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Hospitality Leadership Through Learning
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Yield Management

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By: Glenn Withiam

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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 timing 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 revenue management 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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