Nathalie Lenoir
Nathalie Lenoir is a researcher and professor at ENAC. She has been teaching revenue management for more than 15 years. She holds a Master in transportation and a PhD in economics.
Location Toulouse, France
Activity
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That's right : arilines for example, constantly forecast future demand by looking at past demand. It is an ongoing process because it changes over time.
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Ok, but be cautious that the aircraft capacity (and therefore the load factor) is to be seen as a constraint (you can't sell more than your capacity) rather than an objective.
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Yes, it seems that some airlines do that.
Next time, empty your memory cache before returning, it might do the trick... -
Aren't there any risks associated with last minute low prices ?
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You'll undestand more about these strategies later in the course. But just to give you an intuition, last minutes low prices are dangerous in the long run: they give customers incentives to wait before buying, which is clearly not what the airlines want. This is why airlines are very cautious with "easy to buy" last minute prices.
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Nathalie Lenoir replied to Simon Redgrove
That's an interesting thought : too much choice can sometimes be confusing ! So an efficient pricing scheme should also cover that issue and give people a pricing where they can easily find the best option for them.
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Nathalie Lenoir replied to Fran .
Great !
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Right, but in your reasoning, you have to think also about the other customers. Is demand from the other groups high or low ?
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Nathalie Lenoir replied to Kerrianne Haggie
Interesting question !
If you increase your production by offering your products at different prices to more people, and if you have economies of scale, then your overall cost per unit is reduced.
What will you do ? Decrease price to the higher paying customers, or decrease price to the lower paying customers, to attract even more customers ? Or do nothing... -
Nathalie Lenoir replied to Théo Denis
Right ! Products like that can be seen as "status symbols" by individual consuming them. They signal some kind of status if you have them. Only true for specific goods at specific times on specific markets. (think about some fashion products for example)
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If the take-away is cheaper and this reflects the inferior cost, then, there is no discrimination.
In France, very often, the take-away is the same price, and in this case, there is discrimination "against" people buying take-away. They still buy because they prefer to eat at their own place rather than eating in restaurants (which is often quite long...).... -
Nathalie Lenoir replied to Anderson Michel
Actually, this is the same ! the welfare of a consumer is measured by the consumer surplus, as described
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How to do that, you will see in the following sections of the course !
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Well, there is a difference in the cost of supplying different cars, but do you think the cost difference matches the price differences ?
In fact, car rentals are always very pushy in trying to upgrade you, because they make more money on largers cars... (which are often overpriced, compared to smaller cars) -
Nathalie Lenoir replied to Théo Denis
Interesting thoughts... This can be true of some customers with specific products (luxury goods), but certainly not in general. People have a tendency to buy less when price goes up, as we see later on.
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Nathalie Lenoir replied to Victoria K
Oh, I understand why this was a bad experience... They certainly were careless in this case !
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Although it is not exactly the same thing that is sold, because the viewing quality is different...
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Nathalie Lenoir replied to Mattia Casotto
Then if the price is the same (which is often the case in my country), there IS price discirmination, since the cost is NOT the same...
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Nathalie Lenoir replied to Misha Goodwill
No problem !
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@MishaGoodwill perishable means that the product will go bad or become obsolete if not sold by a specific date, like food or flowers, or newpapers, or seats in a given aircraft.
This is not the case for oil. Moreover, production can be adapted and carrying oil from one place to another is costly but it is customarily done also (pipelines...)
All in all, this... -
Nathalie Lenoir replied to Misha Goodwill
Actually, Misha, the case study says : "The park is modern and situated quite close to a large city. It is possible, for example, to visit the park for half a day from the city, by train or car."
So it is close to the city and does not take half a day to GO there ! -
For oil, we do not have the conditions for revenue management. There are many producers, the product is not perishable and as we can see, there are markets prices and it is quoted on the stock markets.
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The goal of the producer is not really to make sure he can sell all his production, but rather that he can maximise his profit with the constraint of a certain maximum level of production (capacity constraint). We will see later on what this means for him.
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There are actually conditions for differential pricing that you will see later on in the course. And differential pricing is spreading in many sectors...
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Nathalie Lenoir replied to Yukki Wang
Airlines and magic theater might be a bit different, in the sense that most people will only go once or a few times to a magic show, but there are many people that will fly more or less regularly. So giving those people the signal that they should wait for low last minute prices is not a good idea. With the theater show, this seems less problematic (and you...
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Exactly ! If you do not have those three features, then RM will likely not be possible. This is still open to interpretation, for example how many producers are "a limited number" depends on the product/service or geographical location of the producers.
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Nathalie Lenoir replied to Kevin Bishop
That's right, the private producer is always interested in maximizing profit, but this might still lead to a higher consumer surplus.
