Randall Beard, EVP & General Manager, Nielsen IAG
In the mid-1980s, the highly regulated airline industry was relatively unsophisticated about how to price its main product, seats, until Peoples Express burst onto the scene. Peoples’ low fares quickly gained customers and market share. The big airlines took notice and responded in two ways--one obvious and one less so.
American Airlines responded with deep discount "Supersaver" fares, essentially matching Peoples on key routes. This was the obvious response. The less obvious response was the introduction of "yield management," which gradually brought a level of sophistication and a data-driven pricing model that yielded a 3-8% revenue improvement, according to industry analysts. Yield management quickly spread to the hotel, car rental and other industries.
Yield management is an approach to maximizing revenue when a business has a fixed, perishable resource and can segment customers into groups willing to pay different prices for the same resource. In airlines, a seat is “perishable” as the revenue potential disappears once the flight has flown.
Simply stated, the airlines want to sell the right seat to the right passenger at the right time at the right price. Doing so requires sophisticated algorithms which account for capacity utilization, route scheduling, fuel prices, competitive pricing and the like. All those yield management algorithms are what’s behind the minute-to-minute price changes happening every time you book a flight.
From an advertiser perspective, yield management is the ideal model: place the right ad in the right program against the right target at the right price. In concept, it’s the same as selling airline seats, but on the buy side.
What's required for yield management to work for advertisers?
For some, the surprising news is that all of the above are either in place or rapidly becoming so. The future is closer than you think.
Two new measurement tools are critical to moving to a real-time Yield Management Marketing Model:
The advertising and media industry has had decades to build systems and processes to support the traditional media model. The systems for planning, buying and allocating media for brands won’t change overnight. But the trends are there to see, and the Marketing organizations with the most foresight and vision will see that reengineering these will yield great benefits.
There's no doubt -- all of the Yield Management puzzle pieces are now in place. In the future, advertisers will be able to:
All of this will be connected to purchase panel data. So all of the buying, planning and allocation decisions will be held to simple question: did I get an acceptable ROI?
This is the coming “seismic” shift in Marketing—real-time ROI Marketing. Those who don't get on board will be grounded in the new economy.