Page 286 - DMGT522_SERVICES MANAGEMENT

Unit 14: Yield Management in Services

The other problem in services sector is that lower productivity is influenced by a number of factors Notes
which are unique to services industry. For example, service industry is more labour intensive as
against the manufacturing sector, which is capital intensive. In services industry, if you have to
achieve higher output, you have to proportionately increase the workforce. The second problem
is that of fewer opportunities because of economies of scale, lack of labor specialization and
dependence on the human element. The third problem is the size of service operations. A number
of service organisations are run by a handful of people. A nursing home, a lawyer, a consultancy
service are some such examples. Here neither is division of labor possible nor specialization. All
these problems make the task of managing productivity much more challenging in service
organisations, and therefore it is considered to be a major strategic issue.

Did u know? Since service organisations entail capital investment, productivity cannot be
overlooked?

14.1.1 Yield Management Process

Yield management is an answer to the complex problem of optimising prices to maximise
revenue and profits. To be effective, it requires three basic steps.

Step 1: Analyse Competition

Carefully evaluate competitive strengths and weaknesses.
In step one, competitive data is analysed to illuminate pricing strengths and weaknesses. A
yield management system prepares competitive data, such as in-store pricing, Internet pricing,
market share, trade areas, etc. for business analysis. Because this information is not 100 percent
available, the yield management system must provide a means for making educated assumptions
about areas where little or no competitive data is available. It must also provide a means for
helping the user qualify sales data for accuracy before using it as a metric in business decisions.
Not all competitive prices have the same “weight” in the market, and not all competitors price
each store alike, even within the same market. Each competitor has a distinct trading area, client
base and cost structure that overlap with competitor trading areas, including the Internet. The
mix of competitors and their respective differing strategies complicates the process of
understanding competitive strengths and weaknesses. The yield management system allows
complexity to be managed by the computer, helping the user to visualise competitor’s pricing
strategies and enabling the user to focus on strategy, goals and exceptions instead of the details.

Step 2: Understand Consumer Demand

Accurately measure how customers value products; in so doing, quantify the relationship between
price and unit sales movement.

In step two, historical sales data, the purest form of communication a retailer has with its
customers, is analysed to measure consumer trade-off decisions. When properly analysed, this
data can reveal how customers actually respond to price changes, promotions and other aspects
of a retailer’s value proposition.
Yield Management: More than Just Price Elasticity

Price elasticity is defined as the relationship between price and unit movement for a single
product. Each time a customer makes a purchase, that purchase constitutes one data point. With
multiple data points, it becomes possible to predict the unit movement for a product at a given

LOVELY PROFESSIONAL UNIVERSITY 281