Question

Provide a detailed explanation of the concepts below, providing examples where appropriate.

4. Yield Management

Answer 1

Yield Management is defined as a variable pricing strategy based on anticipating, understanding, and influencing the behavior of the customers in order to maximize profits from time-limited and fixed resources. These time-limited and fixed resources could be hotel room reservation or airline seats, or advertising services. Yield management is all about strategic control of inventory to sell the right product at the right time and the right place to the right customers. However, it usually leads to price discrimination because people are getting the same services but at different prices.

For example, you book a flight ticket one month before you travel, you will get the seat at less price. But another person who buys the ticket just few hours before the flight will end up paying more than you. You both will avail the same service but were charged differently. It is the reason why yield management is a large revenue generator for many major industries.