1. 1 Yield Management Lufthansa Cargo

2. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan2 Pricing Cleverly? The Airline Industry

3. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan3 Demand Volatility – The Toy Industry

4. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan4 Nature of Demand for Services Demand uncertainty –Products Economic conditions Competition Human behaviors –Services Perishability Simultaneity

5. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan5 Capacity Management Where is the constraint? –people (time, labor) –equipment –processes Adapting capacity –add people, equipment –improve productivity –modify processes (front office, back office) –operational changes

6. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan6 Demand Management What drives demand? –predictable components –stochastic component What drives revenue? –segmentation (consumer profitability) What drives costs? –fixed –variable

7. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan7 The Theory underlying Yield Management Standard price discrimination: groups with different demand curves –higher price for the less elastic (business users) –lower price for the more elastic (leisure segment) Yield Management –what happens when capacity is fixed? –in other words, if total sales for business and leisure segment under the price discrimination scheme exceed available capacity? Intuition –marginal cost now becomes foregone revenue from selling the seat to the other segment. –changes in demand of one group affects prices charged to the other group (higher demand in one group raises price to the other!) Optimal choice of capacity –marginal cost now includes marginal cost of increasing capacity

8. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan8 Demand Management (contd.) Strategic choices –reduce demand, increase demand –shift demand, inventory demand The Services Marketing Mix –4P’s –people (e.g., Baxter) –processes (e.g., Alaska Airlines) –physical evidence (e.g., Disneyland Paris)

9. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan9 Managing Demand via Channel Choice

10. P4 Sept/Oct -2003Services Marketing – Professor V. Padmanabhan10 Why doesn’t Rolls Royce Advertise More? What is the role of advertising? –the type of the good Classic Theory: Nelson (1970) –for experience goods, advertising signals quality –linear relationship between quality and ad expenditures The Services Angle –demand uncertainty –perishability –human intervention (employees versus machines) –lumpy capacity Result (Horstmann & Moorthy, 2002) –inverted U shape relationship between service quality and advertising expenditures