis-
tressed inventory at deeply discounted rates, opaque websites are especially appealing. These
sites disassociate the name of the hotel from the deeply discounted rate until the transaction
has been complete; hence the name “opaque.” Pioneered by Priceline.com, opaque travel sites
attract price-sensitive shoppers who are more interested in steep discounts than in specific
hotel brands.
Consumers enter general purchase parameters in the opaque website, along with a proposed
purchase price. The opaque website then attempts to match hotels which meet the parameters
with the price bid by the patron. If there is a match, the patron’s credit card is charged and the
transaction becomes nonrefundable. If no match is made, the consumer is asked to increase the
bid price to a higher rate.
Purchase parameters are designed to place the guest into an appropriate hotel. Parameters
start broadly (northwest region, downtown, near major attractions, etc.) and become more
specific (2 ½ star, 3-star, or 3 ½ star; swimming pool; two queen beds; etc.). In rare cases,
these parameters allow the guest to decipher which property is being offered—there is only
one 3-star hotel with a swimming pool in downtown Seattle! But for guests who are wholly
price-sensitive and have no brand loyalty, opaque travel represents one of the best approaches
for overall low rates.

mEta-sEarCh tEChnoloGy The newest category in the arena of third-party travel sites are
the meta-search sites, led by SideStep, Kayak, Mobissimo, and TravelZoo. These sites employ a
unique technology which uses advanced search techniques to find all the links on the Internet
where hotel prices lurk. This includes third-party travel sites, the GDS, the hotel’s own propri-
etary website, and the chain’s website. The lowest prices are then presented to the potential guest,
along with a rate and features comparison against other hotels in the area.
The growth in meta-search sites is potentially hazardous to unwitting hotels. Meta-search
sites exploit rate differences in those hotels which have not ensured rate integrity across all chan-
nels of distribution. And meta-search sites have substantially increased the number of hits on
hotel websites. This increase in hits not only degrades the speed of the website response but
also substantially increases marketing costs through search engines which charge on a “look-
to-book” basis. At one time, hotel look-to-book ratios were as strong as four to one. For every
four users viewing rates on the hotel’s website, the hotel averaged one booking. Today, due in
part to meta-search sites, the look-to-book ratio is thousands to one. To shield the hotel’s website
from increased hits, hotels and lodging chains are beginning to create separate, but parallel, sys-
tems which maintain and continuously update property data. The parallel system carries room
type, rate, and availability data for every hotel in the chain. As long as third-party travel sites are

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confident that these parallel systems are up to date, they can program their proprietary software
to search these parallel systems, thereby leaving the website without costly hits.

inDEPEnDEnt rEsErvation sErviCEs Membership in a CRS is one of the major advan-

tages that chain-affiliated properties have over independent operations. The CRS provides each
affiliated property access to the GDS, chain websites, professional assistance with the hotel’s own
website, a convenient toll-free telephone number for potential customers, automated rate and
inventory data, and a wealth of other automated benefits. Yet CRSs are extremely expensive.
Costs reach tens or hundreds of millions of dollars, which is prohibitive for most small chains and
independent operations.
Smaller chains can provide better guest service at a lower cost by leasing the reservation
service. For hotel rep companies—Utell International is the world’s largest—this is a natural
extension of their primary role and provides economies of scale for hotel clients. UtellVision
is a computerized reservation system for Utell member hotels. The system displays two screens
simultaneously. The top screen is a series of high-resolution pictures of the member hotel and
maps of the surrounding areas; on the bottom is an online reservation availability screen.
Independent hotels and small chains that join a private reservation service (e.g., WorldHotels
and TravelClick) generally experience a number of money-saving benefits. They save in hardware
and software. They save operating and training costs. Reservation processing is more efficient
due to the massive computer capacity of the independent reservation service. And salesmanship
is enhanced by joining a group of professionally trained agents. If the independent reservation
service is also an ASP, even more benefits are available to the small chain: The property manage-
ment system database is Web accessible. Single-imaging allows all users access to the same infor-
mation. Yield management decisions can be made on a chainwide basis—refer to the discussion
on ASPs earlier in this chapter (see Exhibit 5).
hotel representative services Hotel representative services take the independent
reservation service one step further. Providing valuable tools to member hotels, hotel rep orga-
nizations also provide access to membership for independent, noncompeting hotels. By banding
together to market the membership under one flag, the independent hotel garners many of the
same benefits which accrue to franchise- or referral-affiliated operations. Preferred Hotel and
Resorts and Leading Hotels of the World are two good examples of such memberships.
Utell International is the world’s largest hotel representative service, handling thousands of
reservations each day for more than 4,000 member hotels. Utell provides member properties with
instant global connectivity (through parent company Pegasus) to a telephone reservation network,
the global distribution system, and the Internet. Member hotels appear on more than 450,000 res-
ervation terminals, where users gain immediate access to hotel information, rates, and availability.

