Debunking the Myths of Yield Management

Abstract

Yield management (YM) uses information about customer purchasing behavior and product sales to develop pricing and inventory controls that produce greater revenues and deliver products that are better matched to the customers' needs. YM is not merely a set of mathematical techniques or a computer system, but a tool for managers' decision making. Computer-based tools can be a key component of a YM program, but such tools do not replace employee decision making and control. Instead they offer information to a firm's staff members so that they can make better decisions. For example, demand forecasting is basic to YM and enables a hotel to identify low-demand days far enough in advance to take appropriate actions. YM focuses on how much of a product to sell at established prices, but it does not determine what prices to charge or whether to change prices. Well-designed customer-service programs can minimize YM's effects on customer service. YM programs need not be complex, which is especially important in the lodging industry, where personnel turnover rates are high. The best way to implement YM depends on an organization's particular characteristics.

Defining a sustainable overbooking approach in the hospitality industry

“…• "Yield Management is the practice of maximising profits from the sale of perishable assets, such as hotel rooms, by controlling price and inventory and improving service" (Lieberman, 1993).…”

“…• "It is a melding of information-systems technology, probability, statistics, organisational theory and business experience and knowledge" (Lieberman, 1993). …”

Yield Applied to Destination Management: An Inefficient Analogy?

“…Yield management is 'a procedure which is used by service organizations to maximize revenue under conditions of fluctuating demand and where the product is perishable' (Lee-Ross and Johns, 1997, p 66). The aim of a yield management procedure is to increase, or indeed maximize, profitability of a business (Kimes, 1989;Relihan, 1989;Lieberman, 1993). Kimes (1989, p 14) states yield management is '.…”

“…These include when capacity is fixed, the inventory is perishable, the customer can be segmented, demand is variable and the product is sold in advance of use (Kimes, 1989). Additional conditions other authors suggest are that the cost per sale is marginal and the production cost per unit is high (Lieberman, 1993;Schwartz, 1998). Further, the successful implementation of yield management requires the ability to track, segment and forecast demand, understand the likely impact of forecast demand conditions on the profit of the operation, provision of accurate and timely information on inventory and the availability of management to monitor performance of the yield management procedure (Griffin, 1996).…”

Ten myths of revenue management – A practitioner's view

“…Now, for the 10th-year anniversary of this magazine, this article collects some assumptions commonly found with regard this discipline, not unlike the list provided by (Lieberman, 1993). Ten of these 'myths' are considered critically from a practitioner's point of view and assessed for their justification in the light of literature and practice.…”