Yield management

Yield management is a variable pricing strategy, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, time-limited resource (such as airline seats or hotel room reservations or advertising inventory). As a specific, inventory-focused branch of revenue management, yield management involves strategic control of inventory to sell it to the right customer at the right time for the right price. This process can result in price discrimination, in which customers consuming identical goods or services are charged different prices. Yield management is a large revenue generator for several major industries; Robert Crandall, former Chairman and CEO of American Airlines, gave yield management its name and has called it "the single most important technical development in transportation management since we entered deregulation."

Yield management has become part of mainstream business theory and practice over the last fifteen to twenty years. Whether an emerging discipline or a new management science (it has been called both), management is a set of yield maximization strategies and tactics to improve the profitability of certain businesses. It is complex because it involves several aspects of management control, including rate management, revenue streams management, and distribution channel management. Yield management is multidisciplinary because it blends elements of marketing, operations, and financial management into a highly successful new approach. Yield management strategists must frequently work with one or more other departments when designing and implementing yield management strategies.

Deregulation is generally regarded as the catalyst for yield management in the airline industry, but this tends to overlook the role of Global Distribution Systems (GDSs). It is arguable that the fixed pricing paradigm occurs as a result of decentralized consumption. With mass production, pricing became a centralized management activity and customer contact staff focused on customer service exclusively. Electronic commerce, of which the GDSs were the first wave, created an environment where large volumes of sales could be managed without large numbers of customer service staff. They also gave management staff direct access to price at time of consumption and rich data capture for future decision-making.

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