Posted in Operations and Supply Chain Terms, Total Reads: 10808
Definition: Yield Management System
Yield Management System is the revenue management system under which is based on the customer’s expectations and response the differential prices are marked for profit maximization. The different prices are generated for the same set of services provided to the customers.
The yield management system takes into account the constraints, the segments aimed at and the price to be set so that there is overall profit maximization. The seat monitoring is done using software which also takes abnormal conditions such as the terrorist attack , bankruptcy of airlines , seasonal discounts , future holiday season etc.
In airline industry if the demand forecasted is less because of the season then an automatic decrease in price takes place so that there is sufficient capacity utilization. Conversely during a holiday season the prices are hiked because a high enough demand is anticipated and any deviation from that would not result in lost sales. Other examples based on timing of days we see the electricity rates being lower during the non peak hours (early mornings ) or movie tickets being cheaper for morning shows . All this makes a consumer self-adjusting to prices. It shifts the high demand to the low demand period therby maintaining the total number of units constant. It helps in generating maximum profit using optimal number of units. They also react to various purchase drivers and may reduce prices significantly during off peak period but only slightly raise prices during peak hours thereby driving more demand and increasing their overall revenues.