Sahil Malhotra-2010195

Vivek Parekh-2010281

Rituparna Adak-2010182

Siddharth Mohpatra-2010274

Rohit Deshmukh-2010185

Sarita Chowdhary 2010296

The Strategic Levers of Yield Management

Article review

Application of information systems & pricing strategies

‘‘To sell the right capacity to the right Customer at the right prices’’

 Implicit: notion of time-perishable capacity and segmentation of capacity

Yield Management ( traditional way)

Managing the four C’s of perishable service to manage a fifth C, customer demand, in such a way as to maximize profitability.

C - calenderC - clockC - capacityC – cost

Fifth dimension: Costumer demand

Yield Management (modified)

PricingDuration of customer use

Pricing can be fixed or variableDuration can be predictable or unpredictable

Strategic Levers

Positioning of selected service industries

Before Deregulation most of airlines in U.S were in quadrant 1.

After deregulation many airlines emergedLow cost strategy : Peoples expressNew computerised reservations system &

variable pricing on flight –by-flight basis:- Most of major carriers e.g. american airlines, united airlines etc

Faliure of people express and most carriers shifting to quadrant 2

Airline Industry

Previously operated on origin destination basis later shifted to hub and spoke model

It prevented airlines from managing predictability of their duration causing them to move towards 4th quadrant

Problems:Passenger obtain lower fare on one legEmpty seats on flight- lost revenue

Southwest airlines resisted this temptations and remained in quadrant 2 to be competitive

Traditional hotel industry was located in 3rd quadrantFixed rate per nightLength of stay not considered

Impressed by airline industry shifted to yield management- variable pricing to hotels

Relied on top down pricingForte charged one rate and concentrated on

length of stayMarriott forecasted by arrival day length of

stay and room rate to able to determine best set reservation request.

Hotel Industry

Using strategic levers

DURATION METHODSTO INCREASE

CONTROL OVER DURATION:

Reduce the uncertainty of arrival

Reduce the uncertainty of duration

Reduce the time between customers

METHODS OF MANAGING DURATION

REFINING THE DEFINITION DURATION

How long customer uses our serviceMeasured either by TIME or by EVENTBetter forecasting possible if measured by TIME

rather than by EVENT.

UNCERTAINITY OF ARRIVAL

INTERNAL APPROACHESOverbooking» Markovian decision process or simulation approaches» Service level approaches or » Critical fractile method(News-Vendor Model)

Displacement Strategies» Time of Arrival» Frequency of use» Perceived importance

UNCERTAINITY OF ARRIVAL

EXTERNAL APPROACHES Shift of Responsibility of arriving to the

customers• Deposit policies• Cancelation Penalties• Make customers more responsible for arriving• Service guarantee (Positive incentive)

Internal Approaches:-Forecasting length of use and improving consistency

of service delivery

-Forecasting time of start and end of service usage

-Rather than predict by flight leg they should predict for all possible origin-destination pairs

-Consistency of duration like TGI Friday

External Approaches:-Penalties

Hence Best approach is Internal Approach.

Uncertainty of Duration

Time Reduction between Customer• Changeover time reduction:

– Increase revenue per available inventory unit– Try to serve more customers by reducing the

changeover time.– Ex- Southwest airlines, Indigo

Continued…Use of Differential Pricing for profit line

yield management

Quadrant based pricing for each airline

Resentment from the customers for being charged with different prices for essentially same service

PRICE

Proper Price Mix

Companies must be sure while designing the proper price mix.

Optimal Pricing policies were designed by Taco Bell.

It determines relatively a simple way of determining the price sensitivity and acceptable price range.

Although not very popular.

Rate Fencing

Wide variety of prices charged for essentially the same service.

Quadrant 2 industries often use this type of pricing.

Can be physical or non physical in nature.Physical rate fence include tangible features.Non-physical rate fences include rewarding

customers.It also include cancellation or change facilities

and benefits based on the prior reservations.

Pricing can be applicable in following domains:Airline IndustryHotel and Resort IndustryCar Rental ServicesInsuranceFinancial Advisory ServicesCredit Card Services

Moving to a more Profitable Quadrant

Case of Movie Theatres• American Movie theatres did not have

differential pricing.• In Indian context, movie theatres had

differential pricing on the basis of seat location• Other variables can be used to efficiently

distribute pricing, such as:– Show timings (as in the case of multiplexes)– Luxury services to certain class of customers

Differential Pricing-Quadrant 1 to Quadrant 2

Case of golf courses• Service consumption time is highly variable• Need to control and shorten the service

consumption time in order to maximize profitability

• Arrival uncertainty can be tackled by– Deposits or overbooking

• Duration uncertainty to be tackled by:– Forecasting play length– Providing golf carts to speed up time between

holes

Control Duration:Quadrant 3 to Quadrant 1

Case of Health Care Industry• Duration is different for each case• Patients can be classified on the basis of

their health• Trying to control patient stay is a

controversial case

Control Duration:Quadrant 4 to Quadrant 2

Case of Internet Service Providers• Fluctuating load on ISPs• ISPs overbook the connection• Heavy load during peak hours

mean deteriorated service.• Differential Pricing can be used

by:-– Analyzing the peak hours– Giving discounts or charging

penalties accordingly

Differential Pricing-Quadrant 3 to Quadrant 4

• Yield Management offers a clear advantage of Maximization of Revenue

• Effective use of Strategic lever of pricing and duration control can help.

• Even company using it already can improve its performance.

Conclusion

Thank You