REVENUE MANAGEMENT IN THE DIGITAL ECONOMY

Abstract

THE SCIENCE (AND ART) OF MAKING AUTOMATED DECISIONS that influence demand (such as pricing) is traditionally referred to as “revenue management” (RM). The term originates from the airline industry in the late 1970s, when prices were largely fixed and the first automated demand management systems controlled the availability of fare classes with the aim of maximising revenue (given that airlines’ costs are predominantly fixed). The main differentiator to traditional pricing approaches is the in-built automation of decision making that enables large volumes of granular demand management decisions. The latter may relate to pricing, availability control over which product alternatives are being displayed to customers, or possibly even other decisions that impact demand. Due to the success of these systems, many other industries have adopted similar approaches over the decades.