In the Indian "Harry Potter" market, the producer will probably only sell if the variable cost of production is covered (roughly the cost of manufacturing books in case of paper books + the distribution costs) -
Nathalie Lenoir replied to John Cooke
Sure, overbooking is not the same at airline and hotels !
The two missions you mentioned need not be always opposed: with overbooking, airlines achieve a higher seat occupancy, and therefore a lower cost per passenger, which means that a few disadvantaged passengers enable customers as a whole to get (on average) lower prices. Tricky balance ! -
Nathalie Lenoir replied to Yukki Wang
It is hard to answer without more information, but can't you have some idea of the popularity of one show or another ? May be if you have trouble attracting customers, you need to focus more on communication ? Price is not the only variable here, people need to have information in order to be attracted to a show.
Price discrimination based on theatre space... -
You may want to look for 1st year microeconomic textbooks, there are many good ones, so I cannot recommend any. Otherwise, I recommend the online courses of the marginal university which are very good and deal with all kinds of economic subjects, including demand (https://mru.org/)
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You can view yourself as a new producer in a market... You have to gain information on demand as time goes by. This is the case for many new business owners,
Concerning your strategy, load factor is important, but your objective is max revenues, not max load factor... -
You're correct, @YukkiWang. How would you explain this 3rd degree price discrimination at hairdressers ? Why does it work ?
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@YukkiWang, I do not know enough about your business to answer, but I can give you some thoughts:
Many theaters raise their prices for "best selling "shows. One way to look at it (and defend it) is that it enables to finance others shows that are more "risky"(in terms of success). So it benefits creation as a whole.
Many theaters offer last minute... -
Nathalie Lenoir replied to Kiri Raza
And actually, they HAVE to offer compensations (by law) AND a later flight
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Nathalie Lenoir replied to clare Rix
Exactly !
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Wouldn't that depend on how likely you think you are to find a client behind door A ?
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Nathalie Lenoir replied to Yukki Wang
Hi Yukki,
It takes some time to get the hang of the game, but I can assure you it is a fairly good simulation of real airline pricing. You can play it again if you'd like !
There are actually two thing in the lesson you mention :
1. too much capacity kills profits: it is better to offer to few seats than too many
2. too few frequencies reduce your... -
Right in the game, but in real life, airlines have pretty sophisticated forecast tools to try and reduce the guessing !
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Well, competition is certainly an issue here ! So yes, if you want to increase your prices, you may have to consider offering a better experience than the other cinemas. This is called product differentiation, and explained in the next step !
On the other hand, if demand from people who do not have discounts is high enough on saturday nights, you may not... -
That's an interesting point you make, Michiel : you have to consider the level of demand on saturdays from different types of clients but also what your competitors are offering (in a broad sense : other providers of saturday night entertainment).
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Nathalie Lenoir replied to Yukki Wang
Considering the theater or movie theater example, it can still be the case that by discriminating, you increase your customer base, and run the show more frequently, or decrease the number of empty seats at low demand times (morning in cinemas, for example).
My point is to say that having limited capacity is not really the issue, the issue is whether you... -
Nathalie Lenoir replied to Tereza K
Exactly !
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Nathalie Lenoir replied to Michiel Beks
That's right !
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Nathalie Lenoir replied to Yukki Wang
Hi Yukki,
It is probably just a simple price discrimination : women are ready to pay high prices to look beautiful (social pressure...), so the razors for women are a bit overpriced...
The producers are betting on the fact that women will not compare the prices of "their" pink razors (in the shelves of feminine products) with the prices of regular razors... -
Nathalie Lenoir replied to Michiel Beks
Exactly, Micheil.
But as you can see in my conversation with Simon earlier on, that strategy can become somewhat blurred because of government policies of taxing sugary products. -
Nathalie Lenoir replied to Simon Redgrove
Interesting !
Initially, diet coke tended to be more expensive, not because it was more expensive to make, but because it was targeted towards people more concerned about their heath or weight, and therefore ready to pay a bit more to consume a (supposedly) healthier product.
Off course, pricing can evolve over time with producer strategy and/or public... -
And as we saw in the part on consumer surplus, this can benefit consumers as a whole, if the overall quantity produced/consumed increases (starting from a situation of one price for all)
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Nathalie Lenoir replied to Simon Redgrove
What if I invert, and say that the price (or prices) has (have) a bearing on the size of the margin ?
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Nathalie Lenoir replied to clare Rix
That's what they want you to believe... but do you think this is the real reason for the price difference ?
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Nathalie Lenoir replied to Simon Redgrove
And so, with this VAT issue, which one is the cheaper one in your place ? diet or regular ?
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And conversely, women could use the cheaper men razors...
So, assuming they are the same products, color excepted , do you think it is price discrimination ? based on what ? -
Nathalie Lenoir replied to Michiel Beks
actually, Michiel, availability is not sufficient to make sure discrimination on a particular product is good for the consumers.
