144:, pricing and reservations control. As a result of this program, General Motors was able to sell National Car Rental for an estimated $ 1.2 billion. Yield management gave way to the more general practice of revenue management. Whereas revenue management involves predicting consumer behavior by segmenting markets, forecasting demand, and optimizing prices for several different types of products, yield management refers specifically to maximizing revenue through inventory control. Some notable revenue management implementations include the
76:
of certain businesses. It is complex because it involves several aspects of management control, including rate management, revenue streams management, and distribution channel management. Yield management is multidisciplinary because it blends elements of marketing, operations, and financial management into a highly successful new approach. Yield management strategists must frequently work with one or more other departments when designing and implementing yield management strategies.
265:
day advance purchase, 7 day advance purchase, day of departure/walk up fares) The price of each seat varies directly with the number of seats reserved, that is, the fewer seats that are reserved for a particular category, the lower the price of each seat. This will continue until the price of seat in the premium class equals that of those in the concession class. Depending on this, a floor price (lower price) for the next seat to be sold is set.
1229:, this work has revealed that yield management systems are likely to increase revenues significantly. Further, this research reveals that "errors" in yield management decisions tend to be quite systematic. For instance, Bearden, Murphy, and Rappaport showed that with respect to expected revenue maximizing policies, people tend to price too high when they have high levels of inventory and too low when their inventory levels are low.
1100:
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seats, and advertising. With an advance forecast of demand and pricing flexibility, buyers will self-sort based on their price sensitivity (using more power in off-peak hours or going to the theater mid-week), their demand sensitivity (must have the higher cost early morning flight or must go to the
Saturday night opera) or their time of purchase (usually paying a premium for booking late).
250:
specialized software to monitor how seats are reserved and react accordingly. There are various inventory controls such as a nested inventory system. For example, airlines can offer discounts on low-demand flights, where the flight will likely not sell out. When there is excess demand, the seats can be sold at a higher price.
237:, media, telecommunications and energy to name a few. Its effectiveness in generating incremental revenues from an existing operation and customer base has made it particularly attractive to business leaders that prefer to generate return from revenue growth and enhanced capability rather than downsizing and cost cutting.
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information such as age and home address. The airline then could charge higher prices to consumers who are between certain ages or who live in neighborhoods with higher average wealth, even if those neighborhoods also include poor households. Very few (if any) airlines using yield management are able
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have promoted yield management as a strategy for communications service providers to generate additional revenue and reduce capital expenditures by maximizing the subscriber use of available network bandwidth. Approaches include basing a strategy on innovative services explicitly designed to use only
350:
forecasts to determine rent recommendations for profit optimization. However, the use of the yield optimization systems is fairly new to the industry in the late 1990s, with
Archstone Smith pioneering its use. The yield management systems include the LRO (Lease Rent Options) Revenue Management System
201:
If the resources available are not fixed or not perishable, the problem is limited to logistics, i.e. inventory or production management. If all customers would pay the same price for using the same amount of resources, the challenge would perhaps be limited to selling as quickly as possible, e.g. if
228:
since its inception in the mid-1980s. It requires analysts with detailed market knowledge and advanced computing systems who implement sophisticated mathematical techniques to analyze market behavior and capture revenue opportunities. It has evolved from the system airlines invented as a response to
75:
Yield management has become part of mainstream business theory and practice over the last fifteen to twenty years. Whether an emerging discipline or a new management science (it has been called both), yield management is a set of yield maximization strategies and tactics to improve the profitability
1073:
Good yield management maximizes (or at least significantly increases) revenue production for the same number of units, by taking advantage of the forecast of high demand/low demand periods, effectively shifting demand from high demand periods to low demand periods and by charging a premium for late
488:
of marginal yields from segments that are competing for the same inventory. In capacity-constrained cases, there is a bird-in-the-hand decision that forces the seller to reject lower revenue generating customers in the hopes that the inventory can be sold in a higher valued segment. The tradeoff is
264:
The airline needs to keep a specific number of seats in reserve to cater to the probable demand for high-fare seats. This process can be managed by inventory controls or by managing the fare rules such as the AP (Advanced
Purchase) restrictions. (30 day advance purchase, 21 day advance purchase, 14
117:. Donald Burr, the CEO of People Express, is quoted as saying "We were a vibrant, profitable company from 1981 to 1985, and then we tipped right over into losing $ 50 million a month... We had been profitable from the day we started until American came at us with Ultimate Super Savers." in the book
