Facets of Revenue Management

Facets Needed for Revenue Management

Revenue Management

Many companies with a perishable inventory (aircraft seats, hotel beds, parking lots, media assets) use an inventory management system. The inventory management system optimizes the available capacity to increase the sales opportunity. In addition, the pricing rules are to some extent automated so that the price for a customer can be determined more easily.

Revenue Management, a method that has been elevated to an art form in aviation over the past half century, continues. It is the collection of policies, processes, skills and organizational structure. Based on this, it is possible to make the right interventions. This with the aim of targeting the commercial organization and having the right action taken.

Revenue Management provides insight into the current commercial situation. To then determine how you can achieve an optimal result given the (price) policy and expected demand. The starting point is the right price, for the right customer, in the right channel at the right time.

Some Revenue Management tactics that may be of interest to your company:

  • Optimize the sales process by applying dynamic price optimization and showing real-time in an e-commerce environment or displaying B2B tool
  • Put Revenue Management at the heart of your business by partnering the Revenue Management team with Marketing and Sales
  • Tap into new target groups by making your offer also bookable online

The degree of success can be measured on the basis of the development of the occupancy rate and the price per unit, compared to historical and future developments, budget objectives and trends in the market.

Revenue Management Strategies

In order to be able to make the right interventions at any time, a set of strategies is needed that determine the direction. This allows the right conversation or interventions to be applied at every level (management team, departments and individual employee).

Knowledge about customer behavior must be anchored in the core of business operations. Where do customers want to buy (for example directly online, through a sales department, through an intermediary)? What trade-off does the customer make between one provider and another? Which arguments are involved? Price, conditions, simplicity of purchasing? When do customers buy? Why are they buying at that time? Is that habit or necessity? Het begrip van de klant is de sleutel om tot een goede strategisch inrichting te komen.ewoonte of noodzaak?

The three basic strategies for successful Revenue Management:

1. Pricing Strategy

The pricing strategy is unique for each company and depends on the positioning, the proposition and the product-market combination. It leads to several questions, such as:

  • What do customers want to buy?
  • What is the sales pattern?
  • Which strategy fits the business objective?
  • What is the impact of strategies on the distribution mix?
  • How does the pricing strategy align with the sales strategy?

The answers to the questions lead to price and product rules, a price structure and price control.

An example is ‘Cyber Monday’, a day that is attractive for electronics stores to advertise. A price rule of a media operator that can be applied is that certain (cheap) rates are not available on this day. Depending on how demand and sales develop, the pricing can be adjusted to higher or lower rates.

In order to put the right rate on the market, it is important to have an insight into the expected demand. Based on forecasting and expected market demand, dynamic price optimization can be applied and prices can change at any time.

2. Segmentation

Another basic strategy is segmentation. Segmentation is about dividing (potential) customers into homogeneous groups with the same characteristics.

Examples of features are:

  • Time to buy vs. the moment of using the service
  • The buying motive
  • Degree of urgency to buy

When the segments are clear, specific marketing or sales policies can be developed to bind or expand valuable segments. Segmentation also gives direction to the customer service model (digital, personal, etc.).

3. Forecasting

Forecasting is not only important for determining the right price at the right time. It is also important for managing business operations, for example in the direction of Marketing and Sales. By understanding how the demand is developing, the right measures can be taken to improve the result.

The upcoming period (month, quarter, half year) is constantly looked at and the current results are compared with historical results, budgets and forecasts.

Key elements of a good forecast are:

  • Load factor
  • Revenue
  • Price
  • Channel
  • Market
  • Market trends

Based on the insights, the right interventions can be made at different levels (strategic, tactical, operational).

An example: Looking a month ahead, the turnover lags behind. The sales trend compared to the same period a year earlier shows that sales are lagging behind. The price is at the expected level according to budget and is the same as a year earlier. An analysis shows that a number of regular customers have not bought anything yet. The decision is made to send an email campaign to the regular bookers segment and have Sales call a number of regular customers to find out if there are reasons why no purchases have been made yet. Dynamic pricing can also ensure that demand is stimulated and that people are not left with unsold inventory.

RevenueMindz helps companies improve their commercial operations by applying Revenue Management principles. The starting point is different for every company. Starting points include:

  • Developing and implementing a commercial strategy
  • Developing and implementing Revenue Management

Did you know that applying Revenue Management can grow your revenue double digit? And that the investment in this can be earned back within a year? Are you curious how? We are please to inform you! Or see how we did this at Ocean Outdoor Nederland