other trends in Electronic reservations

They say that in just one day, the average American adult is exposed to more information than
a person living 100 years ago might have been exposed to in a lifetime. This statistical analogy
speaks volumes in terms of the speed and quantity of information available today. And the trend is
increasing. For example, the average processing power of a personal computer is expected to grow
1,000-fold over the next five years. In addition, information storage and retrieval capabilities of
PCs are anticipated to grow at a compounded rate of 60% per year for the next five years. With
these rapid advancements, CROs are facing increasing opportunities for unique and more effec-
tive ways of performing their businesses. From smartphone apps to “mapping” software, the
future is anyone’s guess.

mobilE aPPs In an attempt to make their chain websites even more attractive, major lodging
chains have recently been experimenting with mobile smartphone applications (apps). In light of
how many corporate travelers carry smartphones, this is a logical next step.
Smartphones and mobile phones have been used for several years across a number of
travel functions—as a boarding pass, flight alert system, weather tracker, room key, and itinerary
management tool. But developing hotel reservation software for smartphones has proven very
difficult, given the limitations of a 6-square-inch screen. To meet the pent-up demand, booking
tool providers have been working furiously to develop appropriate software.

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Choice Hotels, for example, recently rolled out its “Choice Hotels Locator” app. With the
convenience of handheld technology, guests can now search 4,500 plus hotels of Choice Hotels
worldwide, find the right room, and book it—all through the smartphone. The application
proved so successful that within weeks, Choice saw a quarter-million adoptions being used in
75 countries. Marriott experienced similar immediate popularity with its Marriott Mobile app.
Certainly smartphone reservations and room booking apps will prove the fastest growing
channel of distribution over the next several years. In fact, in its first year of introduction (2010),
smartphone room reservations topped $250 million.
The future will likely see hotels attracting traveling consumers via GPS-enabled marketing—
although current smartphone users seem wary of this invasion of privacy. Location-based services
allow consumers to receive messages and promotions based upon their GPS location. Travelers
who are at least 100 miles away from their home base are ideal candidates for hotel promotions,
special rates, and so on. (see Exhibit 14).

Exhibit 14 Two examples of free downloadable hotel reservation Mobile Apps. The top one is
HotelPal run by Travelocity. The bottom one is the Choice Hotels Locator App.
Smartphone apps provide the user such information as how close you currently are to the hotel, room
rates, pictures of the hotel, amenities, room availability, and a map of the city identifying hotel locations.

