Advantages Of Revenue Management

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Revenue management is a scientific method that helps firms to improve profitability of their business. For many years, firms use revenue management to predict demand, to replenish inventory, and to set the product price. The benefit of revenue management can be found in a variety of industries, including airlines, hotels, and electric utilities. Dynamic pricing is a popular method of revenue management, especially when a firm needs to sell a given stock by a deadline. The goal of dynamic pricing is to increase the revenue by discriminating customers who arrive at different times. For instance, if a firm faces a high level of demand, it has an incentive to increase the price to reserve some products for later customers who may be willing to…show more content…
By matching price to demand, hoteliers have a greater opportunity to capture higher profitability business during high demand periods. On the flip side, lower flexible rates during low demand season help generate additional demand that might not have existed before. Although, it is always wise to set a floor price, which should be equal to the lowest “positioning” price that you might be willing to accept for your product. The challenge of having a dynamic structure is that the revenue managers need to be on top of their game to manage demand as it is very easy to lose control of inventory if forecasting is erroneous. Having a revenue management system minimizes these errors; however, the majority of hotels today do not have a revenue management system as it could be expensive or might not have been budgeted. Payback period of a decent revenue management system is typically less than a year depending on the size of the property. An interesting exercise to conduct is to look at a set of hotels’ past year occupancy and average-daily-rate data to ascertain lost revenue potential to the dollar amount and determine whether having a revenue management system would have mitigated that…show more content…
Again, airlines frequently use this strategy. The price of economy-class seats on a particular flight may fluctuate over time. For example, the airline may try to fill seats by lowering the price as the day of the flight draws closer, or try to fill business-class seats first by raising prices on economy tickets. In 2009, the NHL Dallas Stars began using dynamic pricing for tickets to their games, charging higher or lower prices based on demand. For games with low demand, tickets are cheaper than for games with high demand.
Changing Conditions
Using dynamic pricing strategies can boost profits more under certain market conditions, according to research conducted at the Olin School of Business at Washington University in St. Louis. The researchers found dynamic pricing for products works best when there is a lot of uncertainty in the market--for example when the product may have a very short life span, as is the case with movie tie-ins. Sellers can maximize profits by lowering prices as sales fall, then raising prices again as demand increases. changes can go either

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