Foundations of Revenue Management

22nd May 2022

Book Discription

Why AWS built a no-code tool | TechCrunch  Posted by Amazon Web Services (AWS)

Foundations of Revenue Management

After a two-year break due to COVID-19, travelers are eager to start traveling again. However, their shopping habits have changed compared to before. Pricing analysts and revenue management specialists must understand this new reality in order to:

  • Identify their target audience now that travelers have different Customer Lifetime Values (CLV)
  • Find more innovative ways to gather market information and improve demand forecasting
  • Stay informed about their competitors’ actions
  • Determine the optimal prices for flights, seats, cars, or hotel rooms to maximize profits
  • Assess whether their new pricing strategy is affecting demand positively or negatively

Key Questions for Revenue Management

When addressing these questions, there are two main factors to consider:

  1. Limited Inventory: You have a fixed number of products available for sale.
  2. Perishability: The product can only be sold until a certain date/time.

To maximize profits, it is crucial to accurately forecast demand and sell all inventory at the highest possible price before it expires. In this context, changing the price is the only direct way to influence demand. For products with price elasticity (like most in the Travel and Hospitality industry), lowering the price will lead to increased demand, while raising the price will result in decreased demand. However, there are also products with price inelasticity in Travel and Hospitality. Increasing their price may not decrease demand, and in some cases, it might even boost demand (e.g., first-class seats on a plane, exclusive events, luxury accommodations).

Understanding Revenue Management

The foundation of revenue management lies in its ability to dynamically adjust prices in real-time based on market conditions and customer behavior. It involves using data analytics to predict consumer actions at a micro-market level and optimize product availability and pricing strategies for maximum revenue growth.

This section will explore the basics of revenue management. It is essential to grasp these concepts before delving into how Amazon Web Services (AWS) can enhance your revenue management strategy and understanding what factors to consider when investing in IT resources.

Revenue Management in the Hotel Industry

Hotels, with their fixed capacity, perishable inventory, and high fixed costs, are a perfect fit for revenue management practices. Originally developed by airlines in the 1970s, these analytical techniques have proven effective in predicting consumer behavior within specific hotel markets. The goal is simple: sell each available room every night at the most profitable price.

In today’s landscape, where customer acquisition costs are rising, and distribution channels have become more complex, revenue management strategies have become increasingly important for both small and large hotel companies. A comprehensive knowledge of segmentation, demand forecasting, and pricing has become a prerequisite for success in the hospitality industry.

This course aims to provide a solid understanding of revenue management fundamentals, which are closely tied to broader revenue strategies. Through this course, you will gain valuable insights into the world of