Management at companies in capacity-constrained industries that sell services that customers can reserve in advance—such as airlines, car rentals, hotels and publishing—face very different types of pricing decisions than management at other companies, those that either sell products that can be stored in inventory, or make decisions about which potential customers to do business with at a date very close to when the services are provided. Such capacity-constrained companies must repeatedly decide whether to offer potential customers lower-priced options to fill their capacity to reduce the risk that some of this valuable capacity will remain unused at provision.
Doing so, however, raises the risk that the capacity already set aside for lower-priced customers will make it impossible to serve higher-priced potential customers that materialize at a later date. These decisions are particularly difficult because demand for services varies based on numerous factors, such as month, day of the week, time of the day and economic factors, and is not static over time. An entire field, known as yield management, has been developed to deal with these particular pricing-related issues. The airline industry, for example, has limited resources (seats), requiring management to be aware of certain pricing strategies that maximize the capacity of such resources.
How can you identify whether your company should use yield management instead of other pricing strategies? How should you determine reservation capacity if you have a single resource? Should the lower-priced customers be offered services weeks or months in advance of provision? Or should most or all of the available capacity be held aside for higher-priced customers? What impact does having a complex network, such as hub-based airlines, have on such decisions? Given that customers might cancel or not arrive on the provision date, should more customers be offered reservations than the capacity will allow to be served? If not, is it not likely that all the capacity would not be used at the provision date? If yes, what happens if more customers materialize on the provision date than the capacity can handle?
The Accenture Academy course, Applying Yield Management, provides an understanding of specific steps you can take to develop a pricing approach that is best suited to capacity-constrained industries that allow customers to reserve capacity in advance. This approach has been consistently found to maximize revenue and contribution in such industries.
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