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voiCE rECoGnition Amazing progress has been achieved in the area of automated voice
recognition. Currently there are systems in place that can recognize tens of thousands of words
spoken by a host of various users. Dragon Systems’ NaturallySpeaking and IBM’s Via Voice are
the two leading personal computer applications. Each can recognize more than 50,000 words
with 99% accuracy.
We are closing in on the time when straightforward room reservations will be rou-
tinely handled electronically by voice-recognition and voice-synthesis (talking) systems.
Thousands of voice-recognition systems are now at work across myriad other industries. The
biggest argument in favor of such a laborsaving system is the overall repetitiveness of the
reservationist’s job. As unique as each reservation might seem, there are more commonali-
ties than differences. Each reservation communicates the city, date, room rate and type, and
other basic data. These are functions that a voice-recognition system can logically handle. In
fact, the simplest of all voice-recognition software applications utilizes a “command” system.
This system recognizes several hundred words from a preprogrammed list of possible com-
mands. On what day of the week a guest is traveling (7 possible words), the date of depar-
ture (31 possible words), type of credit-card guarantee (roughly 6–10 possible words), and
credit-card number (10 possible words) are some of the common reservation commands a
computer can easily recognize.
The voice-recognition reservation program generates a series of questions for the guest
to answer. With each response, the program acknowledges the answer, allows the guest to make
changes as necessary, and generates a new series of questions based on the previous response. In
those situations where the computer cannot recognize the guest’s voice due to a strong accent
or other impairment, a fail-safe system is in place. The guest might press the zero button twice
on the telephone keypad, for example, to alert an operator indicating that personal assistance is
needed. An excellent voice-recognition CRO is operated by American Airlines—give it a try at
1-800-433-7300. When American Airlines reservationists are busy, the system probes the key
elements of the guest’s flight information. It does a fantastic job of understanding originating
airport, destination airport, day of travel, time of travel, and so on.
Such computer systems can check availability, quote rates, suggest alternative dates, and
thank the guest in a manner similar to the reservationist. Of course, such a system would be
significantly less personal than dealing with an actual reservationist. On the other hand, it
would surely be less expensive in terms of labor costs, and the computer system would never
call in sick!

maPPinG CaPabilitiEs As CRSs gain sophistication, options that were previously unavailable
(or manually performed) are increasingly being automated.
Commonplace requests such for a hotel’s physical address, its distance from a popular des-
tination, or specific travel directions were once manual tasks. Today, modern mapping functions
provide comprehensive geographical, pictorial, and textual information about every member
property. Best Western was the first company of its size to offer a mapping feature with its CRS—
providing reservations agents with immediate access to geographically related questions about
property locations, mileage, travel times, and so on.

GuEst history DatabasEs Another benefit of an increasingly sophisticated CRS is the abil-
ity for hotels to share guest history information. This is especially true if the chain utilizes an
application service provider (ASP). Database information is currently utilized only within chains.
With ASPs, guest history data could actually be shared across chains.
Even within the chain, hotels rarely take advantage of their wealth of data. All property
management systems provide a guest history function, whereby standard information required
for reservation becomes marketing data. After all, the hotel already knows the guest’s name and
address, the dates of the last visit, the rate paid, the room type, the number of guests, and the
method of payment. Add a bit of marketing information such as the type of discount package
purchased, the special rate or promotion used, and whether the reservation was midweek or was
a weekend getaway package, and the manager has an enormous amount of marketing data.

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automatED rEvEnuE manaGEmEnt systEms

Technology has also changed the way hoteliers sell available rooms. Rather than the old adage of
“placing heads in beds,” today’s hoteliers need to selectively place the right heads into the right
beds at the right price. Despite the fact that rooms are available for sale, not every reservation
request is accepted. The decision depends on space and rate ranges available for the specific
dates. An occupancy forecast determines the space availability for the day or days in question.
Even if only one day of the sequence is closed, the reservation may be refused and an alterna-
tive arrangement offered. This is unfortunate if the declined reservation represented a request
for a number of days. It is especially unfortunate if the period in question has only one sold-out
date. Then the hotel is essentially trading a profitable, long-term reservation against a potential
overbooking situation for one sold-out date. In many cases, the reservationist may override the
system to book this type of reservation. Obviously, such a decision would be considered on a
case-by-case basis.
In other scenarios, salesmanship by the reservationist comes into play. The telephone
provides a two-way conversation during which the reservationist can gauge the behavior of the
guest. Some guests can be convinced to reserve their chosen date at a slightly higher nightly rate.
Other guests can be changed toward a slower occupancy period with the offer of reduced rates.
Guests who cannot be accommodated represent lost revenues. The reservationist attempts to
salvage lost reservations in a number of ways such as offering other lower occupancy periods,
offering another sister property of the same chain in the same town or a nearby community, or
when all else fails, offering regrets and best wishes for a chance to serve the guest at another time.
Requests for accommodations are sometimes denied even if the house is not full. Most of
the hotel’s advertised packages are refused if the forecast shows that the house is likely to fill at
standard rack rates. Reservationists must be taught to sell discounted packages or other reduced
rates (weekend, commercial, governmental) only on request or when encountering rate resis-
tance from a price-sensitive guest. With a full house, the hotel may regret (deny) requests from
travel agents, to whom the hotel pays a commission. Busy hotels give preference to higher-paying
multiple-occupancy requests over single occupancy.
Casino hotels give preferential treatment to those who are likely to gamble, even to the
extent of granting them free accommodations in preference to paying guests who don’t play.
Noncasino hotels do the same, allotting their scarce space to reservations from certain areas or
markets that the hotel is trying to develop.

