Monday, February 07, 2005

Yield management

When corporations sell the same exact thing to one person for $100 and another person for $1000, you might call that "evil" or "exploitative" or even "crooked." But businesses call it "yield management," and it's becoming more and more routine as computer tracking systems become more pervasive, global inventories become more networked, and marginal profits become tighter and tighter. This kind of thing has always been a part of the service industry -- it's why you can't get a straight answer about what it will cost you for a hotel room or a rental car or an airline ticket. It always depends on how desperate the business figures you to be. There isn't a place where the iron correlation between profit and desperation is more explicit. The more desperate someone else, the more money can be made from him. But the chaos of desperation leads to unpredictable yields, and buisnesses crave stability. That's why computer-based yield management is so attractive:it contains chaos so that only the consumer experiences it; it implements a certain kind of chaos for the consumer to experience, so that the consumer can never know how much a bed for a night in Wichita is really going to cost.

Long endemic to travel industries, yield-management is now making its presence felt in retail, so that a shirt in the Charlotte Russe at the mall in Glendale might cost more that the same shirt at a Charlotte Russe in Scottsdale. Yield-management software is able to determine what micro-markets will bear (based on income, seasonal factors, popularity of specific goods, cost of shipping and labor and so on) and implement new price schemes almost instantaneously. In the yield management dream world, goods would have no labeled price, and would be determined by the software at the point of purchase. This could lead to the risible scene of consumers trying to haggle with a computer, while cashier/functionaries stand idly by.

Yield management also determines the mix of product you'll find at the more convenient retail outlets -- it's why your neighborhood Blockbuster won't have a single Godard film, yet will have 150 copies of, say, Collateral, on any given evening. Yield management computes the lowest common denominator, translates that into specific goods, and then combines that with the kind of sucker-friendly goods that have the largest profit margin to yield what you'll find in your suburban shopping center, where retail space is limited -- every square foot is expected to yield a certain amount per hour, and continually tracking this statistic leads to decisions about what can be stocked at what cost. All this should make markets more efficient and responsive, more fair if you believe capitalist propaganda. But the whole thing is philosophically grounded in a vulgar utilitarianism that reduces satisfactions to quantities of throughput, and equates bare, begrudging purchases with eager enthusiastic ones: a dollar spent is a dollar spent; a preference recorded, a satisfaction presumably yielded.

Yield management, even if it does ultimately grant the consumer a better deal by extending lower prices over longer (non-optimal) periods, ultimately undermines the common sense notions of fairness that underwrite the otherwise obviously unfair system of capitalism. Things like static, predictable pricing give the customer an illusion of autonomy, making him think he can bargain hunt in a meaningful way while intimating that there is a use value to the things he wants that's stable, natural and fair. It masks the profit component of all goods. Once customers see yield management tinkering with commodity prices, they immediately understand that there is no natural use values determining cost, and that their economic solvency is at the whim of some powerful forces way beyond their control. And that makes people depressed.


  1. Interesting observations. The archetype of the yield manager (illegal, by the way) is the country doctor who knows each of his patients' ability to bay. Grandma Millie can pay for her visit with a ham, while the manager of the Savings and Loan has to pay premium cash on the barrelhead. Airlines have been managing yield for years. Again, they find themselves in many a macroeconomics textbook. There's no item more perishable than an airline seat, not milk, not eggs. When an airplane takes off with an empty seat, it's a revenue opportunity lost forever. The examples you cite are the same and also different. A seat on a flight to Miami is the same product whether purchased by Larry Lunchbox or Larry Ellison, but is it the same exact product when one has months to plan their trip, and another needs to leave the next morning? Slightly different products, I think. A Glendale shirt versus a Scottsdale shirt? Much closer, says I. Though the Scottsdale shirt would most definitely cost more.

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  3. Intereting comment, but the flip side is also true; it can be the great social leveller.
    Consider the London congestion charge - everyone has to pay a flat fee of £5 to drive in London, which is pretty expensive for some people.
    However with Yield Management you can penalise those who book late and favour those who plan to avoid the congestion. That sounds more robin hood than daylight robbery