Tuesday, January 22, 2008
The Business Model of Vente-privée.com
Do you want sales of luxury brands at reduced prices all year round?
And it’s no necessary to queue up for hours in front of an overpopulated shop to benefit from bargains of the big brands were kind enough to grant to you an invitation, today some mouse clicks are enough.
Yes, it possible on the Web, sure!
The concept
The internet site Vente-privée.com is one of the rare French businesses models today copied and exported in world.
Created in 2001, it is the pioneer and the leader of sales privileged on Internet. With nearly 2 million registered voters the site is a long way ahead his principal competitor the achatvip.com which
accounts 900 000 members and 1, 8 million visitors to the first quarter 2006 ( Médiamétrie / NetRatings).
The concept is simple. It works like interactive private club which organize, for his members, sales of luxury brands with important discount (until 70%). The sales are announced 2 days in advance with average of 2 to 3 sales per day and 2 to 3 sales per brand per year. The access is accessible only by sponsorship from a member has already registered. If customers are interested, they must be registered to reach the sale which starts at 7.00 a.m. in the week and at 9.00 a.m. in the week-end and limited in time.
There are a very large variety of products put on sale, available on the Web for a very short period (24 to 36h).
Customers before hand were selected and invited for the occasion, which maintaine the private character of sells. A specific link allows them to reach the event which lasts only some hours, until drainage of the stock gives.
The consumer feels himself to be a privileged person having access to a virtual luxury showroom. In addition, they can directly, on line without moving, buy products of prestigious brands at prices which can go up to 70%. For buy a brand and to take advantage of sales it is enough to connect on the site in the daytime of the sale and to place order in some clicks.
The available quantities being limited, the customers hurl themselves on the site from the opening of the sale. On Vente- privee.com, it is necessary to connect at 7 am in the morning to buy, because in some minutes, many articles are exhausted. So, doing a good purchase and economize of hundred of euros sometimes, makes client feel lucky.
But, in addition to brand’s names and reduced price, the customers are also attracted by healthy look of articles.
Partners & Suppliers
To convince the big world brands, which are their suppliers and developping exclusive partnership with them, Vente- privée.com is improving communication around the brands, making the products more attractive and desirable. The articles are staged in real clips, allying licked photos and sophisticated soundtracks staging the available products.
In this way propose to their partners a qualitative service which respects their image and emphasizes their unsold articles.
Worry about their image, brands avoid to sale off their articles on the Internet and are attracted by innovative concept of sales in the course of which they can sell in a extremely qualitative way their unsold articles.
With 477 sales organized by Vente - privee.com in 2006 with on average, 250 000 persons join every sale and only 40 000 to buy allowed to sell 20 million details. The brands see passing by at top speed, and in an environment rather smart, the unsold articles that they have every season on arms.
For the brands, the private sales represent a distribution channel to the multiple advantages.
First of all, the practised discounts often allow touching new customers. Second, it proposes them a selective circuit : A private sale allows to associate the stocks of a brand to a targeted clientele.
And finally, the private sales represent an effective means to sell the residual stocks by keeping certain control over their future.
The Owner
In the end of 2000 Jacques-Antoine Granjon the young 44-year-old boss of Oredis Group, wholesaler at the end of series (25 million euro of turnover) for 20 years, gave the idea to sell ends of line on the Web.
So, he has created with six of his friends the modern version of the sale on invitation -
the company Vente – privee.com.
Based now 6 years ago, the company shows profits deserving of three-coloured giants of the e-business:
240 million euros turnover in 2006(the equivalent of that of NafNaf in the world) and about 50 million euros of profit, more than 3,6 million visitors in the first quarter 2006, 2.4 million members and thousands of sales a day.
How it generates such of profit?
The stocks of unsold articles of the brands spend little time in the warehouses of Vente - privée.com.
If the margin is reduced for the retailer (Vente- privée.com), expenses are it also. Ideally, products are even sold before arriving in warehouses. The generated cash is as for him lavish, the customers being collected at once, products were later delivered.
Do you want sales of luxury brands at reduced prices all year round?
