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Thinking: revenue management: a top-line tool that does more than improve results.

Document Cited in Related
Vincent
AuthorRoberts, Hanno
PositionINFORM

Revenue management, a familiar practice in the airline and hotel industries, was invented as a way to optimise prices, given fixed capacity and fluctuating demand.

It has become a tool that bridges the marketing and management accounting disciplines. For marketers, revenue management is all about pricing and they discuss it alongside other approaches to pricing. Management accountants are more focused on the top line of the P&L statement. Revenue management is one of the few tools that relates to sales turnover in the P&L. Its "instrumental loneliness" in the sales revenue category means that it deserves closer scrutiny by financial managers. Is it really only about capacity utilisation and price optimisation, or are there less obvious factors at play too?

Revenue management requires relatively fixed capacity (of airliner seats or hotel rooms, for example); perishable inventory (such as an unsold seat); the ability to forecast demand; time-variable demand; and high fixed and low variable costs. When you look more closely at revenue management, two issues arise: the need for data and the link with marketing strategy. Without good data, demand cannot be forecast accurately and patterns of time variability cannot be discerned. Similarly, pricing matrices resulting from revenue management are important in identifying customer segments and formulating marketing strategy. In effect, this is about using revenue management data to "discover" marketing as an evidence-based managerial tool.

Regarding the need for data, two underlying factors can be considered. First, what if you don't have the data in the first place--is revenue management useful only for data-rich companies?

This means that generating demand forecast data becomes a question about information systems: what are we doing already to estimate demand? Organisations with established customer relationship management systems are at a clear advantage here. The data...

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