Page 287 - DMGT522_SERVICES MANAGEMENT

Services Management

Notes price. The problem for retailers is that when price changes do occur, they are typically very
small and accompanied by a promotion or some other event. Analyzing the impact of a price
change without the knowledge of other factors that influence unit sales movement is likely to
lead to erroneous predictions.
Integrated Demand Modeling: Analyzing Price, Promotion and More…
Yield management expands the definition of price elasticity by integrating the major factors
that influence unit sales movement (i.e. price elasticity, promotion elasticity, seasonal trends,
competition, cannibalism, etc.) into one analysis, creating one sales forecast. By integrating
multiple factors into one analysis, the yield management system enables a retailer to understand
demand in the absence of frequent or large price changes. It also stabilizes the analysis so it can
be performed at the lowest levels of demand (i.e. store, SKU, customer profile or day of week).
Figure 14.1: Integrated Demand Modeling

Quantifying a Retailer’s Competitive Price Image
Once the yield management system has performed a rigorous analysis of a retailer’s sales
history and competitive data, it then combines variables such as item elasticity, competition,
movement velocity, contribution and promotional lift with sophisticated algorithms to measure
a retailer’s price image. The resulting analysis and graphs provide a retailer with a visual
representation of how it is positioned in the market relative to its competition. This understanding
is used to refine a retailer’s price image (if desired), which is then used in the yield management
system as a parameter for guiding the price optimization process.

Step 3: Align Pricing with Enterprise Objectives

Continually align pricing with enterprise goals for profit, revenue and competitive price image.
In step three, executives are given visibility to the trade-off between enterprise revenue and
profit goals, based on customer demand and market dynamics. Strategic decisions are made and
prices are optimized to meet the enterprise objectives, generating specific SKU-level pricing
instructions for an assortment of selected products. Whereas traditional pricing systems perform
price elasticity analysis, leaving it to the user to handcraft the final pricing decision, yield
management is a strategic platform that looks at the category as a whole, generates specific
instructions and is driven by enterprise and category-level financial goals.
Figure 14.2: Revenue Management provides visibility to the trade-off between
Enterprise Revenue and Profit

282 LOVELY PROFESSIONAL UNIVERSITY