Operating yield management systems
A number of interesting issue arise in management yield. One is that pricing structures must appear logical to the customer and justify the different prices. Such justification, commonly called rate fences, may have either a physical basic [such as a room with a view] or a nonphysical basic [like unrestricted access to the internet]. If capacity is sufficient for peak demand, price reductions stimulating off-peak demand should be the focus. If capacity is insufficient, offering deals to customers who arrive during nonpeak periods [or creating alternative service location] may enhance revenue generation.
A second issue is handling variability in arrival or starting times, duration, and time between customers. This entails employing maximally accurate forecasting methods [the greater the accuracy in forecasting demand, the more likely yield management will succeed] coordinated policies on overbooking, deposits, and no-show or cancellation penalties and well-designed service processes that are reliable and consistent.
A third issue relates to managing the service process. Some strategies include scheduling additional personnel to meet peak demand; increasing customer self service; creating adjustable capacity; utilizing idle capacity for complementary service; and cross-training employees to create reserves for peak periods.
The fourth and perhaps most critical issue is training workers and managers to work in an environment where overbooking and price changes are standard occurrences that directly impact the customer. Companies have developed creative ways of mollifying overbooked customers. A golf course company offers $100 putters to players who have been overbooked at a popular tee time. Airlines, of course, frequently give overbooked passengers free tickets for other flights.
The essence of yield management is the ability to manage demand. Kimes and chase suggest that two strategic levers can be used to accomplish this goal: pricing and duration control. If these two levers are thought of in matrix from [see exhibit 16.9] with price being either fixed or variable and duration being either predictable or unpredictable, then firms located in the variable price/predictable duration quadrant have practiced traditional applications of yield management. This type of matrix provides a framework for a firm to identify its position and the necessary actions to manage yield. For example, an action controlling duration would be to convert the service offering from an event of indeterminate time to an offering that is time-based. This improves reservation planning and hence allocation of resources. An example would be having diners reserve a fixed block of time for dining at a restaurant [e.g. 7-8 P.M.] rather that an open-ended table reservation for 7 p.m.