If you were grown up enough to fly away on your own in the nineties, you know that back then, airlines had printed time tables with ticked fares. If you were lucky, you could get a heavy discount by booking late. Since then, airlines have made a full 180 degree turn and the price of a flight varies depending on demand, increasing as you come closer to departure. And we, the customers, have come to accept a fully reversed model. Is it time for your business to break old habits and start a new journey using the principles of revenue management?
The 1979 deregulation of the US airline industry brought intensified competition, and revenue management was originally developed as a tool to manage discounting of seats while avoiding destructive price wars. The practice has developed and spread and is today crucial for survival if you are in the transportation or hotel industry, or in any industry where your offering is of a perishable nature or where capacity is limited.
Leverage the value of revenue management techniques
The power of revenue management lies in disciplined analysis of historical data to forecast future demand. It begins with collecting and storing customer transactions and information on inventory, variable costs, own and competitor pricing to allow for modeling and accurately predicting customer behavior. And it is far from limited to airlines or Uber fares. An increasing number of clients from diverse industries are using the techniques to create a more differentiated and dynamic pricing, that allows for capturing volume at times of low demand and profits when it is high. Retailers, manufacturers and service providers report 3-7 per cent increases in revenue, or a 40-50 per cent increase in profits when a pricing based on these techniques is introduced.
Pontus Frithiof, Swedish chef and entrepreneur is breaking new ground, swearing by revenue management as a key factor in running his successful restaurants. “I am extremely interested in how companies in other industries do things, and what I can learn from them”, Mr. Frithiof says. With capacity limitations and highly perishable inventory, restaurants seem as a perfect school book example, but customer acceptance for dynamic pricing of meals is still perceived as low. However, using data-driven insight about the purpose, needs and willingness-to-pay of the customer, Mr. Frithiof creates differentiated offerings and price levels to serve customers at different times of the day or week, customers who are in a hurry or who have time on their hands, customers who are doing business or dining with a friend or loved one, and customers who have different dietary preferences. The objectives are clear: serving the customers well, filling up capacity and maximizing the number of paying customers.