Revenue Management Practices Research Articles

The evolution of market segmentation in revenue management and dynamic pricing

Market segmentation techniques have played an extraordinarily important role in successful revenue management programs. For example, purchase fences allowed companies to sell a single product at multiple prices, simultaneously, to customers that self-selected into different customer segments, based on willingness-to-pay. As revenue management expanded to more industries, new approaches to market segmentation became possible. The financial benefits associated with successful implementations have been extraordinary. This article discusses how market segmentation techniques have evolved in support of revenue management and dynamic pricing practices and what companies and customers may be able to look forward to in the future.

Multi-Unit Efficiency Assessment and Multidimensional Polygon Analysis in a Small, Full-Service Restaurant Chain

Purpose: Restaurant revenue management practices and profit optimization techniques are evolving into more complex data analysis processes. The “big data” revolution has created a wealth of information on revenue, pricing, key operational performance indicators, and various productivity/efficiency variables. Advanced research analysis that can identify these key factors across multiple operating units may be useful to restaurant managers unaccustomed to data analytics or those seeking a deeper understanding of unit-level business performance. The overarching goal of this study was to utilize mixed research methods across conceptually dissimilar units of a multi-unit chain restaurant, enabling researchers to build on the resulting outcomes and restaurant operators to apply it to optimize unit-to-unit profit. Design/Methodology: A mixed research methodology was used to evaluate multidimensional operating efficiencies and labor productivity across multiple restaurant concepts. Data envelopment analysis (DEA), between-unit multidimensional analysis, and within-unit ratio analyses were utilized. While DEA was applied as a primary diagnostic tool to identify productivity/efficiency benchmarking factors, supplemental between- and within-unit measures provided more in-depth information regarding the effects of operating expense variables. Findings: Restaurant analytics that effectively measure input and output variables between and within multiple units promote a data-rich organizational culture. For the small multi-unit organization that was the focus of this study, this is certainly the case. DEA diagnostic results to inform targeted analysis to particular units of operation indicated that all units are operating at maximum efficiency in terms of generating sales given the respective numbers of seats and square footages. However, subsequent analyses indicated multiple problems in terms of expense management. This same approach may help other operators optimize operations. Originality/value: The proposed model provides restaurant operators the opportunity to identify the impact of different operating expense variables and their impact on overall profitability. The use of the polygon analysis in itself makes complex sensitivity analysis of certain operating variables to profit outcomes a much easier process. We recommend other operators perform similar analyses in order to enhance operational productivity.

Exploration of revenue management practices – case of an upscale budget hotel chain

Purpose– The purpose of this study is to investigate the implementation of revenue management (RM) pricing practices and managers’ perceptions towards this practice in a budget hotel chain and to provide recommendations for improving the adoption of and perception towards this practice.Design/methodology/approach– A single case study method was adopted to conduct an in-depth qualitative research in a hotel organization. In-depth data were collected through semi-structured interviews, observations and documentation.Findings– The research findings indicate that the implementation of revenue management system (RMS): needs to be clearly communicated and made tangible to employees; can impact the profitability of the budget hotel sector and not only mid-scale or luxury sectors; and remains a profit-oriented decision with little consideration for customer outcomes.Research limitations/implications– The findings may not apply to mid-scale or luxury properties, as the results cannot be generalized to other hotel chains in other countries that apply complex pricing structures. Future research might develop multiple case study design to increase the rigor of the research by focusing on themes or patterns uncovered in a single case study.Practical implications– The practical application of the study is twofold: the recommendation to maintain ongoing implementation activities, such as designing operational plans and training programs; the recommendation for a RM pricing strategy that maintains positive price fairness perceptions and results in positive behavioral intentions.Originality/value– This study helps advance our understanding of the characteristics that influence the success of RM implementation in the budget hotel context and provides us with useful insights to design effective dynamic strategies to enhance the implementation process both for the organization and its stakeholders.

Revenue Management: Progress, Challenges, and Research Prospects

ABSTRACTThis paper evaluates the main developments of revenue management (RM) over the past decade and discusses RM challenges and research prospects. It examines nine notable emerging themes: total hotel RM, big data analytics, distribution, rate integrity, RM and marketing strategies alignment, social media impacts on RM, RM system, applications of RM in non-traditional service sectors, and RM education and training. We argue that these developments have far-reaching implications for real-world RM practice and anticipate that the topic areas will continue to be popular for hospitality and tourism research in the foreseeable future.

