yield management & characteristics of service firms that can use it – Flashcards

a comprehensive system that incorporates strategies such as reservation systems use, overbooking, and segmenting demand. it attempts to allocate the fixed capacity of a system to match the potential demands in various market segments in the most profitable manner.

service firms with a substantial investment in facilities can be considered as being capacity-constrained.

for yield management to be effective, the service firm must be able to segment its market into different customer classes.

for capacity-constrained service firms, each room or seat is referred to as a unit of inventory to be sold. revenue from an unsold unit is lost forever.

reservation systems are adopted by service firms to sell capacity in advance of use, however, managers are faced with the uncertainty of whether to accept an early reservation at a discount price or to wait and hope to sell the inventory unit to a higher-paying customer.

using demand forecasting, yield management allows managers to increase utilization during periods of slow demand and to increase revenue during periods of high demand.

the cost of selling an additional unit of inventory must be low. the marginal cost of capacity additions is large, however, because of the necessary lumpy facility investment.