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sometimes turn to yield management as a last resort. After a year or two using yield management, many of them are surprised to discover they have actually lowered prices for the majority of their opera seats or hotel rooms or other products. That is, they offer far higher discounts more frequently
397:
low-value transactions and overall network complexity. Suggested approaches to executing a successful yield management strategy include accurate network information collection, bandwidth capacity allocation that does not impact service quality, the deployment of service management software such as
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Yield management is particularly suitable when selling perishable products, i.e. goods that become unsellable at a point in time (for example air tickets just after a flight takes off). Industries that use yield management include airlines, hotels, stadiums and other venues with a fixed number of
431:
Yield
Management has shown increasing popularity in the ski industry, especially in the North American markets. This ranges from non-physical rate fences, including age and validity differentiation to fully dynamic prices. Determinants of such variable prices include date-specific expected demand
422:
While railways traditionally sold fully flexible tickets that were valid on all trains on a given day or even trains on several days, deregulation and (partial) privatization introduced yield management in the United
Kingdom as well as for high speed services in Germany or France. Tickets for the
285:
In the rental car industry, yield management deals with the sale of optional insurance, damage waivers and vehicle upgrades. It accounts for a major portion of the rental company's profitability, and is monitored on a daily basis. In the equipment rental industry, yield management is a method to
1165:
Yield management also includes many noncontroversial and more prevalent practices, such as varying prices over time to reflect demand. This level of yield management makes up the majority of yield management in the airline industry. For example, airlines may price a ticket on the Sunday after
440:
With predictable demand far outnumbering fixed supply in the professional pet boarding industry, yield management has become an ever-popular practice for this segment of businesses. Much like the hotel industry, those systems help gauge which restrictions to implement, such as length of stay,
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Similarities that exist between the airline and telecom industries include a large sunk cost combined with low marginal cost, perishable inventory, reservations, pricing flexibility and the opportunity to upsell. Differences that present challenges for communications service providers include
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Thanksgiving at a higher fare than the Sunday a week later. Alternatively, they may make tickets more expensive when bought at the last minute than when bought six months in advance. The goal of this level of yield management is essentially trying to force demand to equal or exceed supply.
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case, capacity is regarded as fixed because changing what aircraft flies a certain service based on the demand is the exception rather than the rule. When the aircraft departs, the unsold seats cannot generate any revenue and thus can be said to have perished, or have spoiled. Airlines use
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have begun to study the yield management decisions of actual human decision makers. One question that this research addresses is how much might revenues increase if managers relied on yield management systems rather than their own judgment when making pricing decisions. Using methods from
103:, of which the GDSs were the first wave, created an environment where large volumes of sales could be managed without large numbers of customer service staff. They also gave management staff direct access to price at time of consumption and rich data capture for future decision-making.
509:
from this intersection point crosses the demand (horizontal) axis determines how many luxury cars should be protected for genuine luxury car renters. The need to calculate protection levels has led to a number of heuristic solutions, most notable EMSRa and EMSRb, which stands for
471:
uses time in the opposite direction, discounting later in the selling season once the item is out of fashion or inappropriate for the time of year. Other approaches to fences involve attributes that create substantial value to the consumer at little or no cost to the seller. A
476:
at a concert is a good example of this. Initially yield management avoided the complexity caused by the interaction of absolute price and price position by using surrogates for price such as booking class. By the mid-1990s, most implementation incorporated some measures of
500:
In the case illustrated here, a car rental company must set up protection levels for its higher valued segments. By estimating where the marginal revenue curve of the luxury segment crosses the actual rental value of the midsize car segment the company can decide how many
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of demand of the revenue ratio of the lower valued segment to the higher valued segment. This equation defines the EMSRa algorithm which handles the two segment case. EMSRb is smarter and handles multiple segments by comparing the revenue of the lower segment to a demand
393:
spare capacity and borrowing proven methods from the airline industry. The approach can be more difficult to implement in the telecommunications industry than the airlines sector because of the difficulty to control and sometimes refuse network access to customers.
