Journal of the International Academy of Hospitality Research Hotel Yield Management Using Optimal Decision Rules

This paper demonstrates a particular model for making the pricing decisions associated with hotel booking. Implementing such pricing decisions that are designed to optimize the profitability of the hotel forms part of a policy commonly referred to as yield management. The model utilizes forecasts of demand in individual market segments to capitalize on the willingness of people in one segment to pay more than people in another segment. The procedure for doing this is necessarily time-based since the market segments are differentiated also by the timing of bookings relative to a rental date. The procedure for making the pricing decisions is described and an example is given. Unlike the commonly invoked marginal revenue models, this model is optimal and requires fewer assumptions about the demand process. It is shown that the procedure has rather modest information requirements and is based on data that is typically available through market research. We also show that the procedure demands minimal amounts of CPU time making it applicable even in small hotels.