inluminent

At the office, I’m having to define “Yield Management” as a business model.

I found a few good resources on the web by searching Google, and this Google Answer was a big help.

I found a lot of different definintions, and this is the simplest one I could find:

Yield Management is extracting the maximum amount of revenue from a fixed quantity of perishable goods and/or services.

These other definitions weren’t bad, and I want to remember them as well:

Yield Management - A pricing model that aims to maximize the yield to the seller by charging buyers different prices according to the value they place on the purchase. Also known as Value Pricing. This is common in airline ticket pricing as business travelers have less elastic demand for tickets than leisure travelers and hence will pay higher prices for the same ticket.

Yield Management - Based on real-time demand forecasting by market micro-segment and an optimization model, Yield Management (also known as “Revenue Management” or “Real-time pricing”) is an economic technique to calculate the best pricing policy for optimizing profits generated by the sale of a product or service, based on real-time modeling and forecasting of demand behavior per market micro-segment.

Academic Definition:
“systems & procedures to maximize results from the sale of a product or service in more or less fixed supply whose revenue producing ability diminishes with time.” Dr. Warren Lieberman of Veritech Solutions Inc.

Conceptual Definition:
“Revenue Management is the art and science of predicting real-time customer demand at the micromarket level and optmizing the price and availability of products.” — Robert G. Cross, Author of “Revenue Management - Hard-Core Tactics for Market Domination”

Simple Definition:
Revenue Management means selling the right advertising space to the right advertiser at the right time for the right price and the right length of time.

In my mind, yield management is an important concept in sales of a limited inventory of products, and should be practiced if you sell anything that’s limited in availability. Others, such as American Airlines, have proved that yield management can greatly contribute to the bottom line of an organization. (Yield management earned them $1.4 Billion between 1989 and 1991) when they pioneered the technology.

Yield management techniques in pricing online advertising space can greatly increase the profits of online publishers by creativing demand, sustaining value, and growing profit, if applied correctly.