What is Yield Management?

Yield Management:

 Yield management is the umbrella term for a set of strategies or techniques that are used to allocate limited cm restricted degree of resources in capacity-constrained service industries to realize optimum revenue.

(a)     Core concept of yield management: to provide the right service to the right customer at the right time for the right price.

(b)     Ideal outcome of yield management: to make certain that the customer acquires the desired service at the desired time at a satisfactory price, while the organization gains the most favorable outcome (revenue).

(c)     Four Cs of yield management: calendar, clock, capacity, and cost. They are bound together by a fifth C: the customer.

(d)     There are three essential conditions for yield management to be applicable :

•         That there is a limited amount of resources available for sale.
•         That the resources sold are perishable.
•         That different customers are willing to pay a different price for using the same amount of resources.

For e.g. In the Airline industry, capacity (in terms of number of seats) is regarded fixed. When the aircraft departs, the unsold seats cannot generate any revenue and thus can be said to have perished. Airlines therefore use special software to monitor how seats are being reserved and react accordingly, for example by offering discounts when it appears that seats will remain unsold.

To summarize, Yield = actual revenue + potential revenue. It is to find the best balance at any time amongst the prices charged, the target segment, the capacity and the resources used to get the best possible financial returns.