Yield Management As A Pricing Mechanism

Abstract

Consumers nowadays frequently make their purchases online. One common pricing strategy on the Internet is demand-based pricing, which allows firms to adapt prices to the demand for their products. This mechanism can undoubtedly be employed more efficiently on the Internet, due to how quickly demand information can be obtained.

Within demand-based pricing, one very well-known practice is yield management. This practice was pioneered by airlines, but has spread in recent years to industries such as hotels, rental cars and cruise lines to name but a few industries. The application of yield management was an authentic revolution for the traditional concept of pricing, but has shown that it can be a good strategy when used correctly. Applying yield management requires firms to understand consumer purchasing behavior in order to compare present demand with the demand that is anticipated in the future. Yield management techniques imply the allocation of a fixed capacity to different prices and segments of consumers in order to maximize income. Yield management is sometimes confused with a well-known segmentation strategy called time-based pricing. For this reason, in this paper we highlight the main demand-based pricing strategies that are now being used on the Internet, placing special emphasis on yield management.