Article Critical Review
ARTICLE CRITICAL REVIEW 5
Yieldmanagement is common among many service industries such as theairline industry. It is because they have been using yield managementfor a long time and the policies adopted do not easily fit otherindustries. The benefits and restrictions imposed make the flightcharges different even though the destination is same (Kimes, 2012).Hotels find it hard to offer different prices for the same productbecause customers who pay more would consider it unfair. The firmshould therefore use yield management in a way that convince theclients that it is fair (Kimes, 2012). The paper analyses thefairness of yield management in hotels and airline. In addition, itoutlines the concepts and presents the outcome of these industries inrelation to fairness of yield management.
Yieldmanagement refers to the process of analyzing, anticipating andreacting on the consumer behavior in order to maximize profit. Theconcept of yield management is seen in the airline industry where theincome is based on either per seat or mile. Since it is not possibleto fill a whole plane, lower prices and further discounts are offeredto the remaining seats but reserves several seats in case of lastminute bookings (Kimes, 2012). Airlines ensure that they maximizetheir revenue by using both pricing tools and seat management. Hotelsare trying to implement the concept of yield management in order tomaximize revenue. For instance, they analyze whether the cost ofcleaning an extra room outweighs the revenue of the room if sold at adiscounted rate. It is also important to provide high qualityservices in order to retain customers and make profit (Kimes, 2012).
Researchshows that fair behaviors help to maximize profit in the long run.The concept of “reference transaction “is used to discussfairness whereby customers decide how much a service is worth. Theybase their decisions on the previous experience with the company andthe market rates among others. Fairness is also demonstrated by theprinciple of dual entitlement (Kimes, 2012). It says that customersshould be charged reasonably and the company should also earn areasonable profit. The premise demonstrated by this principle is thatclients feel ok if high prices are charged to make reasonable profitsbut it is unfair to raise prices in order to earn more.
Accordingto the article, there are different ways of increasing a firms profitwithout the knowledge of the customer. The first method is increasingthe reference price (Kimes, 2012). It means increasing the rates andat the same time offer some form of discount. The other method isincluding additional services to the main service in order chargemore. The company may also decide to sell the service and products aspart of a package. The fourth method to increase profit is imposingrestrictions on the discounted prices so that the prices seem fair.Restriction could involve staying for a certain period, penalty forcancellations and booking at certain time (Kimes, 2012). Theorganization should also ensure that they give something in return tothe customers such as an upgrade and additional amenities.Information is essential in determining what the customer refers toas a reference transaction. Research shows that the organization caninfluence the amount of information available to customers thuslimiting their decision on what is acceptable.
Industries adopting yield management give benefits to their clientsbut impose restrictions on these benefits. The impact of theserestrictions and the value gained is of great concern to customers.Clients view the imposition of cancelation penalties as unacceptablebehavior (Kimes, 2012). Airlines and hotels impose a 50% penalty oncancellations and provide policies to govern them. The other issuediscussed is benefits and no-refund policy. Airline and hotels do nothave refund policy on cancellation and no benefits are offered.Majority of the respondents argued that this provision is unfair. Itis argued that acceptable practices should posses certain features.First adequate information should be provided on the differentpricing options. In addition, the imposed restriction and discountrates should be reasonable (Kimes, 2012).
Customer`sopinion change when reference and actual transaction differ. Thedifference may arise due to varying level of customer experience andthe differences between hotel and airline industry. The competitionbetween the two industries is different. Hotels are more competitiveand the price paid by customers for the services offered is lower ascompared to airlines (Kimes, 2012). Firms that are ready to implementyield management practices in their operations should concentrate onpractices that are acceptable in order to succeed. Yield managementshould also be used in a way that clients will view the transactionsas fair.
Kimes,S. E., (2012). PerceivedFairness of Yield Management.Cornell University, School of Hotel Administration.