Managing Demand And

Capacity
(Yield Management)
 Overview
• Theoretical concept.
• Business perspective.
• Corporate Outlook: Taj Mahal Palace And Tower,
Mumbai
• The Underlying Issue: Lack of Inventory
Capability
• Understanding Capacity Constraints
• Understanding Demand Patterns
• Strategies for Matching Capacity and Demand
• Yield Management
• Conclusion
 Theoretical Concept
• Demand
– The amount of a particular economic
good or service that a consumer or
group of consumers will want to
purchase at a given price.
– The demand curve is usually
downward sloping, since consumers
will want to buy more as price
decreases.
– Demand for a good or service is
determined by many different factors
other than price, such as the price of
substitute goods and
complementary goods.
– In extreme cases, demand may be
completely unrelated to price, or
nearly infinite at a given price.
– Along with supply, demand is one of
the two key determinants of the
market price.
 Theoretical Concept

• Capacity

– Capacity is the ability to hold, receive or absorb, or a

measure thereof, similar to the concept of volume.
– Capacity (Economics), the point of production at which a
firm or industry's average (or "per-unit") costs begin to rise,
usually because some factor is fixed (often capital or land).
– Capacity (Law), the legal ability to engage in certain acts,
such as making a contract.
– In decision theory, a capacity is a subjective measure of
likelihood of an event, similar to a membership function in
fuzzy logic.
 Business Perspective
GAPS MODEL
Expected
Service
CUSTOMER
Customer
Gap
Perceived
Service

External
COMPANY Service
Communications
Delivery Gap 4 to Customers
Gap 3
Gap 1 Customer-Driven
Service Designs and
Standards
Gap 2
Company Perceptions
of Consumer
Expectations
 Business Perspective

• Customer Gap:
– Difference Between Customer Expectations And Perceptions
• Provider Gap 1 (The Knowledge Gap):
– Not Knowing What Customers Expect
• Provider Gap 2 (The Service Design & Standards Gap):
– Not Having The Right Service Designs And Standards
• Provider Gap 3 (The Service Performance Gap):
– Not Delivering To Service Standards
• Provider Gap 4 (The Communication Gap):
– Not Matching Performance To Promises
 Corporate outlook

The Taj Mahal Palace And Tower,

Mumbai
 TAJ Inner Circle
• MEMBERSHIP BENEFITS
Besides earning points on all your eligible transactions, as a Taj InnerCircle member your check-in and departure
formalities will be easier, faster and more flexible. You will be privy to a series of member-special offers
which will help you enjoy greater value from your transactions at the Taj. To enjoy your membership benefits
we request you to quote your Taj InnerCircle membership number when making reservations and present the
card at check-in and while settling your bills.

Membership benefits include:

• 10% off on all Taj Holidays offers when you make your reservations directly with us, at the hotels or at Taj
Reservations Worldwide.
When you reach Silver level, you will enjoy the following benefits at participating hotels.
• 10% off on the Best Available Rate (BAR) Plan for Silver and Gold level members at all participating hotels
where BAR Plan is available
• Double occupancy benefits for spouse at no extra charge at hotels in India (except for the Taj Safaris
Lodges) on bookings on rack, BAR or negotiated corporate rates
• You will be greeted with flowers and fruits in the room
• Enjoy access to Health Club and complimentary steam bath or sauna when you stay with us
• 10% off on telephone and fax usage
• 15% off on laundry services
• 20% off on Business Centre services
• 20% off on all treatments at Jiva Spas in India, subject to presenting your membership card
When you reach Gold, additionally, you will enjoy:
• A 5% off on rack rate when you charter a Taj Air aircraft (Falcon 2000 & Falcon 2000EX EASy, Avanti
P.180); fly 20 hours or more and enjoy 10% off the rack rate.
• A non-alcoholic welcome drink on arrival at the hotel
• Your preferred daily newspapers, when you stay at our metro hotels
 Fare Game
ROOMS AND RATES BREAKFAST INCLUSIVE RATE
• SUPERIOR ROOM DOUBLE BED CITY • SUPERIOR ROOM DOUBLE BED CITY
INR 10,625.00 INR 12,500.00
• SUPERIOR ROOM KING BED CITY • SUPERIOR ROOM KING BED CITY
INR 10,625.00 INR 12,500.00
• SUPERIOR ROOM QUEEN BED CITY • SUPERIOR ROOM QUEEN BED CITY
INR 10,625.00 INR 12,500.00
• SUPERIOR ROOM TWIN BED CITY • SUPERIOR ROOM TWIN BED CITY
INR 10,625.00 INR 12,500.00
• SUPERIOR ROOM KING BED SEA • SUPERIOR ROOM KING BED SEA
INR 11,900.00 INR 14,000.00
• SUPERIOR ROOM QUEEN BED SEA • SUPERIOR ROOM QUEEN BED SEA
INR 11,900.00 INR 14,000.00
• DELUXE ROOM KING BED CITY VIEW • DELUXE ROOM KING BED CITY VIEW
INR 13,175.00 INR 15,500.00
• DELUXE ROOM TWIN BED CITY VIEW • DELUXE ROOM TWIN BED CITY VIEW
INR 13,175.00 INR 15,500.00
• DELUXE ROOM QUEEN BED CITY • DELUXE ROOM QUEEN BED CITY
INR 13,175.00 INR 15,500.00
• DELUXE ROOM KING BED SEA VIEW • DELUXE ROOM KING BED SEA VIEW
INR 14,450.00 INR 17,000.00
• DELUXE ROOM QUEEN BED SEA VIEW • DELUXE ROOM QUEEN BED SEA VIEW
INR 14,450.00 INR 17,000.00
• TAJ CLUB ROOM KING/DBL/QUEEN • TAJ CLUB ROOM KING/DBL/QUEEN
INR 18,063.00 INR 21,250.00
• TAJ CLUB ROOM TWIN BED CITY • TAJ CLUB ROOM TWIN BED CITY
INR 18,063.00 INR 21,250.00

