Conditions for Yield Management
Availability of fixed amount of resources for sale: For adopting yield management, there should be a fixed amount of resources. If the number of products is more, the customers will have a wide option to choose from. Here, the strategy of yield management will not be successful.
For example, if a customer wants to book rooms, they will check with different hotels. If only a few places are vacant and using the yield management strategy, the customer will book rooms. If the availability of rooms in an area is higher, then the person will search for cheaper hotels.
The product must be perishable: Another condition for yield management is that the product should be perishable. The customer has to take prompt action if they want to buy the product or service. Otherwise, it will be of no value after some time.
A bus ticket can be a good example. The customer has to decide before the bus departs. If they think of buying tickets after the bus has already started the journey, the tickets would be useless.
Customers are willing to pay different prices for the same resource: Market analyzers have to conduct a detailed analysis of the market to understand the opportunity of yield management strategy at that period. Also, the customers should accept the variation in pricing of the resource. If different companies are charging different prices for the same quality of resource, the consumers will opt for the one that charges less.
Making decisions regarding yield management is very important. If done wrong, a company will face loss as customers will not opt for their products or services and will buy from another company. This will also bring a tough competition between similar industries.
Advantages of Yield Management
Involves a well-planned pricing strategy: Yield management helps in strengthening the financial planning of a company. The pricing strategy plays a vital role in the profit maximization of a company. It includes analyzing the market and forming the pricing policy.
Predicts customer needs and wants: By studying the market, it becomes easy to understand and forecast the needs and wants of consumers. It will provide a clear idea about how and when a customer requires something.
For example, air tickets, bus tickets and hotel rooms are the most wanted items during vacation time. Industries can apply yield management and bring a price hike in the tickets and room booking. But this should be accepted by the customers and they will pay for the same.
Expanding market: Using a competitive pricing strategy will improve the company to penetrate and expand into the competitive market. Pricing plays a major role during competition.
Meeting customer expectations: The company can identify a customer by the choice they make. This helps the company provide excellent service to their customers. This will eventually meet the expectations of the customer as well.
Disadvantages of Yield Management
Price discrimination: A major drawback of yield management is that it creates price discrimination. Sometimes, people of different gender or age categories are charged differently. This might create a bad impression of the company.
Different options: As there is a wide price option available to customers, they will tend to choose a cheaper product or service. This may, sometimes, result in a bad choice. They will select the cheaper option, which may lack the standard quality.
Ethical issues: There may be certain ethical issues regarding yield management. Companies will put their complete focus on maximizing revenue. This may lead them to adopt or follow unethical activities.
May not guarantee profit: Using a yield management strategy may not guarantee a company to earn a profit. If any mistake is made while analyzing the market, all the decisions taken will go wrong.