the yield management revolution

Revenue management, which is the act of controlling rates and restricting occupancies in an
effort to maximize gross rooms revenue, is also commonly referred to as yield management. In
its simplest form, yield management has been around for decades. Any seasoned manager who
increased room rates as occupancy rose, or who quoted higher rates for holidays and special
event periods, or who saved the last few room nights for extended-stay reservations was using
yield management. It is not the practice of yield management that is new, it is the incorporation of
revenue managers into dedicated senior staff positions and the automation of yield management
into property management systems that is new.
Despite the low business cycle experienced by the lodging industry in the early 1990s, this
was the first time hotels began adding revenue managers (or yield managers) to their organizations.
Then and now, the position is easily justified by the revenue offset. Some 15–25%
of recent ADR growth has been attributed to yield management. To illustrate, a 400-room property
with an overall 10% increase in ADR from, say, $118-$129.80 could attribute about $2 of the
nearly $12 increase directly to the new yield team. Assuming 70% occupancy, that produces some
$200,000 annually (400 rooms : 70% 365 days : $2)—a substantial return on the yield manager’s
salary and technological investment.

a briEf history of yiElD manaGEmEnt As with other businesses, price (hotel room rate)
is a major factor in the decision to purchase one product over another. That is especially true in
an industry as segmented as the lodging industry. Yield management works best

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when there are distinct market segments to attract. It is the price sensitivity of these market seg-
ments that made yield management practices successful in the first place.
the airlines’ role Just as it did with GDS and CRS technologies, the lodging industry
adopted yield management from the airline industry. Airline rate discounting was widespread
in the early 1980s, and that contributed to the array of prices airlines found difficult to track.
They began experimenting with adjusted rates based on demand forecasts. Discounted tickets
purchased far in advance were used to establish a minimum level of seat occupancy and to fore-
cast overall demand. Low and seasonal periods were also discounted. As the plane filled and the
departure date neared, higher and higher fares were charged. Full price—a price that would have
been virtually impossible to charge when the plane was empty—will be eventually charged for the
remaining seats.
Airlines and hotels are much alike. Both have a relatively fixed supply of product (seats and
rooms), and both have products that perish with the passage of time. In the 1980s, airlines had
one extra edge—large computer capacity. It takes the computing power of these large systems to
simultaneously track occupancy (seat or room) and the variety of price options that both indus-
tries market.
Price-sensitive concepts have been employed by hoteliers for a long, long time. Refining the
practices and developing them into a computer program with rules and triggers, with a histori-
cal database and a strategy, awaited the superior computer capability of the airlines. Today, most
major lodging chains have developed automated yield management systems that rival the best of
the airline systems.
market Demand Airlines and hotels did differ in one respect: their view of the guest.
Hotels had previously operated on the belief that their customer was not a discretionary traveler.
The guest who stayed, hoteliers felt, was someone who had to stay. Guests did not visit merely
because the price was reduced enough to lure them in. Urban hotels, which cater to the least
flexible guest, the commercial traveler, first evidenced the change. In desperate need of weekend
business, these properties began to successfully market weekend specials to discretionary buyers.
The yield management revolution had begun.
Yield management has an economic rationale. It assumes that all customers are price con-
scious—that they are aware of the existence of and the significance of price variations. It also
assumes that customers are price sensitive—that their buying habits respond to increases and
decreases in price.
All things equal, the guest is motivated by lower prices. Theoretically, when a similar room
type is available for a significantly lower rate at an otherwise equal hotel, the guest will select the
lower-priced accommodation. In addition, guests who might not have left home at the rack rate
are inclined to visit hotels when rates are low. This explains why low-occupancy periods are gen-
erally accompanied by lower average room rates.
Each customer class has different degrees of price consciousness and price sensitivity.
Earlier discussions on segmentation indicated the wide range of guests to whom the industry
appeals. In simple categories, these are the business (corporate) class, the leisure (transient) guest,
and the group (corporate and tour) buyers.
Corporate Guests The business or corporate customer is less sensitive to price—
it is not because he or she is not aware of price, just that the customer is less sensitive to it.
Businesspersons must travel when the need arises; they do not travel merely because the price is
reduced.
Business arrangements may be made only a few days or hours before arrival (see Exhibit 15).
Location is critically important, both to save travel time and to present the proper image. Business
travelers need to be near the business district, which means high-priced real estate and high room
rates. These travelers are away from home a good deal. They seek and probably merit a higher
level of comfort than the occasional leisure traveler. In summary, business guests pay higher rates
because they are less price sensitive. They have to stay in a specific location at a given time, and
that arrangement is often made suddenly, with little advance planning, and therefore little oppor-
tunity to obtain discounted rates.
leisure Guests The leisure guest, as the name implies, is 180 degrees removed from the
corporate traveler. With leisure guests, lead time is long. Reservation bookings are well planned,

