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Article review

Sahil Malhotra-2010195

Vivek Parekh-2010281
Rituparna Adak-2010182 Siddharth Mohpatra-2010274 Rohit Deshmukh-2010185

Sarita Chowdhary 2010296

Application of information systems & pricing

strategies To sell the right capacity to the right Customer at the right prices Implicit: notion of time-perishable capacity and segmentation of capacity

Managing the four Cs of perishable service to manage

a fifth C, customer demand, in such a way as to maximize profitability. C - calender C - clock C - capacity C cost

Fifth dimension: Costumer demand

Pricing

Duration of customer use


Pricing can be fixed or variable

Duration can be predictable or unpredictable

Before Deregulation most of airlines in U.S were in

quadrant 1. After deregulation many airlines emerged Low cost strategy : Peoples express New computerised reservations system & variable pricing on flight by-flight basis:- Most of major carriers e.g. american airlines, united airlines etc Faliure of people express and most carriers shifting to quadrant 2

Previously operated on origin destination basis later

shifted to hub and spoke model It prevented airlines from managing predictability of their duration causing them to move towards 4th quadrant Problems:
Passenger obtain lower fare on one leg Empty seats on flight- lost revenue

Southwest airlines resisted this temptations and

remained in quadrant 2 to be competitive

Traditional hotel industry was located in 3rd quadrant


Fixed rate per night
Length of stay not considered

Impressed by airline industry shifted to yield

management- variable pricing to hotels Relied on top down pricing Forte charged one rate and concentrated on length of stay Marriott forecasted by arrival day length of stay and room rate to able to determine best set reservation request.

METHODS OF MANAGING DURATION

TO INCREASE CONTROL OVER DURATION:

Reduce the uncertainty

of arrival Reduce the uncertainty of duration Reduce the time between customers

How long customer uses our service Measured either by TIME or by EVENT Better forecasting possible if measured by TIME rather

than by EVENT.

INTERNAL APPROACHES
Overbooking
Markovian decision process or simulation approaches Service level approaches or Critical fractile method(News-Vendor Model)

Displacement Strategies
Time of Arrival Frequency of use Perceived importance

EXTERNAL APPROACHES Shift of Responsibility of arriving to the customers


Deposit policies Cancelation Penalties Make customers more responsible for arriving Service guarantee (Positive incentive)

Internal Approaches: -Forecasting length of use and improving consistency of

service delivery

-Forecasting time of start and end of service usage -Rather than predict by flight leg they should predict for all

possible origin-destination pairs

-Consistency of duration like TGI Friday External Approaches: -Penalties Hence Best approach is Internal Approach.

Changeover time reduction:


Increase revenue per available inventory unit Try to serve more customers by reducing the changeover

time. Ex- Southwest airlines, Indigo

Use of Differential Pricing for profit line yield

management
Quadrant based pricing for each airline Resentment from the customers for being charged

with different prices for essentially same service

Companies must be sure while designing the proper

price mix. Optimal Pricing policies were designed by Taco Bell. It determines relatively a simple way of determining the price sensitivity and acceptable price range. Although not very popular.

Wide variety of prices charged for essentially the

same service. Quadrant 2 industries often use this type of pricing. Can be physical or non physical in nature. Physical rate fence include tangible features. Non-physical rate fences include rewarding customers. It also include cancellation or change facilities and benefits based on the prior reservations.

Airline Industry Hotel and Resort Industry

Car Rental Services


Insurance Financial Advisory Services Credit Card Services

Case of Movie Theatres American Movie theatres did not have differential pricing. In Indian context, movie theatres had differential pricing on the basis of seat location Other variables can be used to efficiently distribute pricing, such as:
Show timings (as in the case of multiplexes)
Luxury services to certain class of customers

Case of golf courses Service consumption time is highly variable Need to control and shorten the service consumption time in order to maximize profitability Arrival uncertainty can be tackled by
Deposits or overbooking

Duration uncertainty to be tackled by:


Forecasting play length Providing golf carts to speed up time between holes

Case of Health Care Industry Duration is different for each case Patients can be classified on the basis of their health Trying to control patient stay is a controversial case

Case of Internet Service Providers Fluctuating load on ISPs ISPs overbook the connection Heavy load during peak hours mean deteriorated service. Differential Pricing can be used by: Analyzing the peak hours Giving discounts or charging penalties

accordingly

Yield Management offers a clear advantage of

Maximization of Revenue
Effective use of Strategic lever of pricing and

duration control can help.


Even company using it already can improve its

performance.