Beruflich Dokumente
Kultur Dokumente
telecommunications
Frederic Jallat
ESCP-EAP, European School of Management, Paris Graduate School of Business, Paris, France, and
Fabio Ancarani
Alma Mater Studiorum, University of Bologna, Forli, Italy
Abstract
Purpose The purpose of this paper is to show how yield management and dynamic pricing, which originated in the airline industry, are now diffusing
in other service industries. The aim is to demonstrate that these techniques can be profitably applied to telecommunications and similar sectors and to
examine the particular conditions of their implementation, development and efficiency.
Design/methodology/approach The main concepts of yield management, dynamic pricing and CRM are carefully scrutinized. Also discussed is the
concept of natural demand curve that aims at reaching a better compromise between the capacity of a company and the demand in an environment
where services cannot be sold in advance. In order to sustain the analysis and demonstrate its managerial implications, five case studies are presented
that exemplify some aspects of yield management techniques in the telecommunication sector.
Findings Since the telecommunications are undergoing a process of increased competition and dynamic convergence, yield management techniques
can help telecom operators to optimize the benefits they can derive from a subtle management of information networks and partnerships. However,
such an approach is more difficult to implement in the telecommunication industry than in the airlines sector because of the difficulty to control (and
sometimes refuse) network access to customers.
Originality/value Capacity and revenue management become critical differentiation factors in improving service quality, loyalty and profitability.
Given the increase in competitive pressure, the main objective of operators to sell customer access database to potential partners represents a radical
change in the nature of financial and information flows and leads to a customized management of services supply.
Keywords Yield management, Customer relations, Telecommunications, Services marketing
Paper type Research paper
Introduction
Firms struggling in highly dynamic and hyper competitive
industries (DAveni, 1994) are often requested to resort to
smart management and marketing strategies as to avoid the
dangerous traps of price wars and to preserve or even
increase profitability.
When a firm wants to preserve or increase profitability, the
ability to manage pricing strategies becomes critical (Monroe,
2003). We can try to distinguish two main (and non necessary
alternative) options a firm has to act on price and preserve
profitability. The first one is to act mainly on its capacity in
a sort of supply based perspective: in this case, firms can
resort to yield management strategies and yield pricing.
Simply, yield management is the process of allocating the
right type of capacity or inventory unit to the right kind of
customer at the right price so as to maximise revenue or yield
(Kimes, 1989, 1997). The second one is to act mainly on
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0887-6045.htm
465
466
Dynamic pricing
We also reviewed related literature on dynamic pricing,
searching for the different definitions of the concept. Table II
offers a synthetic view of definitions in relevant literature. All
the definitions converge towards the consideration of dynamic
pricing as a sophisticated version of price discrimination,
based on different customers value perceptions and
willingness to pay and facilitated by the huge databases
firms are creating on their customers thanks to the diffusion of
the Internet and of CRM practices.
Author, reference
Yield management
A broad term describing various methods for managing the relatively fixed capacity of many kinds of
services more profitably
Revenue management of a perishable product with a fixed stock over a fixed time period
Optimal revenue management of perishable assets through price segmentation
Yield management deals with sales of perishable products such as capacity and time for revenue
maximization
A revenue maximization technique which aims to increase net yield through the predicted allocation
of available bedroom capacity to pre-determined market segments at optimum price
A tool with the capacity to yield a net result of enhanced revenue and customer service through a
melding of information-systems, technology, probability, statistics, organizational theory, and
business experience and knowledge
A strategy which endeavours to maximize guest room rates when demand exceeds supply and to
maximize occupancy when supply exceeds demand
An integrated, continuous and systematic approach to maximizing revenue through the manipulation
of products price in response to forecast patterns of demand
Yield management is a method that can assist an organization to sell the right inventory or product
unit to the right type of customer, at the right time and for the right price
The basic objective of yield management systems (YMS) is to adjust price over time to fill all available
capacity, given a small marginal cost for serving an additional customer. YMS tend to fill capacity by
partitioning time into discrete periods, charging discount prices in early periods, and reserving
capacity by restricting sales in these periods. YMS is an optimal multi-period pricing strategy where
