Yield Management

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Definition Yield Management?

Yield Management is the flexible pricing practice aimed at maximizing the amount of revenue received from a fixed, perishable product or resource.

It should be seen as the process of allocating the right type of capacity to the right kind of customer at the right price as to maximize revenue or yield.

Yield Management Industries

YM has it's origin in the 80s in the airline industry and since then spread to other sectors. It is now  usually associated with the pricing practices for:

• Airlines (seats, cargo space)
• Hotels (rooms, meeting rooms)
• Rental (cars, trucks)
• Transportation (containers)
• Telecommunications (bandwidth)
• Publishing (ad space)
• Other perishable products: becoming worthless and/or unsellable at a point in time (such as is the case for airline seats just after a flight takes off).

In the above mentioned economic sectors, yield management is very important, and many such companies would view it as a Core Competence.

Yield management is typically multidisciplinary, because it combines elements of marketing, operations, and financial management into one business  approach. It's overall aim is to provide an optimal mix of goods at a variety of price points at different points in time.

Yield management can be considered as the inventory-focused part of revenue management.

Buyer Behavior

Buyers will make choices based on their:

• Price sensitivity (buyer is willing to order more if the price is low like in off-peak hours or in mid-week theatre visits)
• Demand sensitivity (buyer is willing to pay more for early morning flights or Saturday night opera)
• Time sensitivity (buyer is wiling to pay a premium for the luxury of booking late).

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