July 28, 2014 -- Gregg Blanchard
With the email-idea-bucket full after the last few week's shenanigans, I'm passing on the “innovation in email marketing” post today to cover something important. Something big. Something, to be frank, I wish I were better at.
So I'll start with what I know, bring in the people who know it better, and then finish with one of the coolest, most intriguing manifestations of this our industry has seen in a while.
We're gonna talk about pricing strategy and, more specifically, yield management.
A Brief History
Yield management, as defined by Wikipedia, goes something like this:
“Yield management [is] a specific, inventory-focused branch of revenue management [that] involves strategic control of inventory to sell it to the right customer at the right time for the right price.”
Rather than those elements – person, time, price – acting independently as they so often do, it's a combination of those factors that is critical to the success of any yield management strategy.
The First Round
Largely considered the first illustration of yield management, American Airlines Ultimate Super Saver fares highlighted the idea that seems to be found in the underpinnings of all successful application of this principle ever since.
According to an article by the New York times, these fares had a series of fine points that must be met in order to save up to 75%:
- Flights were only available between Jan 8 and Feb 10
- Only 50% of the ticket price was refundable.
- You had to purchase at least 30 days in advance
Specific dates, non refundable prices, and advanced purchase.
Each of these elements point to one important word: commitment.
The Big Lesson
As I feebly study yield management, this is the takeaway I find myself at over and over again: success is a matter of matching buyer commitment to product price.
Commitment, by its definition, comes paired with a sister attribute of risk. Risk that needs might change. Risk that you might wake up sick. Risk that a better offer will come along. Risk of anything but Plan A.. So the balance between price and risk is critical. As you'd expect, data are the key to finding that balance.
On the surface, season passes – a set price for unlimited use that only makes sense with a certain level of actual use – are a simple manifestation of this in our industry.
Tomorrow, however, we'll dig a little deeper into how this principle has shown up in skiing.