What are the challenges and risks in using yield management?

Question

What will be an ideal response?

Answer 1

Loss of competitive focus. Yield management may cause a firm to overemphasize profit maximization and inadvertently neglect aspects of the service that provide long-term competitive success.
Customer alienation. If customers learn that they are paying a higher price for service than someone else, they may perceive the pricing as unfair, particularly if they do not understand the reasons. However, research shows that when customers are informed of different prices being charged by time of day, day of week, or location, they generally perceive the practice as fair, particularly if the price difference is framed as a discount for less desirable times rather than a premium for peak times or locations. Thus, customer education is an important aspect of yield management.
Overbooking. Customers can be further alienated if they fall victim (and are not compensated adequately) to the overbooking practices often necessary to make yield management systems work effectively.
Incompatible incentive and reward systems. Employees may resent yield management systems that do not match incentive structures.
Inappropriate organization of the yield management function. To be most effective with yield management, an organization must have centralized reservations.