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Nathalie Lenoir replied to Simon Redgrove
You get it, Simon, this is exactly what happened in air transport.
Not sure it has been so great for the climate, though... -
Oh, that's a good one ! Which direction did it go ? longer hair more expensive or cheaper ?
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Yes, basically, you are right, Michael. If the quantity that producers are able to supply is limited (in the short term, for example) then prices will ajust to increase or decrease demand, so that supply and demand stay balanced.
In general, demand decreases when price increases (if it is more expensive, you consume less)
In general, supply increases when... -
Sure we know theoretically in which direction consumers will react to a raise or decrease in price. But theory does not tell us how sensitive people are. For beer, a bar could get real information on that by playing with prices at different times of day for example (kind of like happy hours), and see how people react. In this case, their ability to do that is...
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It sure is difficult in this case ! But maybe if a show lasts for some time you can get information on demand as time goes by ? If a particular show gets sold out everynight, for example, the seller can try to raise the price.
If the shows are only a one time affair, it is more difficult, but you could probably get information on demand from the sales of the... -
Nathalie Lenoir replied to Dao Tran
Do you see any risk associated with the decrease of prices over time ? What may happen in the long run ?
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Good thinking, Michiel !
Some flights have a low demand at certain times, and if demand is not there, decreasing the price may have a low impact on demand, but a big negative impact on revenues. -
Good thinking, but what about products not in the luxury industry ?
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Hello,
Good comment ! This question of quality relates to product differentiation, and we''ll learn more about that later on in the course. -
Nathalie Lenoir replied to Tereza K
Good thinking, Tereza. Image is one important dimensions of a brand.
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Right, they may have booked at a different moment (early or late), bought through a different channel, they may have bought only one seat or several at the same time...
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That's a price difference based on objective factors (age in this case) and we'll see soon that there are other ways to differentiate the prices.
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Hi,
During holidays, all people want to travel at the same time, but airplane capacity hardly changes. With roughly the same capacity, but more demand, airlines can increase their prices and still fill their aircraft. -
Well, it also depends when other people are going to the cinema, not only students...
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Nathalie Lenoir replied to alan bennett
It looks like you benefited from a clever management of the issue. Which is clearly a very important thing for all firms practising overbooking !
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Nathalie Lenoir replied to Mathieu CORDONNIER
The goal of overbooking is clearly not to increase welfare but profit. But still... overbooking can actually benefit consumers by decreasing overall prices in the industry (because there are very few empty seats that bring no revenues...)
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Nathalie Lenoir replied to Peter Woodroffe
@RicardoAlberto
Yes, many people would probably answer that it is awful, but it is because they only see one side of the coin: the non zero probability of being bumped from a flight. But if airlines did not do overbooking, they would have empty seats, and prices would be higher on average for everyone ! Food for thought... -
In the case you mention, @RicardoAlberto , the discrimination would be "against" people eating take-away food.
In this case, the same price amount to a discrimination, since the costs are different. I think the restaurants are calculating, but do not lower the price for take away, since people do not perceive it as discriminatory... -
That's funny ! Did you ask why ? what do you think could be the reason ?
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Not using the same currency, in this case, is a good indication of your income and willingness to pay. Nice example !
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Could be the reason: they could make the hypothesis that people using public transport are not ready to pay the full price. Otherwise, from a profit optimizing point of view, it makes no sense to give them a discount .
Whether the hypothesis is true or not is another matter... ( to assume that is probably a big simplistic, !) -
Interesting thought, Paul. But it is not always compulsory by law to do that.
Student discounts, for example, are so common that private firms use them wihtout really thinking why, although they do not have to. In some cases, it may not be in their best interest... -
As written in another comment (see above), this type of practice is forbidden, because it deceives the customers... and the seller can be fined by the competition authorities.
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Ah, ah, you're right, it is usually forbidden (and rightly so!), but it does not mean it never happens... beware of sales!
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When airlines sell blocks of seats to tour operators there is usually a discount. But they are very careful with that: selling at a discounted price may simply fill your aircraft with low fare passengers and result in a decrease in profit. Increasing expected profit should always be the driver, not increasing load factor (plane occupancy).
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We would really like to sell first at high prices, and then at lower prices. But what about passengers expectations? What might happen ?
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Nathalie Lenoir replied to Robert Voß
Yes, this concept of ability or willingness to pay of passengers is very important: know your passengers !
I agree that decreasing the price as time goes by is very risky in terms of passengers expectations (people would wait before buying). What process do you observe for airline tickets in real life? -
Hi Giorgio,
Profit is an objective, not a parameter. Firms would like to make as much profit as possible, that's their objective when deciding what to sell, to whom and at what price. -
Nathalie Lenoir replied to Robert Voß
"On the one hand, each passenger departs and arrives at the same airport."
