Faculty & Research
Yield Management
By: Glenn Withiam
Executive Summary: Yield management is the umbrella term
for a set of strategies that enable
capacity-constrained service industries
to realize optimum revenue from
operations. The core concept of yield
management is to provide the right
service to the right customer at the right
time for the right price. That concept
involves careful definition of service,
customer, time, and price. The service
can be defined according to the
dimensions of the service, how and
when it is delivered, and how, when,
and whether it is reserved. Timing
involves both the timing of the service
delivery and the tining of when the
customer makes known the desire for
the service, whether by reservation or by
walking in to the business. Price can be
set according to the timing of the
service, the timing of the reservation, the
type of service, or according to other
rules that seem appropriate. Finally, the
customer can be defined according to
demand characteristics relating to the
service, the timing, and the price. The
ideal outcome of a revenuemanagement
strategy is to match
customers' time and service
characteristics to their willingness to
pay-ensuring that the customer
acquires the desired service at the
desired time at an acceptable price,
while the organization gains the
maximum revenue possible given the
customer and business characteristics.
The strategic levers of yield management
can be summarized as four Cs: namely,
calendar, clock, capacity, and cost. They
are bound together by a fifth C: the
customer. The strategic levers of yield
management are geared to matching
service timing and pricing to customers'
willingness to pay for service in relation
to its timing. Based on customers'
demand levels and characteristics,
management can shift the demand of
those customers who are relatively price
sensitive but time insensitive to off-peak
times. Shifting that demand clears prime
times for customers who are relatively
time sensitive but price insentive.
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