the purpose of revenue management is to

the purpose of revenue management is to

The Significance of Revenue Management in Modern Business Practices

1. Introduction to Revenue Management

While there are several different descriptions for revenue management, this chapter will provide a modern working definition based on ownership, complex system components, future demand, providing hard data about maximizing revenue, and the behavioral decisions of stakeholder trading. In assessing a modern RM from the hospitality perspective, it is amazing to apply the same definition to a restaurant, retail stores, golf course, hospital, or apartment complex, since their business tendencies were identical. These terms are treated as interchangeable in today’s world of RM applications (the historical term found in each section). The business description focuses on the primary revenue stream predicates, employment, a sale-to-load conversion process, and financial characteristics (such as separation costs or room rental income) over the strategic advantages provided by facilities, brands, and affiliation-services that distinguish hotel business from other RM sites.

Revenue management is as old as the Canadian aerospace and the hospitality industry itself. Its roots come from pricing methodologies which were developed as early as the 1960s with the development of pricing decisions in UHF. Revenue management is widely practiced in the airline industry, which was practiced by the early 1970s. Although predisposed by religious sentiment, pricing during carnival season is often compared to RM strategies. However, it has only been applied to the hospitality industry in the mid-1990s. It is, therefore, in the childhood of the hotel business, where rules of revenue management must be implemented to manage profitability by investing resources into where the rewards have required it. Our job is to tag that evolution, organizations and individuals committed to the RM approach, those that remain static for fear of the unknown, and lead those segments that follow this rapidly evolving practice.

2. Key Concepts and Strategies in Revenue Management

Revenue management is not simply confined to gathering revenue but it concerns maximizing revenue or profits from a given product or service, expressed in volume or in unit of capacity. It does this through a series of managerial strategies and techniques appropriate for different types of demand situations involving either uncertain or overall unfavorable factors. Such unfavorable factors could come in the form of fluctuating competitive parameters that the company faces in its market or the fact that, after the moment has passed (such as an empty seat on an airplane scheduled to depart), the company cannot recoup lost revenue opportunities. These revenue opportunities could have come about because customers who want to travel or who want to sleep in a hotel, for these examples, are unable to engage in these transactions on the actual day and time for the journey or for the overnight stay.

The field of revenue management or yield management, as it was also called in earlier literature, has been a staple in the commercial airline sector for many years. However, advances in information technology along with the growing complexity of business offerings in other industries have since then opened a new chapter for this important discipline in other similarly service-oriented businesses such as the lodging, passenger transportation, golf course, ski lift, cruise line, entertainment and event management, healthcare, car rental, laundry and dry cleaning, telecommunication, freight and express delivery, and restaurant industries. Of late, the digital business and online retail industry have also similarly introduced various concepts and new approaches.

3. The Role of Technology in Revenue Management

Advances in technology have expanded the body of knowledge and made it relatively easy to tailor data to fit specific business needs. The hospitality industry has fully embraced both technology and the information it provides, yet technological advances seem only to scratch the surface of this industry’s potential. During the last decade, productivity gains have remained stagnant, and investments in technology have not produced the expected increases in the productivity of employees. With the hospitality industry’s vast human resource demands, why do not technology and information management practices have a greater impact on productivity within this industry? This is a time of dynamic change, and those who do not adapt to today’s rapid changes will fall behind tomorrow. Industry leaders must continuously reevaluate their operations and make the most effective and efficient use of their resources while providing the guest with the experiences that both will value.

The days of paper and pencils were not that long ago, but they already seem remote considering the technological changes that have taken place in the past 20 years. Many of these technologies offer a remarkable opportunity for entrepreneurs. Telecommunications, particularly the Internet, allow each business to become a global company which can quickly and efficiently market its products and services worldwide. Automated tools eliminate drudgery and allow each employee to produce output that adds value to the business. Information users are overwhelmed, not starved. Any moment of any day, enormous quantities of data are available in a dependable, consistent format accessible worldwide.

4. Challenges and Future Trends in Revenue Management

In recent years, there has been a diverse set of revenue management applications. The motivation underlying the diverse set of applications has been situations facing many different decision makers in different industries where companies face the need to manage the tradeoff of capacity allocation between different types of services at different price points. All these operations face similar underlying issues – the need to balance the tradeoff between revenue and yield management. In fact, the issue moves away from what are the underlying operations facing revenue management to how the decision makers approach handling the need to balance tradeoff of capacity allocation with the technical capabilities of the Ind-Rmhna System.

Applications and practices in revenue management

There are big challenges as well as advances being made in the area of revenue management. One of the areas of great activity is in pricing products. Many firms are developing the capability of using statistics such as the maximum and minimum allowable prices as well as the 68, 95, 99% or whatever confidence intervals that allow them to take into account these functions in improving rather than limiting their pricing strategies. There are even firms such as Microsoft that have competition among some pricing models. Other advances being made in the area of revenue management are those that make time varying price and overbooking seem like kids play. The trading of rights on marketable assets in order to provide the best incentive for employees to reveal the true economic potential is a real growth area. In particular, many of the applications and practices in revenue management are not well tested and need to undergo the scientific method for improvement.