Dynamic Pricing In Revenue Management

Introduction and Literature Review 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 been 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

Each category has a fixed price, but the number of rooms allocated to the category is dynamically controlled in a way that maximizes revenue. The other group, the dynamic pricing approach, groups all similar rooms in one category, and applies a price that is continually adjusted with time based on the supply and demand variations. The dynamic price is set so as to maximize revenue, taking into account the hotel occupancy, and the current and expected demand. The dynamic pricing approach is particularly prevalent in some online hotel reservations. The online nature makes updating the price periodically quite manageable. So, it is expected that the dynamic pricing approach will in the future overcome the quantity based approach in adoption. In this paper we propose a novel dynamic pricing approach. It is based on having a seasonal reference price, and control variables in the form of multipliers. Each multiplier will adjust the price up or down around the reference price based on a certain influencing variables (for example hotel occupancy, time till arrival, etc). The parameters of these multipliers are optimized. The goal is to maximize the revenue, taking into account current demand, and the demand-price sensitivity of the hotel’s guest. Embedded in the optimization model is a Monte Carlo simulation that simulates all the

For example, same-day dry cleaning would cost more than overnight cleaning. Augustin Manchon, of Manchon Consulting, suggests in a 2009 Financial Post article that service providers such as printers can boost revenue by charging more for jobs late in the day. Or they can give discounts to clients for volume business but not include higher-cost items, such as rush orders, in the discount. Manchon argues this strategy can increase customer loyalty without sacrificing profit margin.

Time of Purchase

Some dynamic pricing strategies offer customers different prices based on when they buy. 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