Information about Yield Management
Yield management, also known as Revenue Management, is the process of understanding, anticipating and reacting to consumer behaviour in order to maximize revenue or profits. Firms that engage in yield management usually use computer yield management systems to do so. The Internet has greatly facilitated this process. Other terms to describe this process are revenue optimization and demand management. Yield management can result in price discrimination, where a firm charges customers consuming otherwise identical goods or services a different price for doing so.
Three industries where yield management is used most heavily are passenger air transport, lodging and rental car. Airlines monitor through the use of specialized software how seats are being reserved and react accordingly, as for example by offering discounts when it appears as if seats will otherwise be vacant. Hotels use Revenue Management in largely the same way, to calculate the rates, rooms and restrictions on sales in order to best maximize the return for the property. In the rental car industry, Revenue Management deals with the sale of optional insurance, damage waivers and vehicle upgrades. It accounts for a major portion of the rental company's profitability, and is monitored on a daily basis.
The optimization attempts to answer the question: "Given our operating constraints, what is the best mix of products and/or services for us to produce and sell in the period, and at what prices, to generate the highest expected revenue?"
Optimization can help the firm adjust prices and to allocate capacity among market segments to maximize expected revenues. This can be done at different levels of detail:
In this way, yield management's overall aim is to provide an optimal mix of goods at a variety of price points at different points in time or for different baskets of features. The system will try to maintain a distribution of purchases over time that is balanced as well as high.
Good yield management maximizes (or at least significantly increases) revenue production for the same number of units, by taking advantage of the forecast of high demand/low demand periods, effectively shifting demand from high demand periods to low demand periods and by charging a premium for late bookings. While yield management systems tend to generate higher revenues, the revenue streams tends to arrive later in the booking horizon as more capacity is held for late sale at premium prices.
Firms faced with lack of pricing power sometimes turn to yield management as a last resort. After a year or two using yield management, many of them are surprised to discover they have actually lowered prices for the majority of their opera seats or hotel rooms or other products. That is, they offer far higher discounts more frequently for off-peak times, while raising prices only marginally for peak times, resulting in higher revenue overall.
By doing this, they have actually increased demand by selectively introducing many more price points, as they learn about and react to the diversity of interests and purchase drivers of their customers.
Some consumers are concerned that Yield Management could penalize them for conditions which cannot be helped and are unethical to penalize. For example, the formulas, algorithms, and neural networks that determine airline ticket prices could feasibly consider frequent flyer information, which includes a wealth of socio-economic information such as age and home address. The airline then could charge higher prices to consumers who are between 30 and 65, or live in neighborhoods with higher average wealth, even if those neighborhoods also include poor households. [1] Very few airlines using Yield Management employ this level of price discrimination.
Some consumers also object that it is impossible for them to boycott yield management when buying some goods, such as airline tickets.
Yield Management also includes many noncontroversial and more prevalent practices, such as varying prices over time to reflect demand. This level of Yield Management makes up the majority of YM in the airline industry. For example airlines may make a ticket on the Sunday after Thanksgiving more expensive than the Sunday a week later. Alternatively, they may make tickets more expensive when bought at the last minute than when bought six months in advance. The goal of this level of yield management is essentially trying to get demand to equal supply.
When YM was introduced in the early 1990s, primarily in the airline industry, many suggested that despite the obvious immediate increase in revenues, it might harm customer satisfaction and loyalty, interfere with relationship marketing, and drive customers from firms that used YM to firms that did not. To some extent, frequent flier programs were developed as a response to to regain customer loyalty and reward frequent & high yield passengers. Today, YM is nearly universal in many industries, including airlines.
Consumers refers to individuals or households that purchase and use goods and services generated within the economy. The concept of a consumer is used in different contexts, so that the usage and significance of the term may vary.
..... Click the link for more information.
Behavior or behaviour
..... Click the link for more information.
..... Click the link for more information.
An abstract model (or conceptual model) is a theoretical construct that represents something, with a set of variables and a set of logical and quantitative relationships between them.
..... Click the link for more information.
An abstract model (or conceptual model) is a theoretical construct that represents something, with a set of variables and a set of logical and quantitative relationships between them.
..... Click the link for more information.
