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Practical Pricing and Revenue ManagementFundamentals and practical applications
Associate Professor of Tourism Management, Victoria University of Wellington, New Zealand
In times of economic downturn you need to know how much your customers will pay for a product and you need to create appropriate strategies. This is not about offering the lowest price in order to fill capacity. It is about knowing your market segment, how much they will pay,... read morewhen they will purchase and what distribution channels they will use. Pricing is about deciding your market position, i.e. premium or low cost, whereas revenue management is the strategic and tactical decisions firms take in order to optimize revenues and profits. Furthermore, revenue management is usually associated with firms that are constrained by capacity or offer a time based product or service such as a round of golf or hotel accommodation. Everyone is probably familiar with Easyjet and Ryanair. These two firms operate a low cost pricing model and use revenue management as a strategic tool. Fundamentally, they are in a business where tickets for the same flight are sold at many different fares throughout the booking horizon depending on product restrictions as well as the remaining time until departure and the number of unsold seats.
The use of these revenue management strategies has transformed the transportation and hospitality industries, and has become increasingly important in retail, telecommunications, entertainment, financial services and healthcare.
Service industries have a number of characteristics in common including:
• Fixed capacity
• High fixed costs and low variable costs
• Time-varied demand
• Similarity of inventory units
In order to manage these characteristics, firms must use the following:
• Market segmentation
• Historical demand and booking patterns
• Pricing knowledge
• Overbooking policy
• Information systems
• Distribution channels
In a global, competitive environment a strategic approach is necessary, whether it is to gain market share or position your product. The emergence of the internet and transparency of pricing has made revenue management more important as a driver of strategic advantage.
This series will offer:
• Insights into the latest research, theories, applications and innovations
• Insights into how pricing and revenue management works in different industries