lecture 9 (yield management)

Question 1

Yield management

Answer 1

Guides the decision of how to allocate undifferentiated units of capacity to available demand (segments) in such way as to maximize profit or revenue (price)

Question 2

What gap is yield management

Answer 2

Gap 3: Customer driven service designs and standards to service delivery

Question 3

Example efteling Yield management

Answer 3

They have rollercoasters - shows - fairy tales - food

Children with (grand/parents) - couples - teens

Changes per season - week - day

So… Capacity adjustments, programming of shows, limits… How do we do this?

Have to make different decisions on what to have when, how many different things…

how can we use the capacity to the full potential

Question 4

Determinants of Gap 3

Answer 4

Failure to smooth the peaks and valleys of demand

Overuse of capacity

Attracting inappropriate customer segments to build demand (if we have a restaurant from 4-11, there should be people interested at going at 4. IF they dont exist, theres no point…

Relying too much on price to smooth demand

Question 5

Fluctuating demand for services:

Answer 5

Demand peaks and then goes back down and then peaks again. When it peaks demand exceeds capacity and business is lost, decrease in service quallity if staff is überfordert. If there is a valley, there is excess capacity (and youre wasting resources)

sometimes max capacity is also ideal capacity (e.g. soccer match)

Question 6

Fluctuating demand (two problems)
+2 solutions

Answer 6

1) Off-peak too low –> overcapacity
2) Peak too high –> undercapacity

Two solutions:
1) shift peaks -> existing customers and services
Average utilization = constant
2) Fill up off peaks -> new customers and /or services, average utilization increases

Question 7

Nature of demand-supply fit

Answer 7

Peak demand can usually be met without major delay & wide demand fluctuations over time: electricity, natural gas, telephone, police department

2: Peak demand can usually be met without major delay & narrow demand fluctuations over time: insurance, legal services, banking or dry cleaning

Peak demand regularly exceeds capacity &wide demand fluctuations over time: accounting and tax preparations, hotels, theatres

Peak demand regularly exceeds capacity & narrow demand fluctuations over time:
same as 2 with insufficient capacity for base demand level

Question 8

Patterns and determinants of fluctuating demands:

Answer 8

1) predicable cycles:
going to work, its busy right before work starts for most people.
cycle duration? daily, weekly, monthly, annually or other…

2) determinants of cycle?
Employment, billing and tax cycles, wage and salary payment dates, seasonal changes in climate, holidays…

3) random change of level:
causes? -_> weather, health events, accidents, acts of god…

4) segmentable demand: Different use patterns, differences in profitability of transactions

Question 9

single leg vs network yield management

Answer 9

single leg yield management: no dependance between (parts of ) service
e.g. airline that has a direct flight to your destination

Network yield management: a change in one part of the service system influences other parts of the service system:
e.g. airline that has several conneccting flights

Question 10

Managing demand (partition demand9

Answer 10

segment the market makes life much easier.

E.g. train we have a lot of different people going to work, students, old people… if i can segment them somehow (train ticket off peak hours cheaper) then we can make the service better

Queuing on “first-come, first serve”
alternatives, e.g.
Urgency of service demand, duration of service transaction, importance of customer

e.g. ah has lines for only small baskets cause why wait so long…
macro has special parking lots for gold card members

Question 11

Managing demand: Develop reservation systems

Answer 11

Reservations:
1) smooth demand in time
2) smooth demand in location
3) reduce waiting and guarantee service

Problem: reservation = mutual promise
No shows (fine) vs overbooking (downgrading of products)

Question 12

Managing demand (promoting off peak demand)

Answer 12

E.g. fill up lecture rooms to watch movies during the hollidays

Communication based

Identify different motivations of demand or different segments

Communicate advantages of off peak (can be price based)

Question 13

Managing demand (establishing price incentives)

Answer 13

Is service demand price elastic
Segments with different elasticities?

Dont want the customers that aready go a lot to start going when you charge less…

Question 14

managing demand (develop complementary services)

Answer 14

service based:

Complementary anti-cyclic service to smooth
Ice-cream salon that sells rugs and carpets
Heading and air conditioning (its warm in winter, cool in summer and you can get ice cream)

NOT: complementary cyclic service to buffer

Question 15

Managing supply: Increase customer participation

Answer 15

self service: advantages and disadvantages for provider and customer

Provider adv: increased speed, increased satisfaction, decreased costs, customization, no emotion personnel…
Disadvantages: lost of customer bond (ABN), increased possibility of failures in technology

Customer advantages: increased convenience (time), decreased costs (travel)
Disadvantages: No social experience, technology stress….

Question 16

managing supply: schedule workshifts:

Answer 16

Daily, weekly, period workshifts

1)forecast demad

2) determine personnel requirements

3) Determine “shifts”

4) Assign personnel to shifts

E.g. phonecalls during the year (peak christmas and mothers day)

Phone calls during the day: strong strong increase from 9-10 start scheduling more then

Question 17

managing supply (use part time employees, cross-train personnel

Answer 17

3) When peaks are presistend and predictable (works best with standardized work)

4) multiple anti-cyclic services
single-service anti-cyclic processes:
Circus, bus driver become tour guide

Single-service multiple processes different priorities:
Supermarket stocker become cashier

Question 18

manaaging supply: Create adjustable capacity:

Answer 18

service scape:
in a plane you can easily shift from business to economy, you can make business larger etc.

in japan they have adjustable walls to make cabins for eating larger or smaller

Adjustable time: hairdresser will spend more time with you if there is less customers… restaurants do the same, you stay longer and hopefully drink more or something like that

Question 19

managing supply (share capacity)

Answer 19

own scope remains the same
Farmers share machines for example

Own scope narrows
e.g. hospitals that are trying to specialize
therefore try to cut costs and you have to go to specific hospitals for the service you want

Question 20

yield management (end of lecture)

Answer 20

use fixed capacity optimally in time to increase revenue

yield = actual revenue /potential revenue

Actual revenue = actual capacity used * average actual price

Potential revenue total capacity *maximum price

Question 21

Yield management continued

Answer 21

1) relative fixed capacity
2) opportunity to segment demand
3) supply is perishable
4) servie is purchased before consumption
5) demand fluctuates
6) low marginal cost per unit and high marginal cost per capacity extension
7) Producer-consumer interaction
8) service cannot be transported