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STUDY FINDS BEST, LAST-MINUTE BARGAINS
A new study by a University of Illinois at Chicago marketing professor suggests that last-minute shoppers may find this year's best bargains in the service industries, such as travel, hospitality and restaurants.
In "Yield Management: Filling Buckets, Papering the House," published in the Sept. - Oct. 1999 edition of Business Horizons, Robert Weigand, professor emeritus of marketing, examines the effects of yield management - a pricing tool used by companies to even out peaks and valleys in demand over time, which may translate to heavy price discounts for service shoppers.
"It's likely that a lot of companies in the service business these days practice yield management without quite knowing it," Weigand writes in the journal article. "Big-city theaters and ballet companies routinely sell tickets at heavy discounts - the tickets put on sale just hours before a performance. Major airlines often discount a few seats on some of their flights when departure time and date gets near, not wanting the flight to leave town only partially full. Yield management is meant to address these differences between demand of the moment and long-term fixed capacity."
According to Weigand, yield management is the practice of using price to shift demand from heavy-use periods to lighter-use times. In other instances, it is used to bring in new customers who were not attracted by an earlier offer. It is particularly important in service industries, he adds, because services usually can't be stored.
"Pricing among customers based on their willingness to pay is a familiar practice," Weigand says. "By comparison, yield management comes to play when the first sketchy evidence arises that a company's fixed capacity - rooms in a hotel, seats at an event, berths on a cruise ship - may not be fully used, even if only for a brief period of time. The decision to lower or raise a price often must be made quickly - sometimes within minutes of the arrival of new information - and the decision will be short-term. Moreover, the special offer can be withdrawn just as quickly as it is made."
In the report, Weigand recalls the story, many years ago, of one of his foreign students who successfully encouraged an airline to use yield management as a last-minute buying strategy. "The student told me he would be going home to Europe as soon as exams were finished later that day," he writes. "When I asked him what airline he would take, he said he wouldn't know until just minutes before departure. He explained that he would go to the airport, visiting the KLM, Lufthansa, SAS and Sabena check-in counters.
"He always asked to see the station manager, then would offer $50 for a one-way ticket to the carrier's destination. He could easily get to this home city from Frankfurt, Brussels, Amsterdam or almost anywhere in central Europe. His last-minute buying strategy did involve a bit of hectic price-haggling, he admitted, but it had never failed him."
Weigand cautions, however, that there is always the possibility of buyer resentment if buyers learn that a neighbor bought the same service at a substantially lower price. There's also the possibility that companies may be too quick to offer lower prices when other marketing tools might have saved some of their gross profits.
Nonetheless, Weigand says a happy and redeeming feature of yield management, at least for sellers, is that an offer can be withdrawn very quickly when it becomes clear that it is too attractive or unprofitable. And, as for last-minute shoppers - even under optimal economic conditions - apparently no amount of hassle will ever break the habit of searching for and finding great bargains and values.
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