Sheryl E. Kimes

Yield management: A tool for capacity-considered service firms

Abstract Airlines typically sell their seats for a variety of different fares. If customers make reservations early, low fares might be available, but if customers call at the last minute, they will probably have to pay the full fare. Since deregulation, early all airlines have been using a technique called yield management. Yield management allows the airlines to allocate their fixed capacity of seats in the most profitable manner possible. Since the airlines inventory of seats is perishable, the airlines must have a method of quickly and accurately allocating potential demand to capacity. The airline industry has been in the forefront of using management, but yield management has potential application to any firm constrained by capacity. Other services which have adopted yield management include the lodging, rental car, delivery service, rail and cruise line industries. The objective of yield management is to maximize the revenue or yield of the firm. A good yield management system will help the firm decide how much of each type of inventory (whether it be seats on an airplane, rooms in a hotel, or cars in a rental car fleet) to allocate to different types of demand. This article attempts to structure the concept of yield management by reviewing current literature, classifying types of solution approaches, discussing the managerial implications of yield management and presenting a future research agenda. While corporate research on yield management has been performed, most firms are understandably reluctant to share the results of their research with others. Operations management researchers could assist small and medium sized capacity-constrained firms by developing simple and accurate yield management techniques. The intent of the paper is to focus attention n the yield management and stimulate practical and theoretical research in this area.

Perceived fairness of yield management

Abstract Applying yield-management principles to rate structures is complicated by what consumers perceive as unfair practices.

The Basics of Yield Management

Yield-management systems have boosted revenue at many properties, but these electronic tools are not always compatible with the operating atmosphere of a hotel. If you want to introduce yield management at your property, you may need to make some changes first

Has Revenue Management become Acceptable? Findings from an International Study on the Perceived Fairness of Rate Fences

Demand-based pricing is underused in many service industries, because customers are believed to perceive such pricing as unfair. Fencing can be highly effective in improving the perceived fairness of demand-based pricing. In this study, five fences were explored in a restaurant context across three countries (Singapore, Sweden, and the United States). Demand-based pricing in the form of coupons (two for the price of one), time-of-day pricing, and lunch/dinner pricing were perceived as fair. Weekday/ weekend pricing was seen as neutral to slightly unfair. Table location pricing was seen as somewhat unfair with potential negative consumer reactions to this practice. Furthermore, framing demand-based pricing as discounts improved perceived fairness. The findings were largely consistent for the three countries. Specifically, framing demand-based pricing as discounts or gains showed no country-specific effect.

A Comparison of Forecasting Methods for Hotel Revenue Management

Abstract The arrivals forecast is one of the key inputs for a successful hotel revenue management system, but no research on the best forecasting method has been conducted. In this research, we used data from Choice Hotels and Marriott Hotels to test a variety of forecasting methods and to determine the most accurate method. Preliminary results using the Choice Hotel data show that pickup methods and regression produced the lowest error, while the booking curve and combination forecasts produced fairly inaccurate results. The more in-depth study using the Marriott Hotel data showed that exponential smoothing, pickup, and moving average models were the most robust.

Restaurant Revenue Management Applying Yield Management to the Restaurant Industry

In principle, restaurant operators should be able to apply the time-based philosophy of revenue management to restaurant meals. To do so, however, requires a revision in the way most restaurateurs traditionally have viewed sales. Most restaurants track item contribution margin, sales per server, revenue per day part, or similar operating ratios. A different type of measure, revenue per available seat-hour, integrates the duration of the meal as a factor in the revenue calculation. Certain elements of current-day restaurant practice, such as differential pricing (e.g., early bird specials, AARP discounts), promoting special events (such as wine tastings on off nights), and managing table turnover carry the seeds of revenue management, but few restaurants have established the necessary strategic approach to assemble those tactics into a coherent revenue-management strategy. This article seeks only to establish a framework for such a strategy, and not to set a practical road map for its execution.

The Moderating Role of Familiarity in Fairness Perceptions of Revenue Management Pricing

Perceived fairness of revenue management (RM) pricing is a serious concern, as RM uses different prices for fundamentally the same service. The authors examine the effects of familiarity with an RM pricing practice, framing of prices, and fencing condition (i.e., whether a respondent was advantaged or disadvantaged by an RM price) on fairness perceptions. The authors conduct two experiments and find that familiarity moderated the effects of framing and fencing condition on consumers’ fairness perceptions. Specifically, framing and fencing condition had strong effects on perceived fairness when respondents were less familiar with a pricing practice. However, when familiarity was high, neither the framing nor fencing condition effect was significant. Our findings suggest that familiarity may be a boundary condition for prospect theory.

The Strategic Levers of Yield Management

Yield management, controlling customer demand through the use of variable pricing and capacity management to enhance profitability, has been examined extensively in the services literature. Most of this work has been tactical and mathematical rather than managerial. In this article, the authors suggest that a broader view of yield management is valuable to both traditional and nontraditional users of the approach. Central to this broader view is the recognition of how different combinations ofpricing and duration can be used as strategic levers to position service firms in their markets and the identification of tactics by which management can deploy these strategic levers. The authors also propose that further development of yield management requires that when the service is delivered be treated as a design variable that should be as carefully managed as the service process itself.

Perceived fairness of demand-based pricing for Restaurants

Abstract Variable pricing in restaurants—for example, by day part or weekends versus weekdays— is likely to be okay with customers provided the different price schemes seem fair.

Restaurant Revenue Management at Chevys: Determining the Best Table Mix

Revenue management has been used in a variety of industries and generally takes the form of managing demand by manipulating length of customer usage and price. Supply mix is rarely considered, although it can have considerable impact on revenue. In this research, we focused on developing an optimal supply mix, specifically on determining the supply mix that would maximize revenue. We used data from a Chevys restaurant, part of a large chain of Mexican restaurants, in conjunction with a simulation model to evaluate and enumerate all possible supply (table) mixes. Compared to the restaurants existing table mix, the optimal mix is capable of handling a 30% increase in customer volume without increasing waiting times beyond their original levels. While our study was in a restaurant context, the results of this research are applicable to other service businesses.