Revenue management
[citation needed] Before the emergence of revenue management, BOAC (now British Airways) experimented with differentiated fare products by offering capacity-controlled "Earlybird" discounts to stimulate demand for seats that would otherwise fly empty.
[4] Taking it a step further, Robert Crandall, former chairman and CEO of American Airlines (AA), pioneered a practice he called yield management, which focused primarily on maximizing revenue through analytics-based inventory control.
Under Crandall's leadership, American continued to invest in yield management's forecasting, inventory control and overbooking capabilities.
By the early 1980s, the combination of a mild recession and new competition spawned by airline deregulation act (1978) posed an additional threat.
Low-cost, low-fare airlines like People Express were growing rapidly because of their ability to charge even less than American's Super Saver fares.
Marriott International had many of the same issues that airlines did: perishable inventory, customers booking in advance, lower cost competition and wide swings with regard to balancing supply and demand.
Since "yield" was an airline term and did not necessarily pertain to hotels, Marriott International and others began calling the practice Revenue Management.
[6] They also created "fenced rate" logic similar to airlines, which would allow them to offer targeted discounts to price sensitive market segments based on demand.
[6] A natural extension of hotel revenue management was to rental car firms, which experienced similar issues of discount availability and duration control.
[9] Faced with the need for volume growth in a competitive market, UPS began building a pricing organization that focused on discounting.
Rather than optimizing the revenue for a discrete event such as the purchase of an airline seat or a hotel room, UPS was negotiating annual rates for large-volume customers using a multitude of services over the course of a year.
To alleviate the discounting issue, they formulated the problem as a customized bid-response model, which used historical data to predict the probability of winning at different price points.
In the 1990s, however, the Ford Motor Company began adopting revenue management to maximize profitability of its vehicles by segmenting customers into micro-markets and creating a differentiated and targeted price structure.
Retailers have leveraged the concepts pioneered at Ford to create more dynamic, targeted pricing in the form of discounts and promotions to more accurately match supply with demand.
Furthermore, strategies driving promotion roll-offs and discount expirations have allowed companies to increase revenue from newly acquired customers.
Realizing that controlling inventory was no longer sufficient, InterContinental Hotels Group (IHG) launched an initiative to better understand the price sensitivity of customer demand.
These elements were incorporated into a system that also measured differences in customer elasticity based upon how far in advance the booking is being made relative to the arrival date.
By lowering prices on products, a company can overcome weak demand and gain market share, which ultimately increases revenue.
Revenue management techniques measure customer responsiveness to promotions in order to strike a balance between volume growth and profitability.
When the producer collaborates with a powerful provider, sacrifices may be necessary, particularly concerning the selling price/commission rate, in exchange for the capacity to reach a certain clientele and sales volumes.
[27] To support this, third-party sources are utilized to collect data and make only averages available for commercial purposes, such as is the case with the hotel sector – in Europe [28] and the Middle East & North Africa region,[29] where key operating indicators are monitored, such as Occupancy Rate (OR), Average Daily Rate (ADR) and Revenue per Available Room (RevPAR).
Useful tools such as Cluster Analysis allow Revenue Managers to create a set of data-driven partitioning techniques that gather interpretable groups of objects together for consideration.
[18] Tools such as these allow a firm to optimize its product offerings, inventory levels, and pricing points in order to achieve the highest revenue possible.
Other firms dedicate a section of Finance to handle revenue management responsibilities because of the tremendous bottom line implications.
On one hand, supply chain management often focuses on filling current and anticipated orders at the lowest cost, while assuming that demand is primarily exogenous.
[31][37] In 2013, Marchant resigned, and Tim Rosen, with the support of the committee, restructured the organisation (still retaining the company name[37]) and started operating under the name Revenue Management and Pricing International Limited (RMAPI).
Originally covering the tourism and leisure industries, RMS/RMAPI expanded into other sectors using the same disciplines, including retail, telecommunications, and media.
Membership is by annual subscription, and it aims to provide a forum for practitioners of revenue management and pricing and related disciplines, including conferences and other events.
It publishes applied research papers, case studies, models and theories, along with new trends and future ideas by experts and practitioners.
[2] The editorial board, as of September 2024[update] headed by Ian Yeoman, Professor of Innovation, Disruption and New Phenomena, at the Stenden University of Applied Sciences, Netherlands, is drawn from across the globe.
