The paper "Revenue Management " is a good example of management coursework. Revenue management is an art of forecasting consumer activities and improving the product obtainability and value to ensure there is maximum revenue growth. In revenue management, the following was covered: Price revenue optimization and its linkage to revenue management, traditional approaches to pricing, trends that drove price revenue optimization, the nature and process of PRO, basic price optimization, price differentiation, pricing with constrained supply and revenue management systems (Cross, 2011). All these were covered through various interactive activities like lectures, presentations, group discussions and teamwork among others.
In the following paper, I seek to discuss an overview of the revenue management body of knowledge, the contribution of speakers to my understanding of revenue management, how industry resources contributed to my understanding of revenue management and provide a review of how the “ victoria challenge” revenue management simulation in revsim contributed to my understanding of revenue management. AN OVERVIEW OF REVENUE MANAGEMENT BODY OF KNOWLEDGE Back in the 1980s, American Airways got intense competition from the People Express and they had to make drastic changes to keep their customers.
A strategy was formulated that involved developing a Revenue management program which was founded on separating prices between leisure and business passengers. (Goensch & Steinhardt, 2013). Price revenue optimization; whose goal in revenue management is to provide the correct price for every product, to every customer and through the right channel, was driven by the following trends that led to its growth in usage of its technique through the years: the success of revenue management, use of Enterprise Resource Planning system for the latest wealth of information, upsurge of e-commerce and the success of a supply chain management system. Before the introduction of price revenue optimization in the market; Cost-plus, market-based and value-based were the conventional ways of pricing.
The disadvantages of these approaches were that they ended up focusing on one aspect of determining the price of the product and did not interpret other aspects that were equally important. For example, the cost-plus approach focuses on the cost and ignores the competition and it makes no reference to what the customer is willing to pay. Another drawback to this method of pricing is the fact that it does not support price differentiation which is the basic principle of price revenue optimization. Price differentiation is the art of a seller asking for different prices from different customers.
There are several tactics of several price differentiations which include: group pricing, channel pricing, regional pricing, couponing and self-selection, product versioning, time-based differentiation and volume discounts. The name of the tactic defines the tactic of differentiation. For example, group pricing offers different prices to different groups of people, regional pricing offers different prices in different regions and volume discounts offer discounts on buying more, save more basis.
However, a perfect price differentiation does not exist because of certain limitations as cannibalization, arbitrage and imperfect segmentation. Price revenue optimization has 3 major dimensions which are the product, customer type and the channel; price revenue optimization aims to provide the correct price for every product, to every customer and through the right channel. In order to reach this. .. component; the operational price revenue optimization and the support revenue optimization are involved.
The former should be done every time a company wants or needs to change its price in order to set and update prices in the market place. The operational price revenue optimization process involves analyzing the alternatives, choosing the best alternative i. e. deciding on which pricing to place on the commodity, communicating the price to the market and finally comparing the result with the company’ s expectation and evaluating the overall performance against the company’ s goal. Support revenue optimization occurs over long periods of time. The process involved includes setting the goals, segmentation of the market, i.e.
annually, determining the price response by calculating a price response functions and finally by updating the response and providing feedback from the monitoring process.