Yield Management - Ethical Issues and Questions of Effectiveness

Ethical Issues and Questions of Effectiveness

Some consumers are concerned that yield management could penalize them for conditions which cannot be helped and are unethical to penalize. For example, the formulas, algorithms, and neural networks that determine airline ticket prices could feasibly consider frequent flyer information, which includes a wealth of socio-economic information such as age and home address. The airline then could charge higher prices to consumers who are between 30 and 65 or live in neighborhoods with higher average wealth, even if those neighborhoods also include poor households. Very few (if any) airlines using Yield Management are able to employ this level of price discrimination because prices are not set based on characteristics of the purchaser, which are in any case often not known at the time of purchase.

Some consumers also object that it is impossible for them to boycott yield management when buying some goods, such as airline tickets.

Yield Management also includes many noncontroversial and more prevalent practices, such as varying prices over time to reflect demand. This level of yield management makes up the majority of YM in the airline industry. For example airlines may make a ticket on the Sunday after Thanksgiving more expensive than the Sunday a week later. Alternatively, they may make tickets more expensive when bought at the last minute than when bought six months in advance. The goal of this level of yield management is essentially trying to get demand to equal supply.

When YM was introduced in the early 1990s, primarily in the airline industry, many suggested that despite the obvious immediate increase in revenues, it might harm customer satisfaction and loyalty, interfere with relationship marketing, and drive customers from firms that used YM to firms that did not. Frequent flier programs were developed as a response to regain customer loyalty and reward frequent and high yield passengers. Today, YM is nearly universal in many industries, including airlines.

Despite optimising revenue in theory, introduction of yield management can sometimes fail to achieve this in practice because of corporate image problems. In 2002, Deutsche Bahn, the German national railway company, experimented with yield management for frequent loyalty card passengers. The fixed pricing model that had existed for decades was replaced with a more demand-responsive pricing model, but this reform proved highly unpopular with passengers, leading to widespread protests and a decline in passenger numbers.