Yield (Revenue) Management Systems

Yield Management Systems/ Revenue Management Systems

Yield Management Systems (also known as Revenue Management Systems) typically used in service industries that offer perishable goods, such as hotel rooms or airline seats.  Yield Management was first used by the airline industry (United and American) after the airline deregulation.  Yield Management tries to leverage selling all the available inventory and making the maximum profit possible.  Using the airlines as an example, airlines have a fixed number of seat available on a plane to a location.  If a seat is not sold the airline loses the ability to ever make a profit on that seat again.  Yield Management attempts to sell all the seats at the highest price possible.  However, it is not always possible to sell all of the seat on the plane at the same price.  Using yield management techniques the prices for these seats may be discounted to entice people to buy the seats.  The plane may also be overbooked to assure that all the seats are filled even if some people do not show up for the flight or cancel their seat.  Yield management systems attempt to use historical data and specialized algorithms to determine the optimal price to sell the inventory.  These systems can work in real-time and change prices based on demand.  There are some disadvantages to using these systems.  The Yield Management systems to not discriminate.  A frequent customer will not be given preference, for example.  Also if the system cannot forecast well it will not help maximize revenue.  Finally the historical data needed to forecast may not be available.  Despite these disadvantages, Yield Management Systems are very popular in many service industries.  They have also been shown to provide large cost savings and improve revenue.  Several companies provide these systems, some of which are shown in the links later in this page.

Why companies use yield management systems

Revenue Management Systems Inc. defines the following reasons to use a Yield Management System:

• "Accurately assess future consumer behavior under dynamically changing market conditions."

• "Determine the most effective way to price and allocate inventory to reach every future consumer, each and every day, making real-time adjustments as market conditions change, with the consumer in real-time."

• "Communicate this information instantaneously to distribution and sale outlets which deal with the consumer in real-time."

• "Serve as a decision-support resource for marketing and operational functions, including but not limited to: pricing, scheduling, product development, advertising, sales, distribution, human resource utilization and capacity planning."

Characteristics that make a company a good target for a yield management system

The following is a list, provided by www.itech2000.com, that are typical characteristics of a Yield Management problem:

• "Perishable inventory

• Relatively fixed capacity

• High fixed costs, low variable costs

• Advance reservations

• Time variable demand

• Appropriate cost and pricing structure

• Segmentable markets"

Industries that use Yield Management Systems

Yield Management Systems are used in many industries, which include:

• Airlines

• Hotels

• Car Rental Agencies

• Cruise Lines

• Railroad

• Television Broadcast

• Telecommunications

• Restaurants

• Golf Courses

Links

General Yield/Revenue Management Links

• INFORMS Revenue Management Sections -- This site contains among other things a list of it's members, links to resources and a list of presentations on revenue management from the INFORMS meetings (more detailed then what I have included).

• Revenue Management -- This site contains a basic definition and a link to Revenue Management resources including books, articles, consultants, and companies that are using Revenue Management

• International Yield Management Research Site (warning: this site plays a very annoying version of We Come from a Land Down Under)

• What is Revenue Management

• Yield/Revenue Management Links for Hotels

• Hotel Online

• Revenue Management (RM) and it's Application to Different Industries -- Slides by Steven Pnchuk

• Revenue Management -- A Class offered by MIT (gives a brief description of Revenue Management)

• A Mailing List for Yield Management

• What Exactly is Yield Management

• Yield Management

• Yield and Revenue Management Resource for Hotels to Maximize Profit

• Understanding Yield Management by David Wardell

• Yield Management

Yield/Revenue Management Systems Providers

The following is a list of companies that provide Yield/Revenue Management solutions.  The links here just take you to their home pages but most of them also have a "Papers" section that contains more information on Yield/Revenue Management and related topics/implementations.

• Sabre

• Revenue Management Systems Inc.

• IDeaS

• HP Open Skies RMS

• Maxim

• Talus

• Lufthansa Systems Berlin

• SH&E/SITA

• INDETEC/PNR

• PROS Revenue Management

• Profit Optimization Strategies Inc.

• ORTEC

• ICL

• Fujitsu Revenue Management System

• Easy (EZ) Revenue Management Solutions

• Yield Management Werks

• Resort Data Processing

• MICROS Systems Inc.

Yield/Revenue Management Systems Conferences

• AGIFORS 2000 (The Airline Group of the International Federation of Operations Research Societies) -- Annual Reservation and Yield Management Study Group

Yield/Revenue Management Systems Researchers

The following are past INFORMS sessions on Yield Management.  This is a good place to look to find people who are actively researching this area.

