Risks associated with yield management

No doubt, yield management significantly improves revenues. It is an ideal solution to the problem of matching supply and demand. An organization face the following problems when it focuses more on maximizing financial returns through differential capacity allocation and pricing. Yet there are some risks associated with it.

Risks in using yield management

1. Loss of competitive focus: Yield management over-emphasizes profit maximization. Differential capacity allocation and pricing are given undue consideration. As a result, it neglects the aspects of service that provide long-term competitiveness.

2. Customer alienation: In the event that customers discover that they are paying a higher cost for administration than others, they might consider that it an unfair pricing. So, yield management programme should focus on customer education. It must explain the reasons for price differentials. The reservation system which is essential for yield management should compensate the customers adequately.

3. Low morale among staff: Sales force very often resent the rules and regulations and restrictions on their own discretion.

4. Incompatible incentive and reward system: If the yield management system does not provide enough compensation to employees, they may object it. Many managers are given incentives on the basis of capacity utilized or average rate charged. Since the prices are reduced in order to fill the capacity, service managers get less incentives. Inadequate incentive and reward system earn the displeasure of the managers.

5. Lack of employee training: Yield management system works well with the well trained employees. Employees should understand the purpose of yield management. Employees should be aware of how the yield management works, decisions making under the system, and how it affects their jobs.

6. Absence of centralized reservation: Centralized reservation is essential for the most effective yield management system. Centralized reservation is found in large organizations such as airlines, large hotel chains, shipping companies etc,. But many small organizations have decentralized reservation systems, which find it difficult to operate a yield management system effectively.