Three industries where yield management is used most heavily are passenger air transport, lodging and rental car. Airlines monitor through the use of specialized software how seats are being reserved and react accordingly, as for example by offering discounts when it appears as if seats will otherwise be vacant. Hotels use Revenue Management in largely the same way, to calculate the rates, rooms and restrictions on sales in order to best maximize the return for the property. In the rental car industry, Revenue Management deals with the sale of optional insurance, damage waivers and vehicle upgrades. It accounts for a major portion of the rental company's profitability, and is monitored on a daily basis.
Yield management system
Enterprises that use yield management periodically review transactions for goods or services already supplied and for goods or services to be supplied in the future. They may also review information (including statistics) about events (known future events such as holidays, or unexpected past events such as terrorist attacks), competitive information (including prices), seasonal patterns, and other pertinent factors that affect sales. The models attempt to forecast total demand for all products/services they provide, by market segment and price point. Since total demand normally exceeds what the particular firm can produce in that period, the models attempt to optimize the firm's outputs to maximize revenue.The optimization attempts to answer the question: "Given our operating constraints, what is the best mix of products and/or services for us to produce and sell in the period, and at what prices, to generate the highest expected revenue?"
Optimization can help the firm adjust prices and to allocate capacity among market segments to maximize expected revenues. This can be done at different levels of detail:
- by goods (such as a seat on a flight or a seat at an opera production)
- by group of goods (such as the entire opera house or all the seats on a flight)
- by market (such as sales from Seattle and Minneapolis for a flight going Seattle-Minneapolis-Boston)
- overall (on all the routes an airline flies, or all the seats during an opera production season)
In this way, yield management's overall aim is to provide an optimal mix of goods at a variety of price points at different points in time or for different baskets of features. The system will try to maintain a distribution of purchases over time that is balanced as well as high.
Good yield management maximizes (or at least significantly increases) revenue production for the same number of units, by taking advantage of the forecast of high demand/low demand periods, effectively shifting demand from high demand periods to low demand periods and by charging a premium for late bookings. While yield management systems tend to generate higher revenues, the revenue streams tends to arrive later in the booking horizon as more capacity is held for late sale at premium prices.
Firms faced with lack of pricing power sometimes turn to yield management as a last resort. After a year or two using yield management, many of them are surprised to discover they have actually lowered prices for the majority of their opera seats or hotel rooms or other products. That is, they offer far higher discounts more frequently for off-peak times, while raising prices only marginally for peak times, resulting in higher revenue overall.
By doing this, they have actually increased demand by selectively introducing many more price points, as they learn about and react to the diversity of interests and purchase drivers of their customers.
Ethical Issues and Questions of Effectiveness
Yield Management is a form of price discrimination, and as such faces predictable consumer resistance.Some consumers are concerned that Yield Management could penalize them for conditions which cannot be helped and are unethical to penalize. For example, the formulas, algorithms, and neural networks that determine airline ticket prices could feasibly consider frequent flyer information, which includes a wealth of socio-economic information such as age and home address. The airline then could charge higher prices to consumers who are between 30 and 65, or live in neighborhoods with higher average wealth, even if those neighborhoods also include poor households. [1] Very few airlines using Yield Management employ this level of price discrimination.
Some consumers also object that it is impossible for them to boycott yield management when buying some goods, such as airline tickets.
Yield Management also includes many noncontroversial and more prevalent practices, such as varying prices over time to reflect demand. This level of Yield Management makes up the majority of YM in the airline industry. For example airlines may make a ticket on the Sunday after Thanksgiving more expensive than the Sunday a week later. Alternatively, they may make tickets more expensive when bought at the last minute than when bought six months in advance. The goal of this level of yield management is essentially trying to get demand to equal supply.
When YM was introduced in the early 1990s, primarily in the airline industry, many suggested that despite the obvious immediate increase in revenues, it might harm customer satisfaction and loyalty, interfere with relationship marketing, and drive customers from firms that used YM to firms that did not. To some extent, frequent flier programs were developed as a response to to regain customer loyalty and reward frequent & high yield passengers. Today, YM is nearly universal in many industries, including airlines.
