Pricing and Revenue Management

Abstract

Modern revenue managers understand, anticipate, and react to market demand to maximise their businesses’ revenues. They often do so by analysing, forecasting, and optimising their fixed, perishable inventory, and time-variable supply, through dynamic prices. Hence, the objective of pricing and revenue management is to stimulate demand from different customers to earn the maximum revenue from them. The essence of this discipline is to understand the customers’ perceptions of value and to accurately align the right products to each customer segment. Therefore, this chapter suggests that revenue management systems combine data mining and operational research with strategy. Essentially, this involves maximising revenue from a combination of high-yield and price-sensitive customers; as these systems are intended to reduce seat spoilage and to increase load factors; thereby filling excess capacity. Moreover, these systems also manage overbookings, and are intended to minimise denied boarding.