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Yield Management

Yield management is the concept of segmenting consumers and allocating available capacity in one-off or distinguishable single event products and services among the different consumer segments to maximize revenue and capacity utilization for the business or organisation. It is a capacity, inventory and demand management strategy that aims to forecast demand as accurately as possible and use this to set the most appropriate prices to available capacity or inventory at any point in time in order to maximize yield and revenue for the organization employing such technique.

Yield Management Uses

Many different businesses use Yield management due to the nature of their inventory and demand for products and services such as:

-Airlines, in scheduling and allocating seat capacity on each route they operate
-Hotels and resorts, in scheduling and allocating rooms during different times, holidays, and seasons
-Some vehicle rental outlets

In most of these businesses demand is variable, products and services can be sold well in advance before they will be consumed or used, and there are substantial fixed costs. This helps create an environment where these businesses can offer the same or similar products and services at different prices depending on demand. For example; airlines and hotels have substantial fixed costs which they have to cover whether demand is high or low. So they will adjust prices to reflect demand characteristics and or adjust capacity if possible. Both of these services are also single case events where a certain flight or hotel room on a certain time and date can't be carried forward and sold at a later date (except bookings in advance) so pricing is the only tool available to make sure all available capacity or inventory is sold to maximize revenue and cover fixed costs.

Yield management strategies vary by industry and they may employ sophisticated forecasting techniques, live sale and demand/price adjustment systems. Some online booking systems such as Amadeus, which is used by many airlines, has the ability to perform some of these functions. Companies employing yield management strategies must also include compensation outcomes for over bookings in order to preserve customer perception and loyalty.

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