This paper discusses the practice of price differentiation in the airline industry and how airlines use yield management systems to control their different prices.
Consequently it is explained how price differentiation is realised. Emphasis has been laid on discussing whether price differentiation is discriminatory and why it should be acceptable, even if it is discriminatory. In the second part the principles of yield
management are explained and the major challenges with regards to the latest developments in electronic commerce are reviewed.
Table of Contents
- 1. Introduction
- 2. Pricing Strategies
- 3. Price Differentiation and Price Discrimination
- 3.1 What are the Reasons for Price Differentiation?
- 3.2 How is Price Differentiation Done?
- 3.3 Is Price Differentiation Discriminatory?
- 3.4 Predatory Pricing
- 4. Yield Management
- 4.1 The Principles of Yield Management
- 4.2 The Pros of Yield Management
- 4.3 The Cons of Yield Management
- 4.4 The Benefits of Yield Management Systems
- 5. Challenges of Electronic Commerce for Yield Management
- 5.1 Net Discounts and On-line Auctions
- 5.2 The Electronic Airfare Continuum
- 5.3 Consumer Empowerment
Objectives and Key Themes
This paper aims to explore price differentiation practices within the airline industry and the role of yield management systems in controlling prices. It examines whether price differentiation is discriminatory and argues for its acceptability, even if discriminatory practices are present. The paper also details the principles of yield management and reviews the challenges posed by advancements in electronic commerce.
- Price differentiation strategies in the airline industry
- The application and principles of yield management
- The ethical considerations of price discrimination in air travel
- The impact of electronic commerce on yield management
- The relationship between pricing strategies, profitability, and market competition in the airline industry.
Chapter Summaries
1. Introduction: This chapter introduces the concept of yield management, originating in the post-deregulation US airline industry with American Airlines. It highlights the widespread adoption of this practice across various sectors, including tourism and even consumer goods, underscoring its significance as a revenue maximization strategy. The chapter sets the stage for exploring the intricacies of pricing strategies and their impact on profitability within the airline industry.
2. Pricing Strategies: This chapter discusses the fundamental pricing strategies in marketing – cost-based, value-based, and competition-based. It contrasts the pre- and post-deregulation airline pricing landscape, noting the shift from regulated tariffs to profit-maximizing strategies. The chapter emphasizes the importance of balancing short-term and long-term performance objectives in pricing decisions, acknowledging that factors like market share growth and demand fluctuations can influence profitability goals. It concludes by distinguishing between cost-related and demand-related pricing approaches commonly employed by airlines.
3. Price Differentiation and Price Discrimination: This chapter delves into the core concept of price differentiation—adapting prices based on customer willingness to pay. It explores the reasons behind this practice and the methods employed by airlines to differentiate customer segments. A critical analysis is presented concerning whether such differentiation constitutes price discrimination and the justification for its acceptance, even in the face of potential ethical concerns. The chapter also touches on predatory pricing as a separate, potentially anti-competitive practice.
4. Yield Management: This section lays out the core principles of yield management and assesses its advantages and disadvantages. It provides a detailed analysis of how yield management strategies are implemented and their impact on revenue optimization. The benefits of employing yield management systems are discussed, further reinforcing the importance of this strategic tool in the airline industry.
5. Challenges of Electronic Commerce for Yield Management: This chapter explores how the rise of electronic commerce impacts yield management. It examines the challenges presented by online discounts, online auctions, and the increased consumer empowerment that comes with readily available online airfare comparisons. The chapter analyzes how these factors impact the airline industry’s ability to effectively manage yields in a digitally transformed market.
Keywords
Price differentiation, yield management, revenue management, price discrimination, airline industry, pricing strategies, electronic commerce, deregulation, profitability, cost-based pricing, value-based pricing, competition-based pricing, demand-related pricing, consumer empowerment.
Frequently Asked Questions: A Comprehensive Language Preview on Airline Pricing and Yield Management
What is the main focus of this document?
This document provides a comprehensive overview of pricing strategies and yield management within the airline industry. It explores price differentiation, its ethical implications, and the challenges posed by electronic commerce.
What topics are covered in the Table of Contents?
The document covers an introduction to yield management, various pricing strategies (cost-based, value-based, competition-based), price differentiation and discrimination, including predatory pricing, the principles and challenges of yield management, and the impact of electronic commerce on yield management.
What are the key objectives and themes?
The key objectives are to explore price differentiation practices in the airline industry, the application of yield management systems, the ethical considerations of price discrimination, the impact of electronic commerce on yield management, and the relationship between pricing strategies, profitability, and market competition.
What are the main arguments presented in the document?
The document argues for the acceptability of price differentiation in the airline industry, even if it involves discriminatory practices. It also highlights the importance of yield management systems for revenue optimization and analyzes the challenges these systems face in the age of electronic commerce.
What are the chapter summaries?
The chapter summaries provide a concise overview of each chapter's content. Chapter 1 introduces yield management; Chapter 2 discusses fundamental pricing strategies; Chapter 3 delves into price differentiation and discrimination; Chapter 4 explains the principles and impacts of yield management; and Chapter 5 analyzes the challenges of electronic commerce for yield management.
What are the key words associated with the document?
Key words include price differentiation, yield management, revenue management, price discrimination, airline industry, pricing strategies, electronic commerce, deregulation, profitability, cost-based pricing, value-based pricing, competition-based pricing, demand-related pricing, and consumer empowerment.
Where did yield management originate?
Yield management originated in the post-deregulation US airline industry with American Airlines.
What types of pricing strategies are discussed?
The document discusses cost-based, value-based, and competition-based pricing strategies.
What is the difference between price differentiation and price discrimination?
The document analyzes whether price differentiation, adapting prices based on customer willingness to pay, constitutes price discrimination and discusses the ethical considerations.
What are the benefits and drawbacks of yield management?
The document details the advantages and disadvantages of yield management, including its impact on revenue optimization.
How does electronic commerce affect yield management?
The document examines the challenges posed by online discounts, online auctions, and increased consumer empowerment due to readily available online airfare comparisons.
- Quote paper
- Paul Freudensprung (Author), 1998, Price Differentiation and Yield Management in the Airline Industry, Munich, GRIN Verlag, https://www.grin.com/document/186328
