The road towards revenue management is paved with a solid concrete called “the knowledge of demand”.
This is a rocky road, and not all the industries can implement it. It may be also challenging in practice since demand has highs and lows, and deciding how to efficiently allocate a finite quantity of a product - be it a seat, a bed, a ticket - when the demand is not known for sure can be puzzling.
Revenue management can only be implemented in sectors with a limited number of producers, producing a perishable good or providing a perishable service, with strong capacity limits. In practice, when these conditions apply, it is the implementation of three big ideas, as our experts recalled this week:
- Divide demand into high-fare and low-fare groups
- Limit the number of sales to low-fare group to protect space for high fares
- Set low fares low enough to sell most of the tickets (seats, beds …)
We already knew that the allocation of seats between two populations of customers depending on their willingness to pay is a key element to improve revenue.
This week, we discovered that the method used to determine how to allocate between high-fare and low-fare tickets is based on the computation of the Expected Marginal Seat Revenue (or EMSR). This is one of the most popular methods, used by many firms. For each price, the EMSRs can be viewed as the expected value of the current seat if offered at that price. This notion is also used to sell more than the capacity through overbooking, another very popular practice.
Nobleval case study
This week, you had also to challenge the current pricing scheme of Nobleval Wildlife park, and propose new tariffs, based on your growing expertise.
Now you might be interested in the case study debrief by Nathalie Lenoir, which you will find in the Downloads section.
Questioning everyday examples of tariffs is useful, as the answer may help you understand why some options - such as discounts - have been applied.
Join the discussion: what works best?
In hindsight, after reading and reviewing your fellow learners’ case studies and Nathalie’s debrief, which idea do you think would be the most powerful to improve revenue for the wildlife park?
Share your views, discuss your strategies and engage in the discussion.
Do you want more?
Still in the Downloads section, you will find the course bibliography, and the glossary of useful terms.
Further reading is optional, and not compulsory for completing the course.
Coming next week
For the next (and final) week, we’ll start with a new pricing simulation game on the airECONsim platform: same principles, but this time you will be facing a competitor! This will be a time to transform all the knowledge you gained these last week into real operational skills.
Afterwards, our experts will share their views on the future of revenue management.
© By ENAC - Nathalie Lenoir CC BY-NC-SA 3.0