each price is a function of forecast excess capacity. This pricing strategy involves discounting early
prices but reserving some capacity for later sale at a higher price
Yield pricing
Yield management pricing is a broad term that describes how a service provider can secure higher
revenues from its relatively fixed capacity. Its basic principle is that a marketer must continuously
update its price levels based on evaluating reservations for future purchases in a specific time slot
against a projection of demand for each time slot
467
Barth (2002)
Feng and Xiao (2000)
Weatherford and Bodily(1992)
Wang and Regan(2005); Edgar (1997)
Donaghy et al. (1995)
Lieberman (1993)
Berman (2005)
Authors, Reference
Dynamic pricing
A higher level of differential pricing allows further customization by target customer and further
enhances the traditional segmented or differential pricing
An attempt to synthesize a range of optimal prices from a small, static set of prices in response to a
shifting demand function
Dynamic pricing is the new version of an old practice, price discrimination. It uses a potential buyers
electronic fingerprint his record of previous purchases, his address, maybe other sites he has visited
to size up how likely he is to balk if the price is high. If the customer looks price-sensitive, he gets a
bargain. If he doesnt, he pays a premium
Selling goods at prices customized to the buyers demand, the market environment, and the sellers
supply at the moment of the transaction
Dynamic pricing can be formally defined as the buying and selling of goods in markets where prices
move quickly in response to supply and demand fluctuations. Dynamic pricing could also be defined as
a pricing strategy in which prices change over time, across consumers, or across product bundles
Capacity limits
Traditionally the exception and not the rule with the use of
satellites and the modernization of fixed network systems now
become more and more an issue in the field of mobile
telecommunications and the provision of services (Ancian
et al., 1996). As customers more and more often demand
value added services (VAS) that are based on data and
content rather than on voice, capacity becomes an
increasingly important issue. Even if very few customers
would appreciate being restricted in their calling patterns even
in exchange of lower prices, there are now many mobileenabled applications with special features and services which
customers may be willing to pay a premium for: VAS are the
best way for mobile companies to maintain their profitability
indeed especially in the business customer segment. For
example, service and sales force automation (SSFA) are
applications through which salespeople can access corporate
data while at the customers office. In the context of CRM, a
crucial success factor for SSFA applications is the speed at
which data is transmitted. If the transmission rate is too low,
data may be unavailable or too slow far sales negotiations with
clients. Dedicated resources for high-yield customers go hand
in hand with higher transmission rates (Feiler et al., 2003). As
a consequence, many mobile operators have begun to price
their VAS according to the amount of content downloaded
(e.g. KB or MB) instead of to the time length of the
connection.
Briefly described below are the cases of NTT DoCoMo IMode and H3G, their increasingly bundled offers of voice and
data and their pricing approach for data services. This
situation is very similar to the one of the airline industry
where increasing competition forces companies to focus on
highly profitable services and, at the same time, on revenue
and capacity management to compensate the decrease in
profits due to price wars.
470
Network optimization
When a marketing team tries to apply yield management
techniques in order to optimize the relation between market
demand and capacity constraints, it has to be fully aware of
471
Direct cost
None
Radio channel (TRX)
Sectors
Site and BTS (Base Transceiver Station)
MSC (Switch)
$0
$1,000
$60,000
$400,000
$2,000,000
natural demand curve and a useful test for advertising campaign impacts
before setting up a complete yield management system[3].
Sunday special: every Sunday during two months, national calls within
the UK were charged at the local cheap fare. As BT advertised: this will
mean that no matter where you ring in the UK, even if its from Lands
End to John OGroats, it will only cost the price of a local cheap rate call.
The BT down-under Special: price cuts for calls to Australia and New
Zealand (on Saturdays, for one month only). This offer follows the BT
Euro Special, a similar offer for calls to Europe.
Double summertime also called the BT Local Special: Twice as
much time for the same price regarding off-peak local calls (during one
month).
The BT North America Special: reduction for each call to Canada and
the USA (every weekend during one month).
This was of course a way to face competition, to improve BTs image and to
cope with Oftel Price Cap but it was also a good way to let customers give
vent to their natural trends of communication on these routes, and/or at
these moments. The addition of all BTs special offers provided a large
panel of calls -either local, national or international (including Europe, the
USA and Canada, Australia and New Zealand). It also provided related
traffic conditions.
