Question

What does yield/revenue management entail? What types of businesses, besides hotels and airlines, would benefit from revenue management? As a consumer, how do you view the practice?

Describe the output of aggregate planning. When is aggregate planning most useful?

Explain three alternatives for adjusting capacity and two alternatives for managing demand. Give relevant industry examples as to when these are best (or least) utilized to make your point.

Answer 1

What does yield/revenue management entail?

Yield management is a strategy used for profit maximization from a fixed and a time limited resource (in other words perishable resource) by factoring in consumer behavior. Yield management is a variable pricing strategy. The correct pricing level is determined by examining the consumer behavior so that it is attrative to the consumer.

What types of businesses, besides hotels and airlines, would benefit from revenue management?

Revenue management is gaining importance in today’s digital era. It is beneficial in the industries listed below:

• Financial services like the banking sector has applied segmented pricing for loan takers.
• Telecom industry attracts customers by offering discounts and attractive plans and then retaining them at a higher price points.
• Medical products and services depend on the hospital and healthcare providers. The hospital sector try to optimize the inventory based on the demand points which keep varying.
• Car rental industry- the car rental companies check their rate parity and hence are aware of what the actual demand scenario is.

As a consumer, how do you view the practice?

As a consumer, I view the practice as a best practice because it factors in the consumer behavior. Rather than just fixing a price for the product or service, the company understands and anticipates the consumer behavior for profit maximization.

Describe the output of aggregate planning.

Aggregate planning is a forecasting tool wherein the business attempts to match supply and demand of products and services usually for a period of 12 months. The organization assesses the output capacity of the workforce and tries to match with the supply or the resources.

The output of aggregate planning is a production plan. In other words, the operation plan is drawn considering the factors: output, capacity, employment and inventory.

When is aggregate planning most useful?

Aggregate planning is most useful in planning the production of products or services. It is a forecasting tool in the manufacturing and services sector. It helps to predict the demand and supply. Thus aggregate planning is used to make strategic decisions in terms of production and planning.

Explain three alternatives for adjusting capacity and two alternatives for managing demand.

Adjusting capacity-

• hiring and firing workers to match demand – in Human Resources department in an organization
• Production at a constant rate- production of natural gas at a constant rate from the base resource well.
• Maintaining resources for high demand levels- When a new car is introduced in the automotive industry.

Managing demand-

• Shifting demand to other time periods with incentives- Organization offers exceptional prices to increase demand such as the e-retailing industry.
• Reduce information loss along the supply chain- Organizations using Supply Chain Management (SCM) starting from the manufacturer, wholesaler, retailer and the consumer. For example, computer and mobile manufacturers such as Apple, IBM etc.