Hotel Revenue Management: From Theory to Practice

Hotel Revenue Management: From Theory to Practice focuses on bridging the gap between theory and practice. It is a timely addition to revenue management learning resources that provides hotel managers, hospitality management scholars and students with a comprehensive guide. The author explains the fundamental concepts and evaluates revenue management practices in a hotel operating context. The comprehensive book contains 16 chapters. It begins with two chapters introducing revenue management and its economic fundamentals. Chapters 3 to 5 cover hotel revenue management systems, process and metrics. Chapter 6 provides a detailed discussion of market segmentation criteria and the specific segments. The seventh chapter elucidates the information that is required for various dimensions in revenue management processes and the importance of having the right information in order to make good revenue management decisions. Chapter 8 explains the various time horizons at which revenue management is performed, and how these horizons differ from each other. This approach is extended in Chapter 9, which describes various (structural) forecasting methods. Chapter 10 introduces the role of value in pricing and how customers select hotels. Chapters 11 to 13 deliberate on pricing, non-pricing and combined hotel revenue management tools. Chapter 14 elaborates on managing revenues in various hotel revenue management centers. Chapter 15 discusses issues related to ethics and relationship marketing. The monograph concludes with a description and analysis of revenue practices of accommodation establishments in Bulgaria.

Determining guests’ willingness to pay for hotel room attributes with a discrete choice model

Hotel managers need to understand the marginal utility customers associate with a specific attribute of a hotel in order to effectively set up rate fences and to price their rooms accordingly. This study adopted a stated choice experiment and discrete choice modeling method to obtain hotel guests’ willingness to pay (WTP) for a specific set of room attributes within a single hotel property. The attributes include room views, hotel floor, club access, free mini-bar items, smartphone service, and cancellation policy. The study discovered that leisure travelers versus business travelers, and first-time visitors versus repeat visitors, perceive different WTP values for various attributes. These findings provide valuable information for hotel managers to segment their market and conduct revenue management practices in order to maximize revenue and profit. The results also demonstrate the value of discrete choice modeling in obtaining WTP for hotel room attributes.

Learning and Pricing with Models That Do Not Explicitly Incorporate Competition

In revenue management research and practice, demand models are used that describe how demand for a seller’s products depends on the decisions, such as prices, of that seller. Even in settings where the demand for a seller’s products also depends on decisions of other sellers, the models often do not explicitly account for such decisions. It has been conjectured in the revenue management literature that such monopoly models may incorporate the effects of competition, because the parameter estimates of the monopoly models are based on data collected in the presence of competition. In this paper we take a closer look at such a setting to investigate the behavior of parameter estimates and decisions if monopoly models are used in the presence of competition. We consider repeated pricing games in which two competing sellers use mathematical models to choose the prices of their products. Over the sequence of games, each seller attempts to estimate the values of the parameters of a demand model that expresses demand as a function only of its own price using data comprised only of its own past prices and demand realizations. We analyze the behavior of the sellers’ parameter estimates and prices under various assumptions regarding the sellers’ knowledge and estimation procedures, and we identify situations in which (a) the sellers’ prices converge to the Nash equilibrium associated with knowledge of the correct demand model, (b) the sellers’ prices converge to the cooperative solution, and (c) the sellers’ prices have many potential limit points that are neither the Nash equilibrium nor the cooperative solution and that depend on the initial conditions. We compare the sellers’ revenues at potential limit prices with their revenues at the Nash equilibrium and the cooperative solution, and we show that it is possible for sellers to be better off when using a monopoly model than at the Nash equilibrium.

Revenue management in the context of movie theaters: Is it fair?

Certain industry characteristics (for example, a relatively fixed capacity, varying and uncertain demand, and perishable inventories) are a prerequisite for a successful implementation of revenue management (RM) practices. Although movie theaters have these characteristics, they have failed to try RM as a pricing strategy. The current study examines the joint impact of five potential RM practices (that is, rate fences) and framing effects (surcharge versus discount) on consumers’ price fairness perceptions. Several rate fences (morning-versus-noon, weekday-versus-weekend and time-of-booking-based pricing) received relatively high fairness ratings, whereas location-based and popularity-based pricing were perceived as less fair. In addition, framing ticket prices as a discount rather than a surcharge significantly improved customers’ price fairness perceptions. The findings of this study provide guidance for movie theater operators in their pursuit of optimal pricing.