And it’s no necessary to queue up for hours in front of an overpopulated shop to benefit from bargains of the big brands were kind enough to grant to you an invitation, today some mouse clicks are enough.
Yes, it possible on the Web, sure!
The concept
The internet site Vente-privée.com is one of the rare French businesses models today copied and exported in world.
Created in 2001, it is the pioneer and the leader of sales privileged on Internet. With nearly 2 million registered voters the site is a long way ahead his principal competitor the achatvip.com which
accounts 900 000 members and 1, 8 million visitors to the first quarter 2006 ( Médiamétrie / NetRatings).
The concept is simple. It works like interactive private club which organize, for his members, sales of luxury brands with important discount (until 70%). The sales are announced 2 days in advance with average of 2 to 3 sales per day and 2 to 3 sales per brand per year. The access is accessible only by sponsorship from a member has already registered. If customers are interested, they must be registered to reach the sale which starts at 7.00 a.m. in the week and at 9.00 a.m. in the week-end and limited in time.
There are a very large variety of products put on sale, available on the Web for a very short period (24 to 36h).
Customers before hand were selected and invited for the occasion, which maintaine the private character of sells. A specific link allows them to reach the event which lasts only some hours, until drainage of the stock gives.
The consumer feels himself to be a privileged person having access to a virtual luxury showroom. In addition, they can directly, on line without moving, buy products of prestigious brands at prices which can go up to 70%. For buy a brand and to take advantage of sales it is enough to connect on the site in the daytime of the sale and to place order in some clicks.
The available quantities being limited, the customers hurl themselves on the site from the opening of the sale. On Vente- privee.com, it is necessary to connect at 7 am in the morning to buy, because in some minutes, many articles are exhausted. So, doing a good purchase and economize of hundred of euros sometimes, makes client feel lucky.
But, in addition to brand’s names and reduced price, the customers are also attracted by healthy look of articles.
Partners & Suppliers
To convince the big world brands, which are their suppliers and developping exclusive partnership with them, Vente- privée.com is improving communication around the brands, making the products more attractive and desirable. The articles are staged in real clips, allying licked photos and sophisticated soundtracks staging the available products.
In this way propose to their partners a qualitative service which respects their image and emphasizes their unsold articles.
Worry about their image, brands avoid to sale off their articles on the Internet and are attracted by innovative concept of sales in the course of which they can sell in a extremely qualitative way their unsold articles.
With 477 sales organized by Vente - privee.com in 2006 with on average, 250 000 persons join every sale and only 40 000 to buy allowed to sell 20 million details. The brands see passing by at top speed, and in an environment rather smart, the unsold articles that they have every season on arms.
For the brands, the private sales represent a distribution channel to the multiple advantages.
First of all, the practised discounts often allow touching new customers. Second, it proposes them a selective circuit : A private sale allows to associate the stocks of a brand to a targeted clientele.
And finally, the private sales represent an effective means to sell the residual stocks by keeping certain control over their future.
The Owner
In the end of 2000 Jacques-Antoine Granjon the young 44-year-old boss of Oredis Group, wholesaler at the end of series (25 million euro of turnover) for 20 years, gave the idea to sell ends of line on the Web.
So, he has created with six of his friends the modern version of the sale on invitation -
the company Vente – privee.com.
Based now 6 years ago, the company shows profits deserving of three-coloured giants of the e-business:
240 million euros turnover in 2006(the equivalent of that of NafNaf in the world) and about 50 million euros of profit, more than 3,6 million visitors in the first quarter 2006, 2.4 million members and thousands of sales a day.
How it generates such of profit?
The stocks of unsold articles of the brands spend little time in the warehouses of Vente - privée.com.
If the margin is reduced for the retailer (Vente- privée.com), expenses are it also. Ideally, products are even sold before arriving in warehouses. The generated cash is as for him lavish, the customers being collected at once, products were later delivered.
Because VP contents with blocking stocks of unsold articles at his supplier and will pay only when the goods arrive in his warehouses to be then sent to the customers. Products are directly bought with the brands from a defined well price and resold with a commercial scope.
The growth
To accompany its extraordinary growth, the society invests in his development.
