Yieldable

The term yieldable refers to the extent to which the demand within a particular market or for a particular product lends itself to generating the highest possible revenue through the use of different prices and revenue management. This depends on the extent to which customers or certain target groups are willing to pay a higher price for a product or service.

Airline tickets are an example of a product category that is highly yieldable. In the customer base of airlines, there is a strong distinction between business travelers and consumers. Individuals often book their vacation flight or visiting family abroad a long time in advance and compare airline tickets based on price. Business travelers, on the other hand, book their flights shortly in advance. In doing so, they are willing to pay a higher price for their ticket, especially if there is extra service in return. As a result, the price of the same seat on the plane increases as the date of the flight approaches.

Conditions for a yieldable approach

Scarcity is an important factor in whether a product is yieldable. If supply or capacity is limited, a customer will be more willing to pay a higher amount than if there are more and cheaper offers available. The number of seats on a specific flight or the number of beds in a hotel is limited. Scarcity can be artificially created. For example, an airline or a hotel will not make some of the seats or hotel rooms available until later, knowing that they will fetch more at that time.

Segmentation is another important requirement. With airline tickets, customers can make a natural distinction between business and residential. Additional differentiation can be made by providing additional service at a higher price. If there is no logical basis to differentiate and segment prices and supply, yield management is not possible.

Third, capacity should match demand. Demand should regularly exceed supply. If seats are left unfilled on an airplane too often, customers unnecessarily overpay for their airline ticket. Empty seats cost the airline money; to avoid this, the last minute price must go down and the incentive for customers to pay a higher price at the last minute is removed.

These three conditions are referred to in English as the three Fs:

• Fixed capacity, there is scarcity
• Fenced demand, demand lends itself to elastic pricing
• Full utilization, demand regularly exceeds supply

The opposite of yieldable is non-yieldable.