Revenue Management and Dynamic Pricing
A perishable service is one that cannot be used after a certain time. Airline seats, hotel rooms, and rental cars are some of the examples of perishable services. Some examples of perishable service providers are broadcasters and telecommunication companies.
Revenue Management and Dynamic Pricing (RMDP) is the scientific and proven method of dynamically managing prices, inventories, and capacities of perishable products and services to maximise revenue when demand is uncertain. The general principles of revenue management are widely applicable although each particular application needs to carefully address the requirements of a specific industry.
Studies by a leading consulting company have shown that for the average S&P 1500 company, a price increase of 1% would generate an increase in profits of 8-12%, i.e., an impact 50% greater than a 1% cut in variable costs and 300% greater than a 1% increase in volumes.
Coined as the “number one emerging business strategy” by the Wall Street Journal, revenue management is the art and science of price-driven profit maximisation.
There are numerous demonstrations of the impact of RMDP in various industries.
- More than 10000 hotels internationally are using revenue management system. One Indian Hotel Company made 63% increase in revenue by applying RMDP.
- Revenue management concept has already been demonstrated by use of dynamic pricing by airlines, hotels, different tariffs by power generation and distribution companies, and different rates service by the Indian Railways.
- Software companies that specialise in revenue management software solutions are visible and vibrant in India.
- Almost all major international airlines have already implemented revenue management systems. American Airlines, one of the pioneers, increased its yearly revenue by $500 million as a result.
- Surge pricing in taxi cab rental is well known in India and abroad.
- National Car Rental has increased its revenue by $56 million/year. Today more dynamic vision is used by Uber and Ola Cab.
- National Broadcasting Corporation has increased its annual revenue by $50 million/year.
- French National Railway has increased its revenue by 110 million francs/year. German Railways is using revenue management.
- Texas Children's Hospitals use revenue management as competitive advantage.
- It may be worth mentioning that application of management science models improved the contribution to profit of Tata Steel by $73 million in 1986-87 and gave a cumulative impact of hundreds of millions of dollars in later years.
Recent Applications of Revenue Management
Marriott International which has been using revenue management for the last 20 years has developed a Group Pricing Optimiser (GPO) and increased its revenue by $46 million in 2008.
Retail price optimisation of more than 2,000 hotels of Intercontinental Hotel group has led to 2.7% increase in revenue in 2009. Carlson Rezidor Hotel group and JDA has created next generation Revenue Optimisation Tool that is being used in more than 183 hotels and made 2 to 4% revenue improvement at pilot stage.
- Ingram Micro, the world's largest distributor of technology products has increased its profit by 42 miliion and revenue by 1.3 billion
This programme aims to:
- Provide an insight into concepts of revenue management
- Provide an understanding of how revenue management systems improve revenue
- Acquaint the participants with various tools and techniques used in revenue management
- Discuss the practice of revenue management in various industries
- Discuss the technical and organisational challenges for implementing revenue management systems
The business process of revenue management
Industry specific Indian cases on revenue management
Economics of revenue management
Perishable services pricing
Legal issues of revenue management
Implementation of revenue management in an organisation
Who should attend
The participants of this programme are expected to be senior level executives who are responsible for maximisation of revenue. These persons will be either from the commercial sector, information technology sector or marketing sector. Persons who are engaged in developing pricing systems in hotels, airlines, car rentals, restaurants, internet service providers, movie theatres, casino broadcasters, healthcare, trucking, transportation service providers, energy, petroleum, sports complex and cricket associations, cruise liners, and manufacturing would find this programme extremely relevant and useful. In addition, this will be an interesting area for consultants to work on.