In human resources, namely more than 500 very qualitative employees,120 work on development department of the brand, 45 Web-designers. In financial investments, there are more than 80.000 m² of mechanized warehouses and completely equipped offices, 200 computing servers, 18 photo studios photographs and videos.
Worried about bringing a unique service to its brands suppliers, VP invest 400 000 euros in a recording studio, to create himself the sound trailers of his sales. Also the studio will produce in its spare time some artists who would have no favours of a record company.
All of that should allow to Vente-privée to continue his growth and prepared to the European conquest. That of Spain, Great Britain and Germany started at the end of 2006. Follows……..
If that model can be applied offline?
Sure, but with little BIG difference. The profit doesn’t be the same. As we could see Oredis Group, the traditional wholesaler at the end of series, makes 25 million euros of turnover vs 240 millions euros of his virtual counterpart. Because of the frequency of the sales that is extremely high what justifies well its success. It is possible in the real world to join 250 000 persons for every sale, 40 000 purchases and 20 million details sold?
Because in the profession of traditional discount trader, where we bought physically a stock before reselling it to discount shops, everything is financed in advance which relates to important costs.
With an supply of products lower than the demand and a discount price, the business model of Vente-privée.com seems profitable and sustainable in the time because of funs of brands and eternal “fashion victims”.
It’s a great challenging for Vente-privée.com to extend his business in others countries of Europe
because that asks for many efforts, as regards the languages, the differences in cultures, the systems of customs of payment, etc. So many constraints could be faced in order to succeed in this challenging.
If I owned the business, I would prefer to improve the business at home before go to the European conquest by:
Better customers’ relation (a call centre, a quick feed-back, to speed the returns and the refunds)
Shorter delivery periods through companies as DHL.
Extend the type of products for sell (involve sell of services as voyages, hotels’ rooms of the luxury brands that insure the quality of services)
And try to increase the revenue sources by:
Make affiliations with partners’ sites
Selling web services (lease web space and theirs own servers, lease digital storage or creation of web sites)
Selling photo and video services ( creation of video, catalogues, advertising clips)
Selling of data base information
Membership for partners
I think, it’s an innovative and lucrative business model, but it will stay on the market place only the first bigest because the brands usually work with 2 or 3 sites of private sells.
As the young CEO of Vente-privée.com, Jacques-Antoine Granjon said " These competitors who bloom are all far behind, with turnovers which do not exceed 40 million euros. On 70 sites which exist, 65 will file for bankruptcy, because they have no access to the brands which we have. And while they nibble their capital to give way, we invest in our development ".
Saturday, January 12, 2008
What is the "Mashup"?
In technology, a mashup is a web application that combines data from more than one source into a single integrated tool; an example is the use of cartographic data from Google Maps to add location information to real-estate data from Craigslist, thereby creating a new and distinct web service that was not originally provided by either source.
Mashup originally referred to the practice in pop music (notably hip-hop) of producing a new song by mixing two or more existing pieces.
Mashup originally referred to the practice in pop music (notably hip-hop) of producing a new song by mixing two or more existing pieces.
Thursday, January 10, 2008
The "Freemium" Business Model
The most common business model is Free Service with an up sell to paid premium subscriptions, commonly known as the "freemium" model.
Freemium (adj.) - relating to a business model that offers basic services free, but charges a premium for advanced or special features.
This free-to-premium escalation plan is being called the 'freemium' model: Attract users with free services, then charge them a premium for special features.
A venture capitalist named Fred Wilson uses the word "freemium" to describe the business model on which many Web 2.0 companies operate: "Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium-priced value-added services or an enhanced version of your service to your customer base."
Freemium business models usually involve a Free service, sometimes time limited or feature limited, supported by advertising. The ads rarely cover costs. The goal is to convert these free users to paid subscriptions. Most services start with a $10 per user per month subscription and scale up to $20 or $50 per month based on a small, medium, large usage scale. They all have slightly different measurements and cut-off points, but most have some notion of small, medium, large.
Files are stored centrally, so you will not want to use this method to transfer sensitive data. And since somebody has to pay for storage and bandwidth, you get limited capabilities for free — premium plans get you more storage, bandwidth or access to your files.