Experimental Studies of Yield Management Decisions
Recently, people working in the area of behavioral operations research have begun to study the yield management decisions of actual human decision makers. One question that this research addresses is: How much might revenues increase if managers relied on yield management systems rather than their own judgment when making pricing decisions? Using methods from experimental economics, this work has revealed that yield management systems are likely to increase revenues significantly[2][3]. Further, this research reveals that "errors" in yield management decisions tend to be quite systematic. For instance, Bearden, Murphy, and Rapoport showed that with respect to expected revenue maximizing policies people tend to price too high when they have high levels of inventory and too low when their inventory levels are low.See also
- Geo (marketing)
- Variable pricing
- Price discrimination
- Last minute advertising
- INFORMS Institute for Operations Research and the Management Sciences
- Behavioral Operations Research
References
- Cooper, Alan. "Ethical Pricing." PoolOnline.Com. 2004. Through the Loop Consulting Ltd. 24 June 2006 http://www.poolonline.com/archive/issue28/iss28fea4.html
- "Definition and History of Yield Management." Amadeus. 24 June 2006 <http://www.optims.com/UK/hight_profits.html>.
- McCaskey, David. "YIELD MANAGEMENT V RELATIONSHIP MARKETING." Wivenhoe. Wivenhoe. 24 June 2006 <http://www.wivenhoe.gov.uk/people/McCaskey/YIELDMGT.pdf>.
- Maglaras, C., Meissner, J. "Dynamic Pricing Strategies for Multi-Product Revenue Management Problems." MSOM 2006 <http://www.meiss.com/en/publications/dynamic-pricing.html>.
- Netessine, S., Shumsky, R. "Introduction to the Theory and Practice of Revenue Management." INFORMS Transactions on Education, Vol. 3, No. 1, <http://ite.pubs.informs.org/Vol3No1/NetessineShumsky/>.
- Haag, Steven. Management Information Systems for the Information Age. Canada. McGraw Hill Ryerson Ltd. 2001, 2004-2006.
- "History of Sabre Airline Solutions." Sabre Airline Solutions. 26 June 2006 <http://www.sabreairlinesolutions.com/about/history.htm>.
- Hayden, Kathryn, ed. "Aviacsa Becomes First Airline in Mexico to Select Sabre AirMax Revenue Manager." Sabre Airline Solutions. 12 June 2006. 26 June 2006 <http://phx.corporate-ir.net/phoenix.zhtml?c=73098&p=irol-newsArticle&ID=871265&logo=logo02,>.
- Bearden, J. N., Murphy, R. O., Rapoport, A. "Decision Biases in Revenue Management: Some Behavioral Evidence." Manufacturing & Service Operations Management. In press. <http://behavioral-or.org/files/RMPaper1.pdf>
- Becker, W. J., Bearden, J. N., Rapoport, A. "Perishable Asset Dynamic Pricing in the Laboratory."<http://www.behavioral-or.org/papers/DynPrice.pdf>
- INFORMS Section on Revenue Management and Pricing <http://revenue-mgt.section.informs.org/>.
External links
The introduction to this article may be too long. Please help improve the introduction by moving some material from it into the body of the article according to the suggestions at Wikipedia's .
..... Click the link for more information.
..... Click the link for more information.
- Heterotroph.
Consumers refers to individuals or households that purchase and use goods and services generated within the economy. The concept of a consumer is used in different contexts, so that the usage and significance of the term may vary.
..... Click the link for more information.
This article or section is written like a personal reflection or and may require .
Please [ improve this article] by rewriting this article or section in an . (, talk)
Please [ improve this article] by rewriting this article or section in an . (, talk)
Behavior or behaviour
..... Click the link for more information.
Revenue is a business term for the amount of money that a company receives from its activities in a given period, mostly from sales of products and/or services to customers.
..... Click the link for more information.
..... Click the link for more information.
For the television series, see Profit (TV series)
Profit generally is the making of gain in business activity for the benefit of the owners of the business...... Click the link for more information.
Business law
Business organizations
Basic forms:
Sole proprietorship
Corporation
Partnership
(General · Limited · LLP)
Cooperative
USA:
Business trust · LLC · LLLP
Delaware corporation
Nevada corporation
UK/Commonwealth:
Limited company
..... Click the link for more information.
Business organizations
Basic forms:
Sole proprietorship
Corporation
Partnership
(General · Limited · LLP)
Cooperative
USA:
Business trust · LLC · LLLP
Delaware corporation
Nevada corporation
UK/Commonwealth:
Limited company
..... Click the link for more information.
computer is a machine which manipulates data according to a list of instructions.