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In practice, the segmentation approach relies on adequate fences between consumers so that everyone doesn't buy at the lowest price offered. The airlines use time of purchase to create this segmentation, with later booking customers paying the higher fares. The
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Yield management in online ad sales is in essence the same as in other industries above mentioned; managing the publishers supply/inventory (banner impressions) with the market demand, at the best price (CPM/RPM) while assuring highest possible fill rates.
363:
Insurance companies use price (premium) optimization to improve profitability on policy sales. The method is widely used by property & casualty insurers and brokers in the UK, Spain and, to a lesser extent, in the US. Several vendors, such as
1211:
passengers. The fixed pricing model that had existed for decades was replaced with a more demand-responsive pricing model, but that reform proved highly unpopular with passengers and led to widespread protests and a decline in passenger numbers.
489:
sometimes mistakenly identified as occurring at the intersection of the marginal revenue curves for the competing segments. While this is accurate when it supports marketing decisions where access to both segments is equivalent, it is wrong for
1036:
The optimization attempts to answer the question: "Given our operating constraints, what is the best mix of products and/or services for us to produce and sell in the period, and at what prices, to generate the highest expected revenue?"
457:
of marginal revenue opportunities. The opportunities arise from segmentation of consumer willingness to pay. If the market for a particular good follows the simple straight line Price/Demand relationship illustrated below, a single
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already supplied and for goods or services to be supplied in the future. They may also review information (including statistics) about events (known future events such as holidays, or unexpected past events such as
1085:
By doing this, they have actually increased quantity demanded by selectively introducing many more price points, as they learn about and react to the diversity of interests and purchase drivers of their customers.
973:
formulation pioneered by
Talluri and Van Ryzin which has led to more accurate estimates of bid prices. Bid prices represent the minimum price a seller should accept for a single piece of inventory and are popular
1065:
In this way, yield management's overall aim is to provide an optimal mix of goods at a variety of price points at different points in time or for different baskets of features. The system will try to maintain a
209:. The less variable cost there is, the more the additional revenue earned will contribute to the overall profit. This is because it focuses on maximizing expected marginal revenue for a given operation and
462:
of $ 50 there is enough demand to sell 50 units of inventory. This results in $ 2500 in revenues. However the same Price/Demand relationship yields $ 4000 if consumers are presented with multiple prices.
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bookings. While yield management systems tend to generate higher revenues, the revenue streams tends to arrive later in the booking horizon as more capacity is held for late sale at premium prices.
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that underlie e commerce sites leverage revenue management techniques. In 2002 GMAC launched an early implementation of web based revenue management in the financial services industry.
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Some consumers are concerned that yield management could penalize them for conditions which cannot be helped and are unethical to penalize. For example, the formulas, algorithms, and
1382:
1169:
When yield management was introduced in the early 1990s, primarily in the airline industry, many suggested that despite the obvious immediate increase in revenues, it might harm
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to employ this level of price discrimination because prices are not set based on characteristics of the purchaser, which are in any case often not known at the time of purchase.
1263:
126:
55:, yield management involves strategic control of inventory to sell the right product to the right customer at the right time for the right price. This process can result in
1040:
Optimization can help the firm adjust prices and to allocate capacity among market segments to maximize expected revenues. This can be done at different levels of detail:
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are intriguing but have been unstable and difficult to place the parameters in practice. Yield management tends to focus on environments that are less rational than the
132:
Yield management spread to other travel and transportation companies in the early 1990s. Notable was implementation of yield management at
National Car Rental. In 1993,
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Revenue
Management. Maximizing Revenue in Hospitality Operations. Dr. Gabor Forgacs, 2010. Pg. 3. Published by the Americans Hotel and Lodging Educational Institute,
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59:, in which customers consuming identical goods or services are charged different prices. Yield management is a large revenue generator for several major industries;
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67:, gave yield management its name and has called it "the single most important technical development in transportation management since we entered deregulation."
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257:. A firm may repackage its basic inventory into different products to this end. In the passenger airline case this means implementing purchase restrictions,
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were put on hold as a result of negative consumer reactions. Revenue management is also blamed for much of the financial difficulty currently experienced by
1110:
481:. The airlines were exceptional in this case, preferring to focus on more detailed segmentation by implementing O&D (Origin & Destination) systems.
