Tag: yield managememt

OM in the News: Capacity Planning for Harry Potter’s World

harry potterUniversal Studios Hollywood is putting a price tag on the demand for fun, reports the New York Times (March 21, 2016). The theme park is anticipating huge crowds for the April 7 opening of the Wizarding World of Harry Potter. If you want to be one of the first to experience it, be prepared to pay more than if you want to go, say, on a slow Tuesday in September. Such variable pricing is nothing new to airlines and hotels. They have long charged higher prices on holidays and during popular seasons. Disney, as we noted in our March 1, 2016 blog is also experimenting with yield management.

Under the new Universal pricing policy, tickets bought at the gate remain $95. But visitors who book tickets online for low-demand days — such as a weekday in February before Harry Potter opens — can save up to $20. During weekends and peak demand days during spring break or summer, parkgoers save only $5 by booking online.

Harry Potter has already been wildly successful at Universal’s other parks. After a Harry Potter ride made its U.S. theme park debut at Universal’s Islands of Adventure here in Orlando 6 years ago, attendance jumped 30%.  But the initial experience was less than magical. The main attraction, a simulated broom ride, left entire families with motion sickness. At one point, the line to get into Hogsmeade village was 9 hours long. Yes, nine! When my family and I toured the attraction, there were no lines–just a mass of humanity that could not move at all.

Universal seems determined to make this introduction smoother. It chose a quieter time of year for the unveiling (spring instead of summer). Management started letting in small numbers of people in February for “technical rehearsals.” Not only is demand-based pricing designed to prevent overcrowding, but 50% more capacity has been added to the Hollywood Hogsmeade.

Classroom discussion questions:

  1. Describe yield management.
  2. What else can Universal do to improve throughput?

 

OM in the News: Revenue Management Puts Lion King at the Top of Broadway

Since 2011, the show’s producers have been relying on a previously undisclosed computer algorithm to recommend the highest ticket prices that audiences would be likely to pay for each of the 1,700 seats at every performance. While other shows also employ this dynamic pricing system to raise seat prices during tourist-heavy holiday weeks, only Disney has reached the level of sophistication achieved in the airline and hotel industries by continually using its algorithm to calibrate prices based on demand and ticket purchasing patterns.

By charging $10 more here, $20 more there, “The Lion King” stunned Broadway at year’s end as the No. 1 earner for the first time since 2003, bumping off the champ, “Wicked.” And Disney even managed to do it by charging half as much for top tickets as some rivals. “Credit the management science experts at Disney’s corporate offices — a data army that no Broadway producer could ever match — for helping develop the winning formula,” writes The Times. The algorithm, a software tool that draws on “Lion King” data for 11.5 million audience members so far, recommends prices for five different types of performances — peak dates like Christmas, off-peak dates like a weeknight in February, and periods in between. “The Lion King” is widely believed to be selling far more seats for $227 than most Broadway shows sell at their top rates, a situation that bolsters its grosses.

Our newest video case study, “Using Revenue Management to Set Orlando Magic Ticket Prices,” in Chapter 13, makes a similar point for the sports industry, which has also traditionally lagged behind airlines, hotels, and rental car companies in profiting from yield management.

Classroom discussion questions:
1. Why is revenue (or yield) management a critical OM tool at airlines and hotels?

2. Why don’t more sports and entertainment organizations use this tool?

OM in the News: Jet Blue’s Unique Revenue Management Strategy

jet blueOne of the financial tricks in an airline’s tool kit is to sell more tickets than there are seats on a plane. If there are 150 seats, sell 175 tickets—people miss flights for a myriad of reasons and gate agents can typically muster enough volunteers who will take a later flight for a discount voucher. Yet this process doesn’t play out at JetBlue Airways, reports BusinessWeek (Feb. 5, 2014),  which has shunned “bumping” since its first flight 14 years ago. “Our traditional mission is to bring humanity back to air travel, and we feel that customers that purchase a seat should get a seat,” says the firm’s spokeswoman. It seems like a kinder way to treat travelers, but it might not be a smart way to run an airline.

The ultimate goal is to fill every seat on every flight, preferably in the order of who paid the most. Travelers flying on the lowest fares are those who also tend to volunteer their seats for compensation, while customers who pay the most—usually business travelers—can’t be tempted out of their seats. Overbooking pays off too: airlines almost always make more from the extra fares than they give back to volunteers in future-travel vouchers.

Yet because airlines have amassed years of detailed data on passenger no-shows—down to days, times, seasons, and specific routes—they only rarely need to write customers checks. The data also help them to know how to tweak their oversales for each flight, part of the complex algorithms that power revenue-management systems, the backbone of airlines’ fare pricing. Because it doesn’t overbook, JetBlue enjoys the lowest rate of involuntary denied boardings in the industry: only 18 people out of 21.3 million passengers through the first three quarters of 2013. On the other end of the spectrum, AirTran Airways had 1.28 passengers bumped for every 10,000 travelers (or 1,800 customers in total during the period).

Classroom discussion questions:

1. Should Jet Blue overbook, like other carriers do?

2. What other service industry overbooks?

OM in the News: Yield Management Turns to Sports

We discuss the subject of yield (revenue) management in detail in Chapter 13, Aggregate Planning. Examples are provided from the airlines(American), hotels (Marriott), car rental companies (Hertz), and even Disney’s theme parks. But the latest issue of Operations Management/Management Science (OR/MS) Today (Oct., 2010) turns to an interesting and relatively new application of revenue management that may interest your students, namely, major league baseball.

Ticket prices to sporting events have always been priced to depend on the seat’s location. But the San Francisco Giants have discovered that  dynamic pricing of game tickets has increased 2010 revenues 6%. Ticket costs now depend on the opposing teams,  pitching match-ups, day of the week,  and even the weather forecast.

For example, a ticket in the Field Club, behind home plate,  for the Oct. 1st game between the San Diego Padres and the host Giants cost $68 at the start of the season. It went to $92 on Aug. 1st,$121 a week later, $145 on Sept. 4th, and $175  just before the game!

Discussion questions:

1. Are other sports and teams replicating this concept of dynamic pricing ?

2. Will there be fan pushback to the idea?

3. How did the 2010 pennant race impact on the Giant’s decision to use yield management?