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Booking Pattern of Corporate Travelers

800

700
Number of Rooms Sold

600

500

400

300

200

100

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Days Before Arrival

Exhibit 15 A 30-day booking pattern for corporate travelers. Although some corporate guests book
30 (or more) days in advance, the majority reserve rooms within a few days of arrival. This
275-room hotel receives approximately 60% of its business from corporate guests. In a sample month,
some 800 corporate guests make reservations the same day as arrival (0 days). Another 800 book one
day in advance.

with adequate time to shop for the best room rates. This class of guest is flexible as to the time of
the trip, the destination of the trip, and stopping points along the way. These guests may not even
use a hotel. High prices might drive them into camping or park facilities. Poor price value might
send them to the homes of friends or family. When prices of accommodations, fuel, toll roads,
and gasoline are too high, this guest may just stay home.
Leisure travelers have been the major beneficiaries of the yield management approach
offered by both the airline and the hotel industries. The leisure traveler’s flexibility with regard to
travel dates and itineraries allows him or her to take advantage of deep discounting during off-
season and slow demand periods. It is not uncommon to find hotel rooms discounted between
50% and 80% during slow periods. A $250 hotel room in Australia’s Kakadu National Park in the
tropics, for example, may cost only $100 or so during the rainy season; a $400 golf package in
Palm Springs may be discounted to $175 in during summer.
Group Guests Group business, the last of the three general classifications, exhibits char-
acteristics from both of the other two categories. This is because the group market forms from
components of the business and leisure classifications. From the leisure category come social,
fraternal, and hobby associations. From the business segment come professional, union, and gov-
ernmental groups.
Both types of groups—leisure and business—have their own idiosyncrasies. Generally,
business-oriented groups are sensitive to date and place while being less sensitive to rate. This
is because business groups usually meet the same week every year. Leisure-oriented groups are
more rate sensitive and therefore tend to be somewhat flexible with regard to date and place.
Profits can be increased if the sales department, based on good forecasting, can steer the business
to the right (right for the hotel) time, place, and rate.
Yield management has changed the interface between the sales department and the group
buyer. Based on information from the yield management program, the sales department and/
or the revenue manager must decide to take the business, reject the business, or try to negotiate
a different time at a different rate. Saturday arrival for a group might actually prove more prof-
itable at $90 per night, for example, than a Monday arrival (which replaces high-rate corporate
guests) at $115 per night. A well-programmed yield management system should provide the
answer.

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