Rather than bragging about how insanely great its VoIP products are, Skype makes its users insanely productive by letting them talk with any other user worldwide for free. The company makes money by charging users for connecting to phone systems outside of its network.
Advantages
1. Possibility to attract a lot of customers very efficiently
2. It’s becoming easier and cheaper to build Web applications. The freemium services could introduce a lot of companies to technologies they might never have purchased the years ago. They are also being used by people who aren't necessarily in a traditional IT role, because they were developed with the needs of line-of-business personnel -- the managers, the admin staff and even the CEO -- in mind.
3.This is an excellent revenue stream that continues to grow every year, for companies that typically have 3 to 5 employees. And, by the 3rd or 4th year these small companies can be generating $3M to $5M a year, still with less than 10 employees.
Disadvantages
1. A challenge to get users to transition from free to paid, especially with consumer services on the Internet because there has been an attitude where consumers expect everything on the Web to be free
2. There's a lot of competition to reach the bottom of this market because if you don't offer your service for free, another imitator might come along and offer it for free.
3. It could be that a lot of Web 2.0 customers are content with the basic service and they needn’t necessarily to pay for additional products.
Freemium (adj.) - relating to a business model that offers basic services free, but charges a premium for advanced or special features.
This free-to-premium escalation plan is being called the 'freemium' model: Attract users with free services, then charge them a premium for special features.
A venture capitalist named Fred Wilson uses the word "freemium" to describe the business model on which many Web 2.0 companies operate: "Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium-priced value-added services or an enhanced version of your service to your customer base."
Freemium business models usually involve a Free service, sometimes time limited or feature limited, supported by advertising. The ads rarely cover costs. The goal is to convert these free users to paid subscriptions. Most services start with a $10 per user per month subscription and scale up to $20 or $50 per month based on a small, medium, large usage scale. They all have slightly different measurements and cut-off points, but most have some notion of small, medium, large.
Files are stored centrally, so you will not want to use this method to transfer sensitive data. And since somebody has to pay for storage and bandwidth, you get limited capabilities for free — premium plans get you more storage, bandwidth or access to your files.
Rather than bragging about how insanely great its VoIP products are, Skype makes its users insanely productive by letting them talk with any other user worldwide for free. The company makes money by charging users for connecting to phone systems outside of its network.
Advantages
1. Possibility to attract a lot of customers very efficiently
2. It’s becoming easier and cheaper to build Web applications. The freemium services could introduce a lot of companies to technologies they might never have purchased the years ago. They are also being used by people who aren't necessarily in a traditional IT role, because they were developed with the needs of line-of-business personnel -- the managers, the admin staff and even the CEO -- in mind.
3.This is an excellent revenue stream that continues to grow every year, for companies that typically have 3 to 5 employees. And, by the 3rd or 4th year these small companies can be generating $3M to $5M a year, still with less than 10 employees.
Disadvantages
1. A challenge to get users to transition from free to paid, especially with consumer services on the Internet because there has been an attitude where consumers expect everything on the Web to be free
2. There's a lot of competition to reach the bottom of this market because if you don't offer your service for free, another imitator might come along and offer it for free.
3. It could be that a lot of Web 2.0 customers are content with the basic service and they needn’t necessarily to pay for additional products.
Wednesday, January 9, 2008
EasyGroup Business Model
This is a concept of low-cost living, turning a large array of generic goods and services on cheap prices applying principles of yield management and no-frills service for being rentable.
The inventor of this concept is Stelios Haji-Ioannou the EasyGroup owner , who founded in 1995 the low-cost airline EasyJet at the age of 28.
The EasyGroup, founded in 1998, is the holding company controlling the "easy" ventures, such as they are. The company develops all azimuths of the brand: EasyJet, EasyInternetcafe, EasyCar, EasyValue, EasyMoney, EasyCinema, EasyBus, EasyHotel, EasyJobs, EasyPizza, Easy4me, EasyMusic, EasyCruise, EasyWatch, EasyMobile, EasyVan, EasyOffice.
EasyGroup became the biggest low- cost brand in Europe, creating the first lifestyle brand for the masses that offers taste of the high life to lowbrows everywhere. It offers low-cost products to a large public, earning money by yield management and technology innovation.
