Who invented yield management

This was an approach based on the fundamental premise that inventory was perishable and all customers were not created equal. The carrier focused on maximizing revenue through an analytics-based inventory methodology in an effort to thwart an increasing threat in the market at that time — the advent of the low-cost, low-fare carrier. By coupling this inventory-management approach with an innovative variable pricing strategy based on understanding, anticipating and influencing customer behavior, American Airlines was able to maximize its revenue and profits from a perishable resource airline seats and compete directly with low-cost carriers LCCs.

This methodology rapidly spread throughout the airline industry. This significant change has orchestrated customer demands and expectations for lower fares. These two factors have largely resulted in a commoditization of base fares, leaving airlines to focus their efforts on identifying and managing new opportunities to grow revenue, profit, and productivity, and further differentiate their brands in the marketplace.

The outcome of their efforts has identified new opportunities for airlines to further increase employee productivity and revenue expansion.

For example, having access to an easy-to-use, consumer-grade user experience coupled with seamless inventory and revenue management business processes can drive productivity improvements for airlines.

By optimizing all available revenue streams, including those from partnerships, codeshares, and alliances, ancillary sales, merchandising, fees and taxes, new possibilities will become available that will lead to subsequent financial gains for airlines. To support these emerging opportunities, a next-generation revenue management solution is essential. These obstacles encompass the familiar areas of increasing profits, evolving distribution models, interpreting volumes of unstructured data and the need to offer a more personalized customer experience.

Airlines are now tasked with efficiently collecting, processing and analyzing this data and subsequently using it to sense and respond to shifting market dynamics. And customer demand for a seamless personalized travel experience continues to increase while airlines attempt to implement an integrated customer-centric business strategy that is aligned with revenue objectives. To ensure future success, airlines need a fresh approach that focuses on revenue per customer rather than revenue per seat and provides the means to incorporate operational efficiencies into their business processes.

In addition, it should encompass readily accessible, real-time information that will improve retailing and customer-centricity strategies while overcoming competitive influences in the marketplace. To accomplish this, airlines need to incorporate a next-generation revenue management solution that goes above and beyond just the management of seat revenue.

The solution must provide airlines with a much broader view of revenue data at the customer level, presenting information in real-time with an enhanced user interface that is broadly integrated across sales and service tools, including those supporting inventory and dynamic pricing. In essence, airlines must become better retailers. In doing so, they will begin to understand the principles and value of total revenue optimization TRO.

Since holiday fliers are expected to reserve their itineraries in advance, they are more than likely to make the most of the discounted fares. On the other hand, a majority of the business trips are decided within a week or two from the date of travel. This allows the airline to collect full fares from business fliers.

The same example can be used in the case of a hotel to make things even clearer. For example, the hotel might require guests to stay on a Saturday night to get the discounted room on Monday. Since most business travelers prefer to stay at home on weekends, leisure customers are more than likely to book this weekend stay because they are known to be more price sensitive.

Therefore, the hotel might wish to sell as many rooms as possible to business customers at a higher price while ensuring that it maintains a high level of room utilization.

The concepts of yield management in the airline industry are known to have an impact on customer feelings of price fairness and it also affects customer loyalty. As expected, customers consider the price to be unfair when they realize that the airline is using price strategies to generate profit. Another issue is that yield management also ends up having a negative effect on leisure travelers because the business travelers are less price sensitive.

Finally, price fairness is not a proper predictor of loyalty. Customers base their loyalty on different factors. For consumers, LCCs expanded travel options to include basic air transportation at previously unheard-of low fares. For legacy airlines, the new competition from LCCs not only forced them to respond with comparable pricing to protect market share, it also led to unprecedented cost cutting. New internet distribution channels gave more consumers more information than ever before about alternative fare options.

Passengers became much less willing to pay 5, 8 or even 10 times the lowest available fare for travel on the same flight in the same economy class seat. Fare simplification involved the removal of segmentation restrictions on lower fares, most typically round-trip purchase and minimum stay requirements. Legacy carriers were effectively forced to match the LCC fare levels and to simplify their own fare structures in order to remain competitive.

Although welcomed by consumers, simplified fares took from the airlines their most effective way of segmenting business and leisure demand. In response, RM researchers needed to develop new methods for demand forecasting, inventory optimization and estimation of passenger willingness-to-pay WTP.

As Belobaba , p. For fully undifferentiated fares, Q-forecasting forecasts the maximum potential demand for the lowest fare, then uses estimates of WTP to forecast demand for higher fare classes conditional upon closure of each lower class.

Hybrid forecasting generates separate demand forecasts for price- and product-oriented demand, and is appropriate for fare structures with at least some segmentation restrictions.

Traditional RM forecasters can be used to estimate product-oriented demand, whereas Q-forecasting can be applied to forecast price-oriented demand […]. Generating forecasts of demand by WTP, however, is not enough to ensure that revenues will be maximized, particularly on flights with more capacity than demand.

RM optimizers also needed to be modified to incorporate information about the propensity of passengers to buy down in a given fare structure. This methodology reduces the fare value fed to the seat allocation optimizer for less restricted fare structures with greater risk of revenue loss due to buy-down, closing lower fare classes earlier in an attempt to encourage sell-up.

This fare adjustment theory has been extended to a variety of RM systems and can be applied to almost any fare structure. Existing RMS base their recommendations on historic observations and do not explicitly consider competition.

This means that RMS recommendations often are not appropriate for real-time competitive situations Fiig et al. By optimizing the contribution within the shopping session, DP has a more current and detailed view of demand and can improve RMS performance. DP also referred as surge pricing, demand pricing or time-based pricing allows prices to respond to current market conditions.

