Yield Management Pricing: The key to maximizing retail revenue

What is Yield Management Pricing?

Yield management pricing is a strategy that dynamically adjusts prices according to demand and other market variables. It was developed by Robert Crandall, the former president and CEO of American Airlines. 

This management strategy involves an in-depth analysis of demand patterns. It helps identify unexpected opportunities to maximize revenue. Once set in motion, every time demand increases, the retailer takes advantage of the situation to increase prices to capitalize on the moment. Likewise, when demand decreases, it reduces prices to shift inventory without compromising profitability.

Predictive analytics tools, such as Demand Forecasting, are essential to implementing yield management effectively. Combine them with advanced software that can set the right price at the right time, such as Dynamic Pricing, and design campaigns based on products with elastic demand with Promotion Optimization Software.

Key components of Yield Management Pricing

To fully understand yield management, you need to know its key components:

• Dynamic Pricing: Dynamic pricing allows you to adjust prices according to actual market conditions at any given time. Tourism is a good example of this: flight and hotel prices change several times a day depending on demand. It is also increasingly seen on supermarket shelves, with prices managed using electronic labels, where prices vary depending on which day of the week you are shopping. 
• Stock management: Yield management ensures that products or services are available to the right customers at the right time. When demand is high, prices increase, and when demand is lower, discounts or promotional offers are used to shift excess stock.
• Consumer segmentation: Yield management success relies heavily on understanding customer segmentation. Businesses can maximize their revenue by targeting specific groups of customers with bespoke pricing. For example, consumers who leave items in their basket for several days may receive an email with a discount code to incentivize the purchase, while those who buy on the spot will not receive the same discount. 

Demand forecasting: Forecasting fluctuations in demand allows companies to adjust their strategies proactively rather than reactively. Data analytics, seasonal trends, and even macroeconomic indicators can help retailers forecast demand and design more accurate price optimization strategies.

Yield Management vs Revenue Management

Although yield management is closely related to revenue management, and both terms are sometimes used interchangeably, they are not the same.

While yield management focuses mainly on pricing strategies and inventory optimization, revenue management is a broader strategy that includes yield management. It also covers other aspects such as upselling and optimizing product availability. 

For example, the run-up to Christmas is a popular time to buy gifts. With technology being one of the most frequently selected categories, prices are higher than at other times of the year, as retailers aim to sell as many items as possible at a price that delivers the highest profitability. This is yield management.

However, in addition to this, the retailer may decide to optimize marketing strategies and offer additional products. For example, to increase the total spend per customer, the retailer may offer deals on chargers, cases, or screen protectors when buying a smartphone. This is considered a revenue management strategy.
 

The importance of Yield Management in retail

Retail yield management is an increasingly used strategy in retail, where it is common to adopt yield management strategies to adjust prices according to stock levels, sales trends, and competitors’ prices.

To do this agilely and effectively, it is essential to use advanced Artificial Intelligence-driven pricing tools, such as those offered by Reactev. So, if you aren’t familiar with them yet, take a look and find out for yourself how they can help you maximize your profits.