The customers are people that can not or don’t want to pay a high price for a good or service and don’t care about services included in their purchases.
The owner Stelios Haji-Ioannou believes that concept can be applied "In any industry where consumers are being ripped off, if I can find a way to give them real value, I'm going to do it" because for him “it's about value for the many, not the few” .
The brand values:
1. great value
2. taking on the big boys
3. for the many not the few
4. relentless innovation
5. keep it simple
6. entrepreneurial
7. making a difference in people’s lives honest, open, caring and fun
Some EasyGroup subsidiaries have been more successful than others.
For that reason and to expand, and cut down costs, EasyGroup decides that’s better don’t go on alone in big projects. So, the company has started to cumulate partnerships deals ( EasyCar, EasyWatch, EasyMobile) and to franchise the businesses (EasyHotel, EasyCruise, EasyInternetcafe).
Some of them are: Avis (EasyCar), Burger King and Macdonald (EasyInternetcafe), LIoyds TSB Group PLC (EasyMoney), Monester.com (EasyJob), Zeon (EasyWatch) and Love film (EasyCinema DVD rental).
Revenue Sources
The EasyGroup profits by either selling shares in the businesses or by licensing or franchising the brand to reputable partners.
The easy brand currently operates more than a dozen industries mainly in travel, leisure, telecoms and personal finance.
The company follow the "easy" format of taking away the frills in something to make it cheaper overall, plus using the yield management system of supply and demand.
The strategy is based on combination of low cost with minimize the service and internet reservation.
EasyGroup minimize cost by reducing cost for labors, deleting additional services, exploiting the whole capacity of machines, fixed price in accordance under the date of order.
The company’s sources of revenues are:
• Sales of discount products or services
• Advertisements
• Franchising
• Selling the easy brand name
• Commission per saleCompetitors
The others companies use this business model long before EasyGroup like the Irish airline company Ryanair that was Europe's original low fares airline and is still Europe's largest low fares carrier applies the same concept of low prices and no- frills business models. http://www.ryanair.com/
Unique & Sustainable
I think that this “Easy” business model is unique to the web and cannot be applied offline because Internet is his main support of selling goods and services.
In my opinion it’s a sustainable business model for his flexibility of prices according demand and supply.
Yield Management
Many companies try to apply the principle of Yield Management system for optimize profit as EasyGroup did.
The term Yield Management describes the process of revenue optimization and demand management.
Three industries where yield management is used most heavily are passenger air transport, lodging and rental car.
Airlines monitor through the use of specialized software how seats are being reserved and react accordingly, as for example by offering discounts when it appears as if seats will otherwise be vacant.
Hotels use it in largely the same way, to calculate the rates, rooms and restrictions on sales in order to best maximize the return for the property.
In the rental car industry, Yield Management deals with the sale of optional insurance, damage waivers and vehicle upgrades. It accounts for a major portion of the rental company's profitability, and is monitored on a daily basis.
Optimization can help the firm adjust prices and to allocate capacity among market segments to maximize expected revenues.
This can be done at different levels of detail:
by goods (such as a seat on a flight or a seat at an opera production)
by group of goods (such as the entire opera house or all the seats on a flight)
by market (such as sales from Seattle and Minneapolis for a flight going Seattle-Minneapolis-Boston)
Overall (on all the routes an airline flies, or all the seats during an opera production season) Yield management is particularly suitable when selling perishable products, goods that become unsellable at a point in time (for example air tickets just after a flight takes off).
With an advance forecast of demand and pricing flexibility, buyers will self-sort based on their price sensitivity (using more power in off-peak hours or going to the theatre mid-week), their demand sensitivity (must have the higher cost early morning flight or must go to the Saturday night opera) or their time of purchase (usually paying a premium for the luxury of booking late).
In this way, yield management's overall aim is to provide an optimal mix of goods at a variety of price points at different points in time or for different baskets of features.
Good yield management maximizes revenue production for the same number of units, by taking advantage of the forecast of high demand/low demand periods, effectively shifting demand from high demand periods to low demand periods and by charging a premium for late bookings.