• INFORMS Atlanta '96 -- Session on Airline Yield Management

• INFORMS Montreal '98 -- Topics in Airline Revenue Management

• INFORMS Montreal '98 -- New Aspects in Revenue Management

• INFORMS Atlanta '96 -- Emerging Markets in Revenue Management

• INFORMS Tel Aviv '98 -- Aviation Applications

• INFORMS Tel Aviv '98 -- Airlines: Planning and Scheduling

• INFORMS Atlanta '96 -- Section on Aviation Applications

Other Researchers

• University of Connecticut School of Business -- Suresh K. Nair

• Department of Hotel, Restaurant, and Travel Administration -- University of Massachusetts at Amhurst

• Northwestern -- Ciyou Zhu

• Glascow Caledonian University -- John Rodger

• Management Science & Operations Management Divison of Columbia Business School

• Garrett van Ryzin -- Columbia University

• Informs Journal -- Transportation Science

Yield/Revenue Management Systems Papers/Books and Implementation Case Studies

• "Airline Alliances" -- October 1998 by Andrew Boyd in OR/MS Today

• "Sabre Soars" -- June 1998 by Thomas Cook in OR/MS Today

• "Smarter Revenue Management Systems" -- March 199 by Joan Marsan for Hotels

• "Airline Ties Profitability Yield to Management" -- Society for Industrial and Applied Mathematics News

• "United Airlines' New Forecasting System Is Expected to Raise Annual Revenue" -- IBM (Case Study focusing on technical implementation)

• "United Airlines' New Forecasting System Is Expected to Raise Annual Revenue" -- IBM

• "Shopping for Revenue Management" -- Wireless Review

• "Pricing and Revenue Management – Driving Profit Improvement from CRM" -- Robert Phillips

• "Sabre's Challenge" -- Information Week Online

• INDETEC/PNR Case Studies

• "Revenue Management Systems "Must-Have" or Luxury?" -- Jon Inge on Hotel Online

• "Revenue Management Isn't New But It Is Important" -- Kirby D. Payne on Hotel Online

• "Information Technology As A Strategic Tool For Tourism And Hospitality Management In The New Millennium" -- Dr. Dimitrios Buhalis

• "The Marriage of Category Management and Customer Management" -- Gary Robins for Retail Info Systems News

• "Airlines Rely on Technology To Manipulate Fare Structure" -- Scott McCartney for The Wall Street Journal Interactive

• Yield Management: Applications to Air Transport and Other Service Industries -- Sylvain Daudel, Barry K. Humphreys, and George Vaille (on amazon.com)

• Yield Management: Strategies for the Service Industries -- Ian Yeoman and Anthony Ingold (on amazon.com)

• Revenue Management: Hard Core Tactics for Market Domination -- Robert G. Cross (on amazon.com)

• Yield Management: The Leadership Alternative for Performance and Net Profit Improvement -- Jeffery L. Magee

• Hitting a Moving Target: Setting Price Among Uncertainty -- Kathi Jean Ali’varius (The Aviation Institute at George Washington University)

• Property Report: Your Room Cost $250.. No! $200...  -- Neil Templin for the Wall Street Journal

• "New Business Models for Electronic Commerce" -- Dennis Viehland
  

Yield/Revenue Management Systems in the News

• Micros Technology Acquires OPUS 2 Revenue Technologies, Inc. (a leading supplier of hotel revenue management systems) -- October 1999

• ICL Partner with XACCT to launch IP Revenue Management Portfolio -- provides a look at how revenue management can be used in the telecommunication industry

• ICL Launches Europe's First Telecoms Revenue Management Service -- also provides a look at RM in the TC industry

• "Vail Resorts, Inc., Expands Yield Management Solution to Include Breckenridge Resort" -- Hotel Online

• "Talus Solutions Launches Talus Solutions Revenue Management Suite" -- The Auto Channel News

• "New Low-Fare Airline to be Quite High Tech" -- Stewart Deck for Computer World

• "In the IS Driver's Seat at Budget Car Rent-a-Car" -- Chicago Software News

• "Hilton Appoints Yield Management Partner" -- hotelmarketing.com

• "Four Seasons Hotels and Resorts Selects maxim Revenue Management System From Talus and YMSI" -- businesswire.com

• "American Airlines Chief Crandall to Retire May 20" -- The Detroit News

Journal Article:

"Strategic Service Pricing and Yield Management"  by Ramarao Desiraju and Steven M. Shugan in the Journal of Marketing