Page 288 - DMGT522_SERVICES MANAGEMENT

Unit 14: Yield Management in Services

Yield Management: More than Just Price Optimization Notes

Price optimization has primarily been associated with two possible connotations in the retail
industry: markdown optimization, where a fixed inventory of perishable products (e.g. apparel)
is subject to a declining series of prices to zero-out inventory by a certain date; or, charging the
highest price possible for a product. The former defines a narrow application for perishable
inventories. The latter is neither appropriate to, nor implemented within, yield management
systems.
Price optimization as a component of yield management is expanded to reflect desired long-
term price image, revenue and profit objectives and inherent SKU-level price elasticity – enabling
retailers to produce a win-win relationship for themselves and customers. It reflects interaction
between SKUs across the category and the interaction between distribution channels.
Goal Management: Making Prices Work Together

At the heart of yield management lies the ability to manage multiple, and sometimes conflicting,
objectives. For example, senior management may set an objective to increase profitability by
5 percent. Simultaneously, a store in a competitive region may have an objective to maintain
category market share against an aggressive competitor, and a product manager may have a
vendor sales objective to win trade incentive dollars. Goal management balances these objectives
and more with demand and market dynamics to pinpoint prices that work together to achieve
company objectives. It does this while respecting item-level pricing policies.

14.1.2 Strategies for Productivity

Nevertheless, many suggestions for improving productivity can be put forward. Cowell has
summarized these points which include improving staff performance through training, introduction
of technology into the system, reducing service levels, substituting products for services, using
customers in service production and reducing the mismatch between supply and demand.

Improving Staff Performance through Training

The staff in contact with the customers provides a visible element of the service. They should be
trained to provide better service not only through hard work but also with skills. This would
result in better productivity and also higher customer satisfaction.

Introducing Systems and Technology

A classic by Levitt, ‘Production-line Approach to Services’, recommends that service companies
should industrialise their services and adopt a manufacturing attitude towards producing services.
He observed that service industry executives should begin to think seriously that they are
actually manufacturing products. They would then ask what technologies and systems are
required, what machines can replace people, what systems are needed in place of serendipity.
Levitt further suggested that for industrialization of services, technology can be applied in three
ways. First is the hard technology, which implies substituting machinery for people (e.g. airport
surveillance of baggage with x-ray equipment). The second, he called, the soft technology which
implies substituting pre-programmed systems for individual service operations (e.g. fast food
operation). The third he identified as hybrid technology which implies combining the above
two, i.e. equipment with planned systems to gain greater order, speed and efficiency.
Parsuraman extended the Geronross’ three stage model of external, internal and interactive
marketing where the introduction of technology as a service delivery option adds a whole new
dimension (Figure 14.3). He observed that a haphazard introduction of customer-contact

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