While yield management systems tend to generate higher revenues, the revenue streams tends to arrive later in the booking horizon as more capacity is held for late sale at premium prices.
Using yield management, many companies are surprised to discover they have actually lowered prices for the majority of their opera seats or hotel rooms or other products. That is, they offer far higher discounts more frequently for off-peak times, while raising prices only marginally for peak times, resulting in higher revenue overall.
EasyGroup & Yield Management
EasyGroup has created a criteria matrix to select lucrative occasion: Their satisfying formula essentially required consumer facing businesses that displayed significant price elasticity, required a high fixed-costs base and low marginal-cots to service additional customer - factors that would enable the group to effectively yield management.
Applying a pricing strategy based on principle of flexibility of demand and supply we can see that EasyGroup applies very successfully this system.
For example, the customer who buy early get the better price: The earlier passengers on EasyJet booked, the cheaper the fare would be.
Besides if the percentage of seats sold was higher than normal, then the price would go up to avoid selling out popular flights months in advance.
By doing this, the company have actually increased quantity demanded by selectively introducing many more price points, as they learn about and react to the diversity of interests and purchase drivers of their customers.
The most successful division of EasyGroup is EasyJet.
Let’s take a look at:
This is a concept of low-cost living, turning a large array of generic goods and services on cheap prices applying principles of yield management and no-frills service for being rentable.
The inventor of this concept is Stelios Haji-Ioannou the EasyGroup owner , who founded in 1995 the low-cost airline EasyJet at the age of 28.
The EasyGroup, founded in 1998, is the holding company controlling the "easy" ventures, such as they are. The company develops all azimuths of the brand: EasyJet, EasyInternetcafe, EasyCar, EasyValue, EasyMoney, EasyCinema, EasyBus, EasyHotel, EasyJobs, EasyPizza, Easy4me, EasyMusic, EasyCruise, EasyWatch, EasyMobile, EasyVan, EasyOffice.
EasyGroup became the biggest low- cost brand in Europe, creating the first lifestyle brand for the masses that offers taste of the high life to lowbrows everywhere. It offers low-cost products to a large public, earning money by yield management and technology innovation.
The customers are people that can not or don’t want to pay a high price for a good or service and don’t care about services included in their purchases.
The owner Stelios Haji-Ioannou believes that concept can be applied "In any industry where consumers are being ripped off, if I can find a way to give them real value, I'm going to do it" because for him “it's about value for the many, not the few” .
The brand values:
1. great value
2. taking on the big boys
3. for the many not the few
4. relentless innovation
5. keep it simple
6. entrepreneurial
7. making a difference in people’s lives honest, open, caring and fun
Some EasyGroup subsidiaries have been more successful than others.
For that reason and to expand, and cut down costs, EasyGroup decides that’s better don’t go on alone in big projects. So, the company has started to cumulate partnerships deals ( EasyCar, EasyWatch, EasyMobile) and to franchise the businesses (EasyHotel, EasyCruise, EasyInternetcafe).
Some of them are: Avis (EasyCar), Burger King and Macdonald (EasyInternetcafe), LIoyds TSB Group PLC (EasyMoney), Monester.com (EasyJob), Zeon (EasyWatch) and Love film (EasyCinema DVD rental).
Revenue Sources
The EasyGroup profits by either selling shares in the businesses or by licensing or franchising the brand to reputable partners.
The easy brand currently operates more than a dozen industries mainly in travel, leisure, telecoms and personal finance.
The company follow the "easy" format of taking away the frills in something to make it cheaper overall, plus using the yield management system of supply and demand.
The strategy is based on combination of low cost with minimize the service and internet reservation.
EasyGroup minimize cost by reducing cost for labors, deleting additional services, exploiting the whole capacity of machines, fixed price in accordance under the date of order.
The company’s sources of revenues are:
• Sales of discount products or services
• Advertisements
• Franchising
• Selling the easy brand name
• Commission per saleCompetitors
The others companies use this business model long before EasyGroup like the Irish airline company Ryanair that was Europe's original low fares airline and is still Europe's largest low fares carrier applies the same concept of low prices and no- frills business models. http://www.ryanair.com/
Unique & Sustainable
I think that this “Easy” business model is unique to the web and cannot be applied offline because Internet is his main support of selling goods and services.