Applying pricing and revenue management in the golf industry: Key challenges

Revenue Management (RM) principles have proven to be a key success factor for airlines and hotels. Considering the common characteristics of these traditional industries with fixed and perishable capacity, RM practices have started to extend to new frontiers, one of which is the golf industry. Tee-times are perishable inventory with a high potential for differential pricing by peak vs. off-peak periods, which can differ by season and/or location. In this paper, we discuss the key challenges in the golf industry and solution approaches for demand forecasting, price optimization and construction of tee-sheets (capacity optimization).

Optimisation of key performance measures in air cargo demand management

This article sought to facilitate the optimisation of key performance measures utilised for demand management in air cargo operations. The focus was on the Revenue Management team at Virgin Atlantic Cargo and a fuzzy group decision-making method was used. Utilising intelligent fuzzy multi-criteria methods, the authors generated a ranking order of ten key outcome-based performance indicators for Virgin Atlantic air cargo Revenue Management. The result of this industry-driven study showed that for Air Cargo Revenue Management, ‘Network Optimisation’ represents a critical outcome-based performance indicator. This collaborative study contributes to existing logistics management literature, especially in the area of Revenue Management, and it seeks to enhance Revenue Management practice. It also provides a platform for Air Cargo operators seeking to improve reliability values for their key performance indicators as a means of enhancing operational monitoring power.

Building rail revenue management on an airline foundation – Choosing wisely from a mixed bag

Given the clear similarities between the rail and airline industry, it seems logical to build a rail Revenue Management (RM) practice on a foundation borrowed from the airline industry. This thought piece discusses some differences between the two industries and their implications for a successful application of airline RM in a rail environment.

Motivations, Limitations and Revenue Management Implications of Daily Deal Offerings

Offering daily deals has become a popular marketing approach in recent years. This research investigates whether daily deals add value to suppliers businesses. We investigate motivations for daily deals, revenue management implications and limitations of such, and differences between conventional marketing approaches and daily deal offerings. The research method included questionnaires, interviews, and direct collection of deal data via the internet. We find that daily deals can add value by informing better revenue management practices. Daily deals can be utilized to improve pricing, manage capacity and develop loyalty. We also find that the demand curve for daily deals is elastic, which reflects the bargain seeking behaviour of buyers. Furthermore, the demand for certain deals is found to be less elastic than others, suggesting that suppliers can potentially offer deals at higher prices to yield more revenue.

How economic crisis affects revenue management: the case of the Prague Hilton hotels

This study explores revenue management practices in two Prague hotels throughout the past years of economic crisis. The purpose of the research was to inform hospitality managers and educators about revenue management practices in central Europe's emerging and challenging hospitality market. Data were collected through participant observation, accessing company documents, and by soliciting inputs from key informants. This study identifies the necessity for careful pricing strategies and to resist discounting. Rate dilution and price wars in the market should be avoided in order to prepare for times of recovery. To maximise revenue, forecasting should be accurate, group contract conditions should be monitored, and over-sales versus spoilage factors balanced. Strategies aimed at both direct and indirect channels should be aligned to maximise value and cost-effectiveness.

Restaurant revenue management: Do perceived capacity scarcity and price differences matter?

Revenue management (RM) has become an indispensable strategic tool in capacity-constrained service industries whose total revenue often depends on the abilities of firms to use capacity efficiently. The restaurant business is similar enough to traditional RM industries such as hotels and airlines, but restaurants also have unique characteristics that pose special challenges to restaurant operators. Among the unique characteristics of restaurants are the relative flexibility of service capacity and the flexible duration of a meal, which are important subjects to be considered in the implementation of RM practices. In addition, when a restaurant operator practices a demand-based variable pricing policy to adjust demand, the magnitude of the price differences may influence fairness perceptions of the policy. Based on the commodity theory and the equity theory, this study hypothesizes that two main effects, namely, perceived scarcity of capacity in a restaurant and price differences, influence the perceived value of a restaurant's offerings and the fairness perceptions of a restaurant's RM practices. As hypothesized, the negative effects of price difference on fairness perceptions are supported by the results. However, findings suggest that perceived scarcity of capacity influences neither the perceived value of a restaurant's expected offering nor the fairness perceptions for a restaurant's RM practices.

