What is Yield Management? - Definition, Concept & Examples

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  • 0:03 What Is Yield Management?
  • 1:36 Why Businesses Use…
  • 2:47 Yield Management in Practice
  • 3:38 Lesson Summary
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Lesson Transcript
Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Yield management is a variable pricing strategy based on anticipating and influencing consumer behavior. The goal is to maximize revenue from a fixed, time-limited resource such as airline seats, hotel room reservations, or advertising inventory.

What Is Yield Management?

Has this ever happened to you? You're cruising around a rental website looking for a car to rent for an upcoming trip. Your trip is about a month away and prices are pretty low. Satisfied with what you've found, you navigate off the website and don't return until the week before your trip.

But now those cheap prices you found a month ago are three times what they were when you first checked! You pull out your credit card and book quickly to avoid any additional price increases.

You've probably seen it when looking for airfare or booking a hotel room in the height of prime tourist season: prices that appear to jump, virtually overnight. The same hotel room that is $89 in April suddenly becomes $189 in June. An airline ticket you looked at weeks ago for $300 round-trip is now $800. What gives?

What's happened here exactly? This is simply a pricing strategy known as yield management.

Yield management is when a company prices their products or services to make the most money by offering the right price at the best time. It's a common tactic used in the hospitality industry.

Consider these examples:

  1. A hotel located next to a stadium where a big concert is scheduled charges more for its rooms the weekend of the concert than the weekend before or after.
  2. A restaurant that isn't as busy on Tuesday evenings offers special promotions just on that day to get more diners in the establishment.
  3. An airline that flies direct year-round to many sunny spots in Florida charges a premium for flights in the summer months, but offers reduced rates in the winter.

Why Businesses Use Yield Management

You can see from some of our examples the reasons that businesses modify their pricing strategy using yield management. It's based on the idea of supply and demand: the greater the demand for a hotel room or airline ticket, the higher the price.

If you're looking for a hotel room in New Orleans during Mardi Gras, rates will be higher. On the flip side, if you're up for a beach vacation in February, rates will generally be lower (since it's not peak weather season).

Businesses that don't engage in yield management strategies may be missing out on the opportunity to create more revenue.

Among the most common types of yield management strategies are those based on:

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