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Yield management is a process by which an organization analyzes and forecasts customer behavior in order to determine the best way to increase profitability by minimizing the waste of perishable resources. The term was originated by former American Airlines chief executive and chairman Robert Crandall. It is also known as revenue management. Yield management is used most frequently in the hotel and airline industries in order to maximize profitability on available seats and rooms. The process involves cultivating an understanding of potential and existing customers, timing and pricing promotional efforts correctly, and anticipating changes in the market.
In order to be successful, a yield management process must take into consideration finances, marketing, and business operations. These elements combined will typically provide a clear picture of what an organization has to offer and what is needed in the marketplace. It will also help the organization to determine at what price certain services will be offered to certain types of customers and when specific promotions should be launched.
Information collected for yield management can include statistics, financial results and forecasts, and data about competitors. It may also include surveys or studies of customer behavior. Most yield management programs will include examination of buying patterns as it pertains to the offerings of the organization and to the broader industry as a whole. A review of past customer service interactions and issues can also provide guidance as to what combination of elements would best maximize profits.
Yield management works under the principle of shifting values for products. The goal is to get the maximum value out of each available entity at any time. This typically results in a range of prices for each product, depending on market conditions and the behavior of different groups of customers. For example, hotels and airplane seats are at a premium in the summer months and during holidays, but may be reduced in the off-season in order to attract customers that would otherwise not purchase at all.
The process of yield management involves not only choosing the correct elements, but also combining them in the most beneficial way. For this reason, there are numerous ways in which timing, price, the customer type targeted, and specific products offered can be combined. Many organizations will regularly shift variables in an attempt to determine the optimum mix of elements at any given time. This is particularly important to manage in the face of unpredictable world or organizational events that can affect sales on a temporary or permanent level.