Airlines wish it were that simple! In fact, in a given flight, many passengers do not have the same origin or destination, because of the widespread system of connections. So the person seating next to you may not have the same first origin or final destination. What do you consider... -
Yes you're right, there are some goods for which people have a very low sensitivity to price (not zero, though !), like the luxury goods. Same could be said about addictive products like tobacco or heroin...
But as you said, they are exceptions, and we are not going to deal with these kind of goods here ! -
Well, Omar, this seems pretty desperate, since your solutions bring only little revenues! Do not forget that your goal is not to attract many passengers but rather to increase your revenues considering your fixed capacity. Are all passengers the same ?
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Difficult to know how it all happened back there, but trial and error is also a big part of research ! And in economics, there is often a chain of action-reaction (from customers, firms, and all economic actors) that goes beyond whatever analytical thoughts and planning you can ever develop.
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Hi Andrew,
These three features are the best conditions when a firm wants to do revenue management. But even if they are not totally met, it could still be possible.
In the case of the haircut/meal that you mention, you offer a service at a given time, with capacity limits (your premises or the number of your employees), but competition may not be low. So... -
This is an interesting thought, Antonio
It reminds me of this quote from a French economist of the old days (he was talking about train companies) : "What the company is trying to do is prevent the passengers who can pay the second-class ticket fare from traveling third-class; It harms the poor, not because it wants to hurt them but to frighten the rich.”... -
Nathalie Lenoir replied to Andrew Murtha
Hi Imogen,
I agree with Lemke, this is bad planning/bad service and not revenue management, because there is nothing to gain from having a dissatisfied client when you could have avoided it. -
Off course, all this depends on the level of competition between cinemas and with other activities. But from what I observe, cinemas are full on saturday nights (in my city at least...), so giving a discount to everyone is probable not necessary and detrimental to profits. I would only consider it in case of spare capacity.
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Nathalie Lenoir replied to Monika Fahrnberger
You're right @MonikaFahrnberger : If there is no development in production, then differentiated pricing is going to hurt the consumers as a whole, even is some can benefit from it.
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Nathalie Lenoir replied to James Payne
@JamesPayne : First, let me tell you that thankfully, the overbooked passenger is not always bumped/denied boarding. But I agree that there is a probability that he will be...
All costs are taken into account in the computation of the costs of denying boarding to a passenger (In this case, you have to give them a seat on another aircraft, and possibly pay a... -
@AguJoseph Good for you ! I am happy if it could help you in a real life situation !
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@IemkePostma Right, basically, airlines offer cheap last minute tickets when they have failed at forecasting demand accurately and end up with empty seats. But this is dangerous because you want to encourage early bookings from leisure travellers, not last minute bookings.
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@MaïtéCURCI : you are right, it is not what you would expect to find. I assume that the Rm people at the airline you selected did not forecast demand very accurately. Normally the price should increase over time, not decrease.
You'll see more on airline revenue management in Bill Swan's interviews at the end of this week and next week. -
Nathalie Lenoir replied to Epi Paclar
@EpiPaclar If the price differences between your two stores only reflect the cost differences (a physical store may be more costly), then if will not be price discrimination. Prices in physical stores are often more expensive because their overheads are higher.
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@LauraNorth If your cinema does not have capacity problems, then the membership cars is probably a good idea. As you said, they get consistent and predictable revenues from you, and since you do not have to pay each time you come, you may be more inclined to buy drinks.
If the cinema were full most of the time, then offering this kind of scheme would not be... -
@CeciliaS Wouah ! Two coffins for the price of one ! For serial killers ? thanks for sharing !
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@AntLevi : we'll see later in the course that differentiating your product may be a way to implement new prices without upsetting consumers. I do not know what you do exactely, but you could imagine offering new/different services to your clients and charge different prices, or discriminate according to the day of the week, the length of the course, the...
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@IemkePostma In the case of aviation, people buying tickets rather close to the flight date will be mostly business people, who cannot forecast their trip a long time in advance. Because meetings and such do not always get planned months before.
This is the reasoning of airlines, and this is why they offer more expensive tickets as the flight approaches: to... -
Nathalie Lenoir replied to Andrew Murtha
Hello Andrew,
Hell, non, I am not saying that "it is ok to take advantage of those that are willing to pay more", and it is a moral issue that you'll have to decide for yourself, depending on each case of price discrimination you observe. Some may be morally unacceptable.
We are looking at the efficiency side here, and saying that most of the time, there... -
Right, lemke, we often observe rises in price in airline tickets as the flight date approaches.
It is true in general that "people booking closer to the flying date (...) are less sensitive to pricing", but do you think it is only because they have more pressure?
Couldn't they be different people from those who book earlier? If so, who are they?