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non-refundable rate, or close to arrival, and also ensuring they are selling rooms and services at the right price to the right person at the right time.
221:. Yield management practitioners typically claim 3% to 7% incremental revenue gains. In many industries this can equate to over 100% increase in profits.
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of the revenues of the higher segments. Neither of these heuristics produces the exact right answer and increasingly implementations make use of
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Talluri, K. T. and G. J. Van Ryzin (2001). "Revenue management under a general discrete choice model of consumer behavior." Management science
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same route can be as cheap as €19 but also go into the triple digits depending on departure time, demand, and the time the ticket is booked.
1377:
315:
179:. The reliance of the major carriers on high fares in captive markets arguably created the conditions for low-cost carriers to thrive.
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Some consumers may object that it is impossible for them to boycott yield management when buying some goods, such as airline tickets.
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That the resources sold are perishable (there is a time limit to selling the resources, after which they cease to be of value).
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use an average of just 35 to 40 percent of available network capacity. Recently, telecommunications software vendors such as
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Despite optimizing revenue in theory, introduction of yield management does not always achieve that in practice because of
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is generally regarded as the catalyst for yield management in the airline industry, but this tends to overlook the role of
152:, and revenue management at Texas Children's Hospital. Since 2000, much of the dynamic pricing, promotions management and
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Yield management is of especially high relevance in cases where the constant costs are relatively high compared to the
1511:
1435:
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1021:), competitive information (including prices), seasonal patterns, and other pertinent factors that affect sales. The
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which credits its system with $ 200 million in improved ad sales from 1996 to 2000, the target pricing initiative at
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273:
Hotels use this system in largely the same way, to calculate the rates. Yield management is one of the most common
322:, a Chilean company that provides revenue and yield management systems focused on this industry, with the company
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381:
125:. The yield management systems developed at American Airlines were recognized by the Edelman Prize committee of
114:
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1221:
511:
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for off-peak times, while raising prices only marginally for peak times, resulting in higher revenue overall.
213:. It optimizes resource utilization by ensuring inventory availability to customers with the highest expected
91:(GDSs). It is arguable that the fixed pricing paradigm occurs as a result of decentralized consumption. With
1470:
1335:
Cross, R. (1997) Revenue
Management: Hard-Core Tactics for Market Domination. New York, NY: Broadway Books.
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factors (institutional and public holidays, weekends, weather, size and accessibility of the resort, etc.)
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curve of the higher valued segment with the actual value of the lower segment is the point of interest.
454:
310:, which run low-cost networks in the United Kingdom and parts of the United States, and more recently,
88:
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That different customers are willing to pay a different price for using the same amount of resources.
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by market (such as sales from
Seattle and Minneapolis for a flight going Seattle-Minneapolis-Boston)
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343:
295:
1630:
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1118:
1067:
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passengers. Today, yield management is nearly universal in many industries, including airlines.
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overall (on all the routes an airline flies, or all the seats during an opera production season)
51:, hotel room reservations or advertising inventory). As a specific, inventory-focused branch of
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Link, Heike (March 2004). "PEP-A Yield-Management Scheme for Rail Passenger Fares in Germany".
1226:
1182:
1174:
1029:. Since total demand normally exceeds what the particular firm can produce in that period, the
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attempt to forecast total demand for all products/services they provide, by market segment and
478:
318:, which have networks in New Zealand and South Africa. Now operating and developed in Chile by
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140:. In response, National's program expanded the definition of yield management to include
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100:
95:, pricing became a centralized management activity and customer contact staff focused on
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contribution and extracting the greatest level of ‘willingness to pay’ from the entire
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was forced to take a $ 744 million charge against earnings related to its ownership of
52:
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prices could feasibly consider frequent flyer information, which includes a wealth of
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Kaul, Sanjay (2009), "Yield Management: Getting More Out Of What You Already Have",
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was criticized for irrational price changes that resulted from a revenue management
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1177:, and drive customers from firms that used yield management to firms that do not.
405:, and using new marketing channels to target consumers with innovative services.
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176:
172:
92:
60:
372:, EMB, ODG, provide specialized pricing optimization software for the industry.