Computers take numerous physical forms. The first devices that resemble modern computers date to the mid-20th century (around 1940 - 1941), although the computer concept and various machines
..... Click the link for more information.
Computers take numerous physical forms. The first devices that resemble modern computers date to the mid-20th century (around 1940 - 1941), although the computer concept and various machines
..... Click the link for more information.
Internet is a worldwide, publicly accessible series of interconnected computer networks that transmit data by packet switching using the standard Internet Protocol (IP). It is a "network of networks" that consists of millions of smaller domestic, academic, business, and government
..... Click the link for more information.
..... Click the link for more information.
Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, no transaction costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price
..... Click the link for more information.
..... Click the link for more information.
The introduction to this article may be too long. Please help improve the introduction by moving some material from it into the body of the article according to the suggestions at Wikipedia's .
..... Click the link for more information.
..... Click the link for more information.
A good or commodity in economics is any object or service that increases utility, directly or indirectly, not to be confused with good in a moral or ethical sense (see Utilitarianism and consequentialist ethical theory).
..... Click the link for more information.
..... Click the link for more information.
Service can refer to:
..... Click the link for more information.
- Public services, services carried out with the aim of providing a public good
- A penetrant, as defined by a building code
- Service (Systems Architecture), the provision of a discrete business or technology function within a systems environment; i.
..... Click the link for more information.
For other uses, see Model.
An abstract model (or conceptual model) is a theoretical construct that represents something, with a set of variables and a set of logical and quantitative relationships between them.
..... Click the link for more information.
For other uses, see Model.
An abstract model (or conceptual model) is a theoretical construct that represents something, with a set of variables and a set of logical and quantitative relationships between them.
..... Click the link for more information.
Distribution is one of the 4 aspects of marketing. A distributor is the middleman between the manufacturer and retailer. After a product is manufactured it is typically shipped (and usually sold) to a distributor.
..... Click the link for more information.
..... Click the link for more information.
Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, no transaction costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price
..... Click the link for more information.
..... Click the link for more information.
Traditionally, the term neural network had been used to refer to a network or circuitry of biological neurons. The modern usage of the term often refers to artificial neural networks, which are composed of artificial neurons or nodes.
..... Click the link for more information.
..... Click the link for more information.
Behavioral operations research (BOR) examines the behavior of actual human agents in complex decision problems. BOR is the operations management analog of experimental economics and behavioral finance, and is part of the field known as management science.
..... Click the link for more information.
..... Click the link for more information.
Experimental economics is a field of economics which uses experimental methods to evaluate theoretical predictions of economic behavior. In contrast to traditional economic empiricism, which relies on observing decisions in natural environments, experimental economics seeks to
..... Click the link for more information.
..... Click the link for more information.
In marketing, geo (also called marketing geography) is a discipline within marketing analysis which uses geolocation (geographic information) in the process of planning and implementation of marketing activities.
..... Click the link for more information.
..... Click the link for more information.
Most firms use a fixed price policy. That is, they examine the situation, determine an appropriate price, and leave the price fixed at that amount until the situation changes, at which point they go through the process again.
..... Click the link for more information.
..... Click the link for more information.
Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, no transaction costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price
..... Click the link for more information.
..... Click the link for more information.
Remainder advertising (also known as remnant or last minute advertising) refers to the advertising space that a media company has been unable to sell.
Depending on the medium, it could be ad space or time. Often it can be bought at a steep discount.
..... Click the link for more information.
Depending on the medium, it could be ad space or time. Often it can be bought at a steep discount.
..... Click the link for more information.
The Institute for Operations Research and the Management Sciences (INFORMS) is an international society for practitioners in the fields of operations research and management science.
..... Click the link for more information.
..... Click the link for more information.
Behavioral operations research (BOR) examines the behavior of actual human agents in complex decision problems. BOR is the operations management analog of experimental economics and behavioral finance, and is part of the field known as management science.
..... Click the link for more information.
..... Click the link for more information.
This article is copied from an article on Wikipedia.org - the free encyclopedia created and edited by online user community. The text was not checked or edited by anyone on our staff. Although the vast majority of the wikipedia encyclopedia articles provide accurate and timely information please do not assume the accuracy of any particular article. This article is distributed under the terms of GNU Free Documentation License.
Herod_Archelaus
