Recognize where to Apply Revenue Management

The terms ‘Revenue Management’, ‘Yield Management’ and ‘Dynamic Pricing’, (used interchangeably henceforth), are familiar to the masses, but understood by few, mainly practitioners and academics. In their simplest form, they all refer to the ability to charge the right price to the right consumer at the right time. What are the characteristics of products that lend themselves to Revenue Management? There are five of them:

Perishable Product Revenue management is particularly suited to services, though this does not exclude tangible goods being yield- managed. This season’s fashions can be just as perishable as any service. If, at a certain point in time, the opportunity to sell a product is lost, and it cannot be inventoried for sale sometime in the future, the chances are its revenue manageable;

Capacity is Limited Most services can only be offered in limited quantities. Airlines offer a certain number of seats, car rental companies a limited number and type of vehicles, restaurants have a limited number of tables and cinemas have a limited number of seats and screenings;

Demand Varies Do more people buy your product on one day of the week than on other days? Airlines carry more passengers over the Easter and Thanksgiving weekends than on other weekends;

Incremental Costs The cost of accepting one additional customer is nil or negligible. The additional cost of screening a film to 50 customers or to 100 customers is insignificant;

Market Segmentation It is difficult, if not impossible, to revenue management a homogeneous product. To maximize the benefits of yield management, the market must be segmented along one or more of the following lines: what is purchased, where it is purchased, when it is purchased, how it is purchased, why it is purchased and who purchases it.

 [Source]