Emerging from the airline and hotel industries, DP has been applied in retailing with online retails to adjust the price of products according to competitors, time, traffic, conversion rates and sales goals. The aim of dynamic pricing is to increase revenue and profit Deksnyte et al. Whereas in sport, professional teams have used dynamic pricing structures to boost revenue taking into factors such as date of purchase, game opponent, weather and view Drayer et al.

Yeoman argues that the ability of consumers to compare prices and achieve the best deal as a consequence of the emergence of online travel agents as a major transformation. Indeed McMahon-Beattie et al. Customers continue to seek an absolute value and the best price available. Simply put, the dynamics of supplier pricing are more visible to consumers and, in response, they are adapting their buying behaviour.

Liozu has indicated that price is becoming increasingly important within firms at both tactical and strategic levels in order to increase competitive advantage and firm performance. For the past 20 years, faced with increased business and pricing complexity, pricing scholars and practitioners have paid more and more attention to pricing capabilities, thus linking RM with pricing and taking an organizational perspective Yeoman and Watson, Grounded in resource-based view and capability-based view of the firm, pricing capabilities have moved over time from a non-existing concept to an emerging theory.

RM has had a huge impact on a range of industries and is now a core function. A significant development for the Journal of Revenue and Pricing Management in the last couple of years has being the promotion of Pricing content, given the shifts in consumer behaviour, big data, technology and the Internet. The appointment of Stephan Liozu as Associate Editor Pricing was a significant step in that development along with Andreas Hinterhuber.

Grounded in resource-based view and capability-based view of the firm, pricing capabilities have moved over time from a non-existing concept to an emerging theory rich in both qualitative and quantitative research articles. From the mid to today, pricing scholars have demonstrated the need to pay greater attention towards pricing capabilities to increase competitive advantage and firm performance.

This article examines the evolution of the concept of pricing capabilities over time, the current state of pricing capabilities theory and the future ahead for this emerging field. So, what about the next 15 years, I asked Editorial Board members for their thoughts and these are the replies;. Over the next 15 years, I would expect the journal to continue to show how revenue management can be applied in diverse application areas, as well as adapting tools from data science to improve the implementation of revenue management techniques.

I think the 30th anniversary issue should consider pricing in a broader sense in the way that there are new types of transactions in the connected digital economy, e. Currently the evolution of the models and algorithms is to make them more and more complicated and more and more encompassing. We might see pricing models only incorporating a single factor, or perhaps static capacity levels employed. We will have simple but robust models. It is to the merit of the Journal of Revenue and Pricing Management to provide a forum where the disciplines of pricing and operations management intersect to provide rigorous and actionable insights.

Emerging trends: an increase in studies that examine the application of revenue management outside traditional industries. I would also expect that we will gradually include a third foundation: psychology. Understanding how consumers react to alternative prices or pricing models and examining the psychological antecedents of alternative pricing strategies at the level of the decision makers will all make for fascinating studies able to positively shape research and practice.

I believe that over the next 15 years personalization, dynamic packaging and real-time distribution will add additional content to the Journal. These topics are about to change airline revenue management and pricing and I am looking forward to exciting papers being published in the future. My wish for the next 15 years is more eclectic and behavioral work in RM without neglecting consistency in thinking, grounded in the optimization opportunities that the online world and technology will provide us, without losing track of social responsibility, sustainability and social justice.

The first attempt at value pricing was American Airlines initiative in April to transition to a simplified fare structure that had grown in complexity since airline deregulation.

Instead of selling seats at several prices, American offered only four types of fares — first class, regular coach and two discount coach fares which had 7-day and day advance purchase restrictions, respectively.

RM or Yield Management in those early days was classified as a series of characteristics coined by Kimes as necessary conditions as fixed capacity, high-fixed costs, low variable costs, time-varied demand with similarity of inventory units.

Necessary ingredients were market segmentation, historical demand, pricing knowledge, overbooking policy and information systems using rate controls, availability controls or allocation approaches.

Today, the evolution has moved beyond control and allocation to distribution systems, origin and destination, dynamic pricing and total approach to RM that is multi-disciplinary not just operations research. Price analytics enables better understanding of elasticity and behavioural economics. The past may not represent the future, but the articles presented in this special issue are a documented evolution.

The Journal of Revenue and Pricing Management serves as a bridge between practice and theory in order to advance the field through dissemination and publication of leading articles for the benefit of industry and the wider community. A strong emphasis is placed on the utility value of research in which application is demonstrated. The journal has grown from four issues per year in to six per year in The number of articles has exponentially grown, balancing academic research and practical value.

The whole journey has been a team effort for which there are so many people to thank. I hope the journal has brought you understanding through insight and value with articles over the last 15 years emphasizing meaningful answers to problems whether cutting edge science or real solutions. So, let the journey continue. Belobaba, P. Flight Transportation Laboratory. Cambridge: MIT. Google Scholar. Kimes, S. In: I. Yeoman and A. Ingold eds. London: Cassell, pp. Littlewood, K. Journal of Revenue and Pricing Management 4 2 : — Article Google Scholar.

Turow, J. European Journal of Cultural Studies 18 4—5 : — Download references. You can also search for this author in PubMed Google Scholar. Reprints and Permissions. Yeoman, I. The history of revenue and pricing management — 15 years and more.

J Revenue Pricing Manag 15, — Download citation. Published : 30 June Issue Date : 01 July