Yield management is a dynamic pricing strategy that tries to maximize profitability by controlling the price of goods based on demand and inventory supply. Yield management is based on the fact that different customers may be willing to pay different prices for the same product or service because of their needs and demands. Yield management, therefore, tried to identify these variables and focuses on maximizing revenue by finding the right customer for the right product at the optimum time. The timing of delivery of service and demand thus plays a key role in yield management. As such pricing of a product or service is determined by variables like the timing of the service delivery, timing of the demands, the type of service offered, etc. The core concept of yield management, therefore, is to develop strategies that maximize profitability in capacity-constrained service industries by matching the right customer who is willing to pay the highest price for that product or service at that particular time.
For example, based on their demand levels, a hotel may price their rooms to customers at different prices during different seasons of the year.
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