LAST MINUTE RATE

 The Underlying Issue: Lack Of
Inventory Capability

• Four basic Conditions:

1. Excess Demand.
2. Demand Exceeds Optimum Capacity.
3. Demand And Supply Are Balanced At The
Level Of Optimum Capacity.
4. Excess Capacity.
The Underlying Issue: Lack Of
Inventory Capability
 Capacity Constraints
• Resources
Nature of the constraint Type of service
Time Legal
Consulting
Accounting
Medical
Labor Law firm
Accounting firm
Consulting firm
Health clinic
Equipment Delivery services
Telecommunication
Utilities
Health club
Facilities Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
 Capacity Constraints
• Utilization
– Optimal versus Maximum Use of Capacity.
– Optimal = Maximum Capacity
• Ex., Football Game.
– Optimal < Maximum Capacity
• Ex., University Class Room.
 Demand Patterns
• Charting demand patterns
– Ex., Automobile Service Station.
• Predictable cycles
– Ex., A Fast Food Joint.
• Random demand fluctuations
– Ex., Medical Service in Case Natural Calamity.
• Demand patterns by market segment
– Ex., A Aerobic Center or Gym.
 Finding Solutions

• Matching Capacity And Demand.

– Shifting Demand To Match Capacity.
– Adjusting Capacity To Meet Demand.
– Combined Demand And Capacity Strategies
– Yield Management (An Approach)
 Shifting Demand To Match
Capacity.

Demand Too High Shift Demand Demand Too Low

• Use signage to • Use sales and advertising to

communicate busy days increase business from current
and times. market segments.
• Offer incentives to
• Modify the service offering to
customers for usage
during non-peak times. appeal to new market segments.
• Take care of loyal or • Offer discounts or price
“regular” customers first. reductions.
• Advertise peak usage
• Modify hours of operation.
times and benefits of non-
peak use. • Bring the service to the
• Charge full price for the customer.
service--no discounts.
 Adjusting Capacity To Meet
Demand
Adjust Capacity
Demand Too High Demand Too Low
• Stretch time, labor, facilities • Perform maintenance,
and equipment. renovations.
• Cross-train employees.
• Schedule vacations.
• Hire part-time employees.
• Request overtime work from • Schedule employee training.
employees. • Lay off employees.
• Rent or share facilities.
• Rent or share equipment.
• Subcontract or outsource
activities.
• Outsource.
 Yield Management
• Concept:
– Revenue Management.
– The process of allocating the right type of capacity to
the right kind of customer at the right price so as to
maximize revenue or yield.
• Basis:
– Balancing capacity Utilization.
– Pricing
– Market segmentation
– Financial Return
• Aim :
– To produce the best possible financial return from a
limited available capacity.
 Yield Management
• Implementation:
– Mathematical model:
Yield= actual revenue/potential revenue
Where,
Actual revenue = actual capacity used X average actual price.
Potential revenue = total capacity X maximum price
– Requirements:
• Different Market segments.
• Price Sensitivity.
– Basis:
• High first:- Ex., A football game or Music Concert.
• Low first:- Ex., Airline Booking.
 Real Time Example
• Hotel Industry
• 200 room Hotel with max. room rate of Rs.1000 per room
per night.
1. Potential Revenue = 1000 X 200 = Rs.2,00, 000 lac
2. All rooms at discount @ 50% i.e Rs.500 per room per
night and full occupancy.
Yield = 500 X 200 / 2,00, 000 = 50%
4. No discount but the occupancy is 40% i.e 80 rooms
Yield = 1000 X 80 /2,00,000 = 40%
6. 40% rooms i.e 80 @ Rs.1000 and 120 rooms @ Rs.500
Yield = (1000 X 80 + 120 X 500) / 2,00,000 = 70%
 Conclusion

• No precise Calculation.
• It is a mixture of experience and numbers.
• It is an art as well as science.