Yield management is the pricing strategy used by hospitality companies to adjust prices to manage capacity and maximize revenues, which is distinct from other strategies like value-based or cost-plus pricing. It can be connected with predatory pricing tactics that larger companies might use to drive out new entrants from the market. The concept of menu costs also influences price adjustment decisions.
The pricing strategy that hospitality companies like airlines, hotels, and cruise lines employ, which involves charging different prices to different customers to manage capacity and maximize revenues, is known as yield management. This method allows businesses to dynamically adjust prices based on various factors like demand, supply, and consumer behavior. It's a technique that contrasts with other pricing strategies like value-based pricing, psychological pricing, and cost-plus pricing.
For instance, an airline may reduce prices to compete with a new entrant to maintain market dominance. After driving out the newcomer, they can raise prices again. Situations like these often lead to accusations of predatory pricing, which can involve legal action, as seen in several cases involving airlines and payment processors in the past. Menu costs are another consideration that affects pricing decisions, representing the tangible and intangible costs associated with changing prices frequently.