Moreover, it can be noted that BT conducted these experiments when its
network had spare capacity. In other words, BT carried them out whenever
the implementation of yield management results could be efficient.
Consequently, all these special offers enabled BT to construct an
approximate natural demand curve in a nine months period only.
BT launched large advertising campaigns for each special offer. This
was a way for BT to test the impact of its different advertising campaigns as a
warm-up before any full-scale yield management implementation. As
such, this special offers system was both a quick way to construct a
472
473
Figure 3 Capturing profit and value and managing information, relationships and services bundling in the airlines industry
Ways of controlling
consumer behavior
Traditional yield
management
Price range
Conclusions
Since the telecommunications are undergoing a process of
increasing competition and dynamic convergence, yield
management and dynamic pricing strategies could be
usefully applied to preserve and increase profitability. In this
article we discussed the specificities that should be taken into
account from an academic as well as from a managerial
perspective in adopting yield management and dynamic
475
ethical and fairness issues are critical in this regard and should
be addressed by future research.
Notes
1 This paragraph has been rewritten taking into
consideration one of the reviewer useful comments. The
authors would like to express their sincere thanks.
2 This mini-case has been written drawing information
mainly from the following references: Anwar (2002);
Bradley and Sandoval (2002); Kodama (2002, 2003);
Ratliff (2002); Shiina (2002); Williamson and Meegan
(2002)
3 This minicase has been written relaying mainly on internal
France Telecom data and on the following reference:
Ancian et al. (1996).
4 This minicase has been written drawing information from
the following reference: Ferris and Oshima (2004)
5 This minicase has been written drawing information from
the following reference: Addis et al. (2002).
References
Addis, M., Bona, F., Costabile, M. and Padula, G. (2002),
The customer relationship management in Omnitel
Vodafone, Working Paper, No. 71, November, Marketing
Department, SDA Bocconi School of Management.
Ancarani, F. (2002), Pricing and the internet: frictionless
commerce or pricers paradise?, European Management
Journal, Vol. 20 No. 6, pp. 676-83.
Ancian, P., Jallat, F. and Steyer, A. (1996), An analysis of
yield management applied to telecommunications:
contributions, limits and innovations, Proceedings of the
25th International Conference, European Marketing Academy,
Budapest, Hungary, May.
Anwar, S.T. (2002), NTT DoCoMo and M-Commerce A Case
Study in Market Expansion and Global Strategy, West Texas
A&M University, Canyon, TX.
Barth, J.E. (2002), Yield management: opportunities for
private club managers, International Journal of
Contemporary Hospitality, Vol. 14 No. 3, pp. 136-41.
Berman, B. (2005), Applying yield management pricing to
your service business, Business Horizons, Vol. 48,
pp. 169-79.
Blattberg, R., Getz, G. and Thomas, J. (2001), Customer
Equity: Building and Managing Relationships as Valuable
Assets, Harvard Business School Press, Boston, MA.
Bolton, L.E., Warlop, L. and Alba, J.W. (2003), Consumer
perceptions of price (un)fairness, Journal of Consumer
Research, Vol. 29, pp. 474-91.
Bradley, S.P. and Sandoval, M. (2002), NTT DoCoMo: the
future of the wireless internet?, Journal of Interactive
Marketing, Vol. 16 No. 2, pp. 80-94.
Brown, S.W., Gummesson, E., Edvarsson, B. and
Gustavsson, B. (1990), Service Quality: Multidisciplinary
and Multinational Perspectives, Lexington Books, Lexington,
MA.
Cote, J.P., Marcotte, P. and Savard, G. (2003), A bilevel
modelling approach to pricing and fare optimization in the
airline industry, Journal of Revenue and Pricing
Management, Vol. 2 No. 1, pp. 23-36.
Coulter, K.S. (2001), Decreasing price sensitivity involving
physical product inventory: a yield management
476
Further reading
Heskett, J.L., Sasser, W.E. Jr and Schlesinger, L.A. (2003),
The Value Profit Chain: Treat Employees Like Customers and
Customers Like Employees, The Free Press, New York, NY.
Corresponding author
Frederic Jallat can be contacted at: jallat@escp-eap.net
478
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.