Adopting Revenue Management

Adopting Revenue Management

Dear Alain and classmates,

Top down pricing is defined by the business dictionary as, “Method where, the pricing process starts with the desired profit to which all direct and indirect expenses are added to compute a selling price” (www.businessdictionary.com). Revenue management, also known as yield management on the other hand is a concept introduced by the airline industry (Göksen, 2011, p. 13) focuses not only on pricing and demand behaviors but also includes capacity allocation and planning (Ng, I. L., Maull, R., & Godsiff, P.,2008).

PROBLEMS & CHALLENGES:

One of the major challenges in implementing revenue management will be to not only price discriminate depending on time or demand but to be able to rightly sell in advance as well as spot selling keeping in mind the limited capacity. (Ng, Maull, & Godsiff, 2008, p. 188) It is to create a balance between price, demand, time considering the limitations of the output capability to keep up to the customers expectations.

With advance selling the challenge posed is of cancellation and no-show of the customer, which is due to the difference in the timing of the production and consumption of service. Advance selling for an amateur can also lead to overbooking or overselling leading to unhappy and dissatisfied customers and could hurt the image of the chain. Another problem as a chain of hotels, is difficulty in processing data of multiple properties from centralized system and providing the appropriate information for allocation (Vinod, B., 2004).

DECISION STEPS:

The three main legs of revenue management process are pricing, revenue management and product distribution (Vinod, B., 2004). As mentioned by Ng, Maull, & Godsiff, “identifying capacity is the first step towards the practice of revenue management” (2007, p.193).

1. Identify Capacity & Inventory Pooling: First the management needs to get together and decide the optimal capacity available for sale at...