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Yield management for telecommunication networks : defining a new landscape
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There are three essential conditions for yield management to be applicable:
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Enterprises that use yield management periodically review transactions for
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84:
48:
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Yield management has moved into the bus industry with companies such as
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used in the hotel industry to increase reservations and boost revenue.
230:
214:
160:
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by goods (such as a seat on a flight or a seat at an opera production)
774:
This equation is re-arranged to compute protection levels as follows:
129:
for contributing $ 1.4 billion in a three-year period at the airline.
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1215:
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for Hotels and Car Rental firms. Models derived from developments in
485:
385:
331:
1599:
1578:
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manage rental rates against capacity (available fleet) and demand.
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requirements and requiring fees for changing or canceling tickets.
36:
33:
1471:"Yield management, dynamic pricing and CRM in telecommunications"
1302:
1201:
468:
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and PricingPortal product from Property Solutions International.
327:
307:
303:
246:
110:
launched Ultimate Super Saver fares in an effort to compete with
40:
484:
At the heart of yield management decision-making process is the
326:
as principal customer. Finnish low-cost inter-city bus service
32:
strategy, based on understanding, anticipating and influencing
1264:
Institute for Operations Research and the Management Sciences
351:
from Rainmaker, the YieldStar Asset Optimization System from
191:
That there is a fixed amount of resources available for sale.
1595:"Die Bahnpreisreform: Ein kundenfreundlicher Gegenvorschlag"
1033:
attempt to optimize the firm's outputs to maximize revenue.
1299:
Introduction to the Theory and Practice of Yield Management
1089:
224:
Yield management has significantly altered the travel and
1207:
company, experimented with yield management for frequent
1070:
of purchases over time that is balanced as well as high.
159:
There have also been high-profile failures and faux pas.
145:
1528:
1513:
Applying Yield Management in the Mobile Broadband Market
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Applying Yield Management in the Mobile Broadband Market
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Applying Yield Management in the Mobile Broadband Market
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units of inventory for the higher valued segment where
253:
Another way of capturing varying willingness to pay is
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industry, yield optimization is focused on producing
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to make available to midsize car renters. Where the
1216:Experimental studies of yield management decisions
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965:Since the mid-1990s, increasingly sophisticated
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1468:
1390:
334:, bases its revenue flow on yield management.
1505:
1503:
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1316:"What is the Definition Revenue Management?"
997:that engage in yield management usually use
514:version a and b respectively. The balancing
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989:
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694:is the value of the lower valued segment
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1331:
1329:
1001:yield management systems to do so. The
202:there are costs for holding inventory.
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1571:
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962:to find optimal protection levels.
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1636:Supply chain management
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154:dynamic packaging
123:Revenue Analytics
108:American Airlines
65:American Airlines
1648:
1605:
1604:
1590:
1584:
1583:
1569:
1563:
1562:
1550:
1544:
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1507:
1498:
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1361:
1355:
1342:
1336:
1333:
1324:
1323:
1312:
1306:
1295:
1244:Variable pricing
1205:national railway
1183:customer loyalty
1139:
1136:
1130:
1102:
1101:
1094:
956:weighted average
949:is equal to the
945:
943:
942:
937:
922:
920:
919:
914:
900:
898:
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865:
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749:
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587:
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548:
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495:marginal revenue
479:price elasticity
469:fashion industry
399:real time policy
211:planning horizon
112:low cost carrier
97:customer service
30:variable pricing
26:Yield management
1656:
1655:
1651:
1650:
1649:
1647:
1646:
1645:
1621:Business models
1611:
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1467:
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1423:
1415:
1411:
1400:
1391:
1374:
1370:
1362:
1358:
1343:
1339:
1334:
1327:
1314:
1313:
1309:
1296:
1292:
1287:
1239:Geo (marketing)
1235:
1218:
1194:corporate image
1150:that determine
1148:neural networks
1140:
1134:
1131:
1124:
1103:
1099:
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992:
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931:
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556:
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533:
529:
527:
524:
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518:is found using
447:
438:
429:
420:
411:
378:
361:
340:
292:
290:Intercity buses
283:
271:
243:
185:
183:Use by industry
177:legacy carriers
173:vending machine
93:mass production
82:
73:
61:Robert Crandall
23:
17:
12:
11:
5:
1654:
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1638:
1633:
1631:Business terms
1628:
1623:
1607:
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1585:
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1499:
1481:(6): 465–478,
1461:
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1234:
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1217:
1214:
1179:Frequent flier
1156:socio-economic
1152:airline ticket
1142:
1141:
1106:
1104:
1097:
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1059:
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1055:
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619:
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582:
571:
560:
536:
532:
474:backstage pass
446:
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410:
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339:
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259:length of stay
242:
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207:variable costs
199:
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134:General Motors
81:
78:
72:
69:
15:
9:
6:
4:
3:
2:
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1199:
1198:Deutsche Bahn
1195:
1190:
1188:
1184:
1180:
1176:
1172:
1167:
1163:
1160:
1157:
1153:
1149:
1138:
1135:December 2011
1128:
1122:
1120:
1116:
1112:
1107:This article
1105:
1096:
1095:
1087:
1083:
1080:
1079:pricing power
1075:
1071:
1069:
1063:
1056:
1053:
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1038:
1034:
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1000:
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987:
985:
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977:
972:
968:
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862:
839:
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811:
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783:
775:
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758:
735:
731:
707:
703:
679:
675:
664:
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645:
623:
617:
614:
611:
608:
605:
583:
580:
558:
550:
534:
530:
521:
517:
513:
508:
507:vertical line
504:
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287:
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266:
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238:
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227:
222:
220:
219:customer base
216:
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196:
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102:
99:exclusively.
98:
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90:
86:
77:
68:
66:
62:
58:
54:
50:
49:airline seats
46:
42:
38:
35:
31:
27:
22:
1603:(in German).
1598:
1588:
1582:(in German).
1577:
1567:
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1548:
1539:
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1512:
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1403:
1381:
1371:
1359:
1340:
1319:
1310:
1293:
1219:
1209:loyalty card
1191:
1168:
1164:
1161:
1145:
1132:
1119:unverifiable
1111:weasel words
1108:
1084:
1076:
1072:
1068:distribution
1064:
1060:
1039:
1035:
1007:
993:
964:
902:
776:
773:
665:
551:
499:
483:
465:
451:econometrics
448:
445:Econometrics
439:
436:Pet boarding
430:
421:
412:
395:
380:On average,
379:
362:
341:
312:nakedbus.com
293:
284:
272:
263:
252:
244:
235:cruise lines
223:
204:
200:
186:
165:software bug
158:
131:
118:
105:
85:Deregulation
83:
74:
25:
24:
1457:1721.1/8787
1121:information
1049:opera house
1027:price point
503:luxury cars
460:fixed price
215:net revenue
1615:Categories
1533:. Cornell.
1406:(2): 17–19
1285:References
1187:high yield
231:car rental
161:Amazon.com
71:Definition
19:See also:
1495:0887-6045
1109:contains
606:∗
581:≥
486:trade-off
386:Telcordia
359:Insurance
332:PolskiBus
316:Intercape
1600:Die Zeit
1579:Die Zeit
1233:See also
1014:services
1003:Internet
999:computer
418:Railways
390:Ericsson
353:RealPage
241:Airlines
37:behavior
34:consumer
1626:Pricing
1303:INFORMS
342:In the
328:OnniBus
308:easyBus
304:BoltBus
247:airline
233:firms,
127:INFORMS
80:History
45:profits
41:revenue
1493:
1351:
1320:Xotels
1202:German
1200:, the
1115:biased
1031:models
1023:models
427:Skiing
366:Earnix
324:Turbus
320:SARCAN
306:, and
281:Rental
269:Hotels
1561:: 54.
1517:(PDF)
1424:(PDF)
1010:goods
995:Firms
666:where
28:is a
1491:ISSN
1349:ISBN
646:>
401:and
388:and
314:and
1483:doi
1453:hdl
1117:or
1012:or
150:UPS
146:NBC
43:or
1617::
1597:.
1576:.
1559:38
1557:.
1502:^
1489:,
1479:22
1477:,
1473:,
1392:^
1380:.
1347:,
1328:^
1318:.
1301:"
986:.
368:,
302:,
298:,
167:.
1485::
1455::
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