In my opinion it’s a sustainable business model for his flexibility of prices according demand and supply.
Yield Management
Many companies try to apply the principle of Yield Management system for optimize profit as EasyGroup did.
The term Yield Management describes the process of revenue optimization and demand management.
Three industries where yield management is used most heavily are passenger air transport, lodging and rental car.
Airlines monitor through the use of specialized software how seats are being reserved and react accordingly, as for example by offering discounts when it appears as if seats will otherwise be vacant.
Hotels use it in largely the same way, to calculate the rates, rooms and restrictions on sales in order to best maximize the return for the property.
In the rental car industry, Yield Management deals with the sale of optional insurance, damage waivers and vehicle upgrades. It accounts for a major portion of the rental company's profitability, and is monitored on a daily basis.
Optimization can help the firm adjust prices and to allocate capacity among market segments to maximize expected revenues.
This can be done at different levels of detail:
by goods (such as a seat on a flight or a seat at an opera production)
by group of goods (such as the entire opera house or all the seats on a flight)
by market (such as sales from Seattle and Minneapolis for a flight going Seattle-Minneapolis-Boston)
Overall (on all the routes an airline flies, or all the seats during an opera production season) Yield management is particularly suitable when selling perishable products, goods that become unsellable at a point in time (for example air tickets just after a flight takes off).
With an advance forecast of demand and pricing flexibility, buyers will self-sort based on their price sensitivity (using more power in off-peak hours or going to the theatre mid-week), their demand sensitivity (must have the higher cost early morning flight or must go to the Saturday night opera) or their time of purchase (usually paying a premium for the luxury of booking late).
In this way, yield management's overall aim is to provide an optimal mix of goods at a variety of price points at different points in time or for different baskets of features.
Good yield management maximizes revenue production for the same number of units, by taking advantage of the forecast of high demand/low demand periods, effectively shifting demand from high demand periods to low demand periods and by charging a premium for late bookings.
While yield management systems tend to generate higher revenues, the revenue streams tends to arrive later in the booking horizon as more capacity is held for late sale at premium prices.
Using yield management, many companies are surprised to discover they have actually lowered prices for the majority of their opera seats or hotel rooms or other products. That is, they offer far higher discounts more frequently for off-peak times, while raising prices only marginally for peak times, resulting in higher revenue overall.
EasyGroup & Yield Management
EasyGroup has created a criteria matrix to select lucrative occasion: Their satisfying formula essentially required consumer facing businesses that displayed significant price elasticity, required a high fixed-costs base and low marginal-cots to service additional customer - factors that would enable the group to effectively yield management.
Applying a pricing strategy based on principle of flexibility of demand and supply we can see that EasyGroup applies very successfully this system.
For example, the customer who buy early get the better price: The earlier passengers on EasyJet booked, the cheaper the fare would be.
Besides if the percentage of seats sold was higher than normal, then the price would go up to avoid selling out popular flights months in advance.
By doing this, the company have actually increased quantity demanded by selectively introducing many more price points, as they learn about and react to the diversity of interests and purchase drivers of their customers.
The most successful division of EasyGroup is EasyJet.
Let’s take a look at:
Airline business cost structure improved by EasyJet:
Cost borne by all airlines
including EasyJet
Telesales Staff
Cabin crew
Pilot
Group handling
Insurance
Aircraft ownerships cost
Air traffic control fees
Maintenance
Fuel
Costs reduced by EasyJet
Advertising & Marketing expenditures
Airport and landing fees
Aircraft non-utilisation due to delays at congested airports
Costs eliminated by EasyJet
In-flight catering
Business class cabin crew
Travel agent commission
Cost borne by all airlines
including EasyJet
Telesales Staff
Cabin crew
Pilot
Group handling
Insurance
Aircraft ownerships cost
Air traffic control fees
Maintenance
Fuel
Costs reduced by EasyJet
Advertising & Marketing expenditures
Airport and landing fees
Aircraft non-utilisation due to delays at congested airports
Costs eliminated by EasyJet
In-flight catering
Business class cabin crew
Travel agent commission
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