In This Issue

In This Issue

Managing revenue in Scottish visitor attractions

Revenue management is often identified as a potentially valuable tool for addressing some of the challenges currently facing visitor attractions. This article sets out to investigate the adoption of revenue-management practices by Scottish paid-entry attractions and examines how this usage has changed over the period 1999–2009. It begins with a review of the literature published over that decade and then outlines the research methods used to gather the data used in the study. Key findings indicate that while there is significant potential for Scottish visitor attractions to employ revenue-management practices, their current use is limited both in terms of scope and sophistication. Greater adoption of revenue-management practices, such as price differentiation and the management of revenue information, is evident across the sector. However, attractions charging higher admission prices and with greater levels of turnover tend to be those adopting the more advanced revenue-management practices. The range of revenue-generation streams employed by Scottish attractions has widened over the decade, as has the range of pricing mechanisms employed. The findings indicate the value of longitudinal research and indicate the need for further work in this area.

The Impact of Discounting Room Rates on In-House Restaurant Sales

This study investigates whether discounting hotel room rates during low seasons of demand influences in-house hotel restaurant sales in a positive way. A linear regression function was utilized to assess the relationship between discounting room rates and the hotel's in-house restaurant sales. The model summary provided results indicating that the discounting of room rates during the low season did not significantly influence in-house restaurant sales. The value of this study lies in the empirical results that may provide guidance to the revenue management practices of hotel managers.

Airline Revenue Management: Optimization Using Origin-Destination Strategy Controlled by Nested Heuristics

Effective revenue management practice can be the single most important factor in distinguishing between success and failure of an airline and spell the difference between profitability and loss for a particular flight. This paper deals with usage of Deterministic Linear Program to optimize the network as a whole and uses LINGO to solve the DLP as it has 120 variables and 127 constraints and is impossible to solve manually. Optimization strategies taken into consideration are: Leg Based Expected Margins, Seat Revenue (EMSR), and Deterministic Linear Program (DLP). In the seat inventory control process Nested Heuristics is used for an improved and accurate result.

The emerging strategic and financial issues in the Indian hospitality industry

PurposeThe paper aims to provide an overview of the facts and trends relating to the Indian hospitality industry. It also seeks to identify the key strategic and financial issues that hoteliers are currently facing and to introduce the theme issue.Design/methodology/approachThe paper draws facts and emerging trends from various official reports and collates key issues as highlighted by the theme issue contributors. All the papers in the theme issue identify salient points after rounds of discussions with practitioners.FindingsSome of the key emerging areas are risk management, cost management, land management and policies, revenue management, growth challenges and innovative practices arising from an extended inflationary period.Practical implicationsWith domestic hoteliers in an expansion mode and foreign operators' intention of investing in India, the paper is of interest to hoteliers and policy makers interested in knowing about emerging and topical issues relating to this market.Originality/valueThere are relatively few prior studies relating to the strategic and financial issues affecting the hospitality industry in India – particularly in the context of practitioner involvement. The theme issue involves senior practitioners in the review from the outset and this approach offers a significant contribution to applied research in this field.

Revenue management and India: rapid deployment strategies

PurposeRevenue management has grown in popularity and is now a widely accepted discipline that has brought about significant improvements to businesses worldwide. With globalisation in recent times, there is now space for international hotels, fast food restaurants, automobile companies and other brands to offer their products in India. Educating people who are going to be part of such a process is a huge challenge. The aim of this paper is to present some of the challenges businesses and communities have to overcome.Design/methodology/approachThe paper uses secondary sources to explore possible approaches to rapidly stimulate the uptake of revenue management through partnerships between hospitality and tourism businesses.FindingsA growing middle class population and access to better education presents an opportunity to build a wider range of profitable services. Global brands with already established revenue management practices are in a position to share skills and knowledge with new and smaller players. Partnerships will be essential to rapidly and effectively develop the skills and knowledge required, starting with those in educational fields where the resources are already in place.Originality/valueRevenue management has not been deployed widely in India. Being able to learn from the early adopters would allow Indian firms to leapfrog over issues and